Turkish current account as expected in June

Turkey's current account balance in June was a US$0.4bn surplus, in line with expectations, although it was lower than the level realised in the same month of 2023. Accordingly, the 12M rolling deficit slightly deteriorated to $24.8bn (around 2.1% of GDP) from $24.5bn a month ago.  

Looking at the breakdown, compared with the same month of last year, we can see there was a lower gold deficit of $0.5bn vs $1.1bn last year. Gold imports are on the decline after the local elections while the 12M rolling gold trade (net) has maintained improvement to the lowest level since the end of 2022 at $27.2bn.

There was also a flat energy bill at $3.2bn, core foreign trade (excluding energy and gold exports and imports) came in on balance vs a $1.1bn surplus a year ago, higher services income (including tourism revenues) was at $5.6bn, and there was a slight deterioration in primary and secondary income.

The capital account, which posted strong $14.4bn inflows in May was down to just $0.1bn inflows in June, while unidentified flows stood at $0.8bn. With the monthly c/a surplus, official reserves posted a $1.2bn increase.  

In the breakdown of the monthly data, resident movements almost offset non-resident inflows. The latter is attributable to:

• $4.8bn net borrowing driven by banks. In June, rollover rates stood at 81% for corporates and 177% for banking (vs 101% and 141% respectively on a 12M rolling basis). The data that show relatively higher short-term borrowing of the banking sector imply increasing appetite with tightening spreads after years of deleveraging.
• $0.9bn portfolio investments in debt instruments thanks to banks’ Eurobond issuance and foreign investors’ purchases in the local debt.
• $0.7bn gross foreign direct investment. On the flip side, continuing sales in the equity market ($1.4bn), declining trade credits ($0.8bn) and a fall in deposit holdings ($1bn) have limited foreign inflows.

In the first half of 2024, non-resident inflows improved markedly in comparison to the same period of 2023 at around $41bn (from $29bn), while increasing asset acquisitions of locals abroad limited the extent of recovery in net identified flows ($21.7bn in the first half of the year vs $18.4bn last year).

Additionally, outflows via net errors and omissions jumped to $11.5bn vs $8.3bn in 2023. Accordingly, despite a strong recovery in the current account balance from $-36.7bn to $-16.5bn, official reserves recorded a $6.3bn contraction vs a $26.5bn decline last year.