Turkey’s current account deficit rises and future will be shaped by global trade tensions

The current account for February showed a deficit of US$4.4bn, slightly exceeding the market expectation of $4.3bn. A closer look at the monthly data reveals that the larger deficit, compared to the same month last year, was driven by two main factors:

• A widening trade deficit, which grew from $4.7bn to $5.7bn. This increase was mainly due to deteriorating balances in net gold and energy trade.
• A larger deficit in the primary income balance, which rose from $0.9bn to $1.2bn.

As a result, the 12-month rolling current account deficit, which began increasing in November of the previous year, expanded further to $12.8bn (about 1% of GDP), up from $11.8bn recorded in the previous month.

On the capital account side, inflows amounted to $2.6bn, a significant slowdown from the $11.9bn recorded in January. With net errors and omissions outflows at $1.1bn and an increasing current account deficit, official reserves shrank by $2.9bn in February.

A deeper analysis of the monthly data shows that activities by residents resulted in a moderate outflow of $0.4bn, mainly due to foreign direct investments (FDI) abroad and portfolio investments. On the other hand, activities by non-residents led to $3.0bn in inflows, mainly from debt-creating sources, including:

• $0.5bn in inward FDI.
• $0.7bn trade credits.
• $0.7bn in purchases in the bond market.
• Net foreign borrowing by the Treasury, amounting to $1.5bn.

However, a $1.0bn decline in foreign investors' deposits at local banks limited these inflows.

Net borrowing remained largely unchanged as corporate borrowing offset bank repayments. Consequently, the long-term debt rollover rates stood at 191% for corporations and 220% for banks, compared to 130% and 152%, respectively, on a 12-month rolling basis.

In the first two months of 2025, resident outflows fell sharply compared to the same period in 2024, standing at $1.8bn, down from $9.9bn. In contrast, foreign inflows surged, with net borrowing reaching $11.1bn. Meanwhile, increased asset acquisitions by locals abroad contributed to a decline in net identified flows, falling to $18.8bn from a barely positive figure the previous year.

Additionally, outflows via net errors and omissions rose to $2.5bn compared to $0.3bn in 2024. As a result, despite the deterioration in the current account deficit, which widened from $-5.6bn to $-8.4bn, official reserves expanded by $3.5bn, in contrast to the $12.4bn decline recorded last year.