Turkish current account data shows superficial recovery
The Central Bank of Turkey is expected to announce today that the country ran a $4 billion current account (CA) deficit in May, a decrease from a $5.1 billion deficit in April.
Reduced domestic consumption due to the COVID-19 pandemic coupled with the falling value of the lira is responsible for May’s reduced CA deficit, making Turkish exports relatively cheaper for foreigners and imports from the EU, collectively Turkey’s largest trading partner, significantly more expensive.
While May’s CA figures may seem like a step towards trade rebalancing, several factors indicate that Turkey’s economy is still in trouble. Although the lira rebounded in late May, some experts expect a further devaluation. In addition, the tourism industry—representing over 10% of Turkey’s GDP—is unlikely to soon recover from its precipitous drop this year after the EU’s decision to maintain travel restrictions for Turkish residents.
Expect reawakened global demand for cheap Turkish exports to further reduce Ankara’s CA deficit in the coming months, especially if the lira continues to weaken. However, with growing inflation and stunted summer tourism, an increase in export demand will likely do little to avoid a significant contraction in the second half of 2020.
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