The downward trend in the Turkish current account remained intact in February, with a further drop in the 12-month rolling deficit to US$31.8bn from US$37.5bn a month ago.
The February current account posted a deficit of US$3.3bn, better than the market consensus of US$3.7bn. In the breakdown when comparing with the same month of last year, we see (i) a continuing decline in the gold trade deficit to US$0.7bn in Feb-24 vs US$3.4bn a year ago, (ii) a recovery in net energy traded, with a fall in the deficit to US$4.4bn from US$5.8bn, and (iii) the core trade balance turning to surplus at US$0.6bn, from a slight deficit of US$0.9bn.
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While the trade balance turned out to be a major driver of the recovery in the current account balance, a marginal increase in the services surplus was offset by a decline in primary income. The 12-month rolling deficit recorded a sharp decline to US$31.8bn (c.2.9% of GDP) from US$37.6bn a month ago, also reflecting the large base in February 2023.
On the capital account, net identified flows remained weak at just US$2.0bn following mild outflows a month ago. Errors and omissions outflows, which have been present since September, came in at US$5.0bn in February (or US$17.4bn over the last 12 months). With the monthly c/a deficit and weak flow outlook, official reserves came to US$6.2bn (after another US$6.2bn drop in January).
In the breakdown of monthly data, inflows were driven by Eurobond issuance by the Treasury (US$3bn) and banks (US$2.7bn) while we saw mild inflows via gross FDI (US$0.4bn), net borrowing (US$0.1bn), and non-resident deposits in the banking system (US$0.1bn). Residents' fund movements drove the outflows with (i) portfolio investments of US$1.8bn, and (ii) acquisition of financial assets abroad at US$1.9bn. In February, roll-over rates stood at 133% for corporates and 111% for financials (vs 93% and 118% respectively on a 12-month rolling basis).
In summary, the improvement in the current account deficit in February was attributable to a continuing recovery in the foreign trade deficit. The downward trend that started after the peak in July has remained intact. On the flip-side, the rise in global commodity prices, particularly energy prices, may limit the slowdown in imports.
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