Turkey: CAD continues to narrow with tourism
The current account deficit narrowed sharply in July thanks to the increase in tourism income. The improvement effect of the significant contribution of tourism revenues to the service balance supports the expectation of a current account surplus on a periodic basis.
According to the data published by the Ministry of Culture and Tourism, foreign tourist arrivals increased from less than 1 million in July in the same month of the previous year to 4.36 million in July. The services trade balance gave a surplus of 2.95 billion USD from last year's 295 million USD, emphasizing the role of the recovery in tourism and other services in improving Turkey's external imbalances. At the same time, the strong increase in exports allows us to see positive developments in two main current account balance items. We can say that the improvement in foreign demand conditions and the alleviation of the bad effects of the last year provide an advantage in terms of foreign trade balance. In terms of imports; Although the effect of gold imports is eliminated, we observe the effect of the increase in energy costs, which do not have demand elasticity, and domestic demand conditions. These dynamics limit recovery. For the next month; The leading foreign trade data of the Ministry of Commerce for August showed that exports increased by 51.8%, imports increased by 23.8% and the monthly foreign trade deficit decreased by 31.7% compared to the previous year.
On the financing side, net inflows originating from direct investments were 1.03 billion USD in July, while on the portfolio side, net inflows were 1.93 billion USD. While net sales of stocks were 93 million USD, net purchases of debt instruments were 439 million USD. Official reserves increased by 6.7 billion USD in July compared to the previous month, with net portfolio inflows reaching 1.93 billion USD and foreign direct investment reaching 1.03 billion USD. In July 2021, the current account balance gave a deficit of 683 million USD, while net errors and omissions, that is, capital movements from an unknown source, showed a monthly inflow of 2.52 billion USD. In the first 7 months of the year, inflows due to net errors and omissions were 8.02 billion USD.
We expect the improvement trend in the current account balance to continue in August as well. With the decrease in the perceived effects of the epidemic, foreign demand will positively affect our exports, while positive developments in the tourism sector will continue to contribute periodically. In terms of imports, the decreasing effect of gold imports will improve the trend in headline data compared to last year, while items related to energy and raw materials will continue to increase. As the tourism season includes August, we will continue to see the improvement effect on the service balance. On the financing side; We observed a net inflow effect on the portfolio side within the framework of the positive movements in the global markets after the June period. After September, we may see movements against developing countries in global capital movements with the effect of monetary policies to be taken. The positive effect in both direct investment and portfolio inflows seems to have reduced the need for reserve use in July. The effect of the increase in official reserves will be observed in the balance of payments data in the following months, thanks to the SDR and swap agreements. Therefore, in addition to the foreign trade deficit and services balance, which are the main items in the balance of payments in July, it was also supported by the positive financing outlook. We expect similar effects to keep the current account balance at a positive point in August.
Kaynak Enver Erkan / Tera Yatırım
Hibya Haber Ajansı