Turkey’s Current Account Deficit Widens: Should Investors Be Concerned?

Turkey’s current account deficit widened to $7.5 billion in February, pushing the annual deficit to $35.5 billion. Rising energy prices, weakening exports, and softer tourism revenues are increasing pressure on external balances. While financing conditions remain manageable for now, risks are clearly tilted to the upside.

Deficit Expands in Line with Expectations

According to Tacirler Investment, Turkey’s current account balance posted a $7.5 billion deficit in February, broadly in line with expectations.

• 12-month rolling deficit rose to $35.5 billion (from $33.2 billion)
• Core balance (excluding gold and energy) recorded a $1.5 billion monthly deficit
• Annual core surplus declined to $30.8 billion

Trade Gap and Gold Imports Drive Deterioration

Key drivers of the widening deficit include:

• Trade deficit increased to $7.5 billion
• Gold imports rose from $1.7 billion to $2.2 billion
• Services income declined, particularly tourism revenues

Tourism-related income fell from $2.5 billion to $1.8 billion, highlighting seasonal weakness.

Is a “Sudden Stop” Looming in Turkish Industry?

March Signals Further Deterioration

Preliminary March data suggests continued pressure:

• Exports fell 6.4% year-on-year to $21.9 billion
• Imports rose 8.4% to $33.2 billion

This pushed the monthly trade deficit to $11.3 billion, with the annual deficit climbing to $98.2 billion.

The current account deficit is expected to reach $10.4 billion in March.

Energy Prices Pose the Biggest Risk

Following rising tensions between the U.S. and Iran, higher oil prices are becoming a key risk factor.

• Year-end deficit forecast revised to $45 billion (~2.6% of GDP)

According to Türkiye Hayat Emeklilik:

• Oil prices above $100 per barrel could
  • Increase the deficit by $9–10 billion
  • Add 3–3.5 percentage points to inflation

Market Expectations Shift Higher

Recent surveys indicate a sharp upward revision in expectations:

• Previous forecast: $26.3 billion deficit
• Latest expectations: above $40 billion

The shift reflects:

• Persistent energy costs
• Ongoing geopolitical uncertainty

Capital Inflows Offer Temporary Relief

Despite the widening deficit, capital flows remain supportive:

• Net portfolio inflows reached $780 million in February
• Foreign investors increased exposure to equities and government bonds

This suggests that external financing remains available in the short term.

Structural Pressures Persist

According to Albaraka Türk:

• Seasonal declines in services income
• Elevated imports
• Rising energy costs

are all contributing to sustained pressure on the current account.

Looking ahead, oil prices and tourism revenues will remain key determinants.

Atilla Yeşilada: Deficit Could Reach 4% of GDP

Economist Atilla Yeşilada warns that:

• The current account deficit may continue rising through mid-year
• It could reach 4% of GDP in 2026

Key risks include:

• Global stagflation impacting exports
• Loss of tourism inflows from key markets
• Heightened geopolitical tensions

When Does Currency Risk Increase?

According to the analysis, a sharper deterioration could occur under the following conditions:

1. Oil prices stabilize in the $130–150 range
2. Disruptions to regional energy infrastructure
3. Domestic political instability
4. Monetary policy missteps triggering renewed dollarization

Conclusion: Manageable for Now, But Risks Are Rising

Turkey’s external balance is under increasing strain:

• Higher energy costs
• Weakening external demand
• Soft tourism revenues

However:

• Financing conditions remain intact
• No immediate balance-of-payments crisis is visible

Still, sustained high oil prices could significantly worsen both the current account deficit and inflation outlook, making external vulnerabilities a key issue for investors in the months ahead.

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