TRY: Discouraging picture from June's balance of payments data - Commerzbank

Turkey's current account significantly deteriorated in June, registering a deficit of $2.0 billion (versus a $680mn deficit recorded a month ago, and surplus recorded a year ago); the print exceeded analyst expectations of $1.3bn deficit. On a seasonally-adjusted basis, the June deficit worsened from a $1bn surplus in May to $2.8bn deficit, Commerzbank's FX analyst Tatha Ghose notes.

Turkey's current account deficit widens sharply in June

"This deterioration represents continuation a medium-term trend wherein the trade deficit had narrowed earlier but has been widening year-on-year since the beginning of the year, driven by resilient domestic demand and persistent consumer goods imports. in June too, import volumes were the dominant factor, with calendar-adjusted real imports accelerating by 7.9%y/y, primarily due to resilient household consumption. Calendar-adjusted exports fell by 1.1%y/y."

"More crucial were capital flows, which turned lacklustre following a rebound in May. That rebound had included a turnaround in bank sector flows too, but June saw considerable net outflows. This contributed to a drain on FX reserves, which declined by $4.1bn during June. In short, there was a strong rebound in May because markets were calming down after huge outflows amidst political turmoil during the previous months; in May, issuers returned to the primary market and foreign investors returned in limited size."

"But the bounce has proved to be short-lived as Turkey's longer standing macroeconomic imbalances have come back under the radar - in particular, continuing strong household consumption which negates the impact of high interest rates on inflation. This sustained pattern of imbalances and inconsistent current account performance mean that the underlying fundamentals for the lira exchange rate are not improving."