Turkey Current Account Deficit Deepens

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By Vincent Mivelaz

After announcing its withdrawal from the Iran deal last Tuesday, the United States’ decision caused further uncertainty in the Middle East region. The diplomatic confrontation between Israel and Iran keeps on tightening following Israel’s Prime Minister Benjamin Netanjahu declaration with regard to Iran’s engagement towards its nuclear program freeze.

The Iran deal is in danger though the European effort to maintain it could worsen its relationship with the US, who temporarily put aside trade tariffs against the Old Continent.

Recent Turkey deficit of USD -4.81 billion (prior: -4.52 billion) continues to expand, strongly impeded by a continued decline in goods trade (USD -4.6 billion) and employee compensation (USD -1.31 billion, at 3-years low). On the other side, positive numbers in services (USD +1.12 billion), though estimated below its 5-year average at USD 1.85 billion continue to support the current account balance.

Accordingly, the downtrend with regard to EM currencies continues, strongly impacted by continued risk-off effect. We expect the to maintain its strength, as long as no intermediation with regard to the Iran deal are found, adding up with Central Bank of Turkey relative inaction with regard to its required monetary policy tightening.

Currently trading at 4.32, USD/TRY regains strength following recent decline at 4.22 (10/05/2018 low), heading along the 4.35 range in the short-term.

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