Turkey Ends 2022 with Current-Account Deficit, but Shows Signs of Improvement
Turkey concluded the year with another current-account deficit, reaching $5.91 billion in December 2022. While this deficit is concerning, there are indications that the country’s economy is moving in a positive direction.
The services sector, which had previously enjoyed a surplus, experienced a diminishing surplus in December. Additionally, Turkey’s balance of payments recorded a deficit of $2.09 billion in the final month of the year. However, this deficit shows improvement compared to November’s deficit of $2.77 billion.
The reduction in December’s deficit can be attributed to a significant decrease in the primary-income deficit. This deficit had previously spiked to over $1.3 billion, causing concern within the Turkish economy.
Despite witnessing a tourism boom earlier in the year, Turkey has been grappling with a steady weakening of the Turkish lira. This depreciation has resulted in rampant domestic inflation and increased import prices. Consequently, the goods-trade balance has been impacted negatively.
Overall, the current account ended 2022 with a deficit of $45.15 billion. While this remains a challenge, there is an encouraging slight improvement from the previous year’s deficit of $49.09 billion.
To counter rising prices, Turkey’s central bank implemented interest-rate cuts aimed at controlling inflation. These efforts have shown some success, as inflation is now projected to decrease to 36% by year-end. This is a notable improvement from the current rate of around 65%.
The central bank has expressed its commitment to maintaining a high key rate until inflation reaches manageable levels. This signifies their dedication to stabilizing the Turkish economy and ensuring a healthier financial future for the country.
Analyst comment
Positive news: Turkey’s current-account deficit shows signs of improvement, with a decrease in the deficit compared to the previous month. The reduction is attributed to a significant decrease in the primary-income deficit. The central bank’s efforts to control inflation through interest-rate cuts have shown some success, with projected lower inflation by year-end.
Market analysis: The market is likely to react positively to the news, as the improvement in Turkey’s current-account deficit and efforts to control inflation indicate a healthier financial future for the country. This could lead to increased investor confidence and stability in the Turkish economy.
