Even though Turkiye limited gold imports in February, the Turkish current account deficit remained significantly negative in the second month of the year as gold and energy were still in high demand.
The gap in the current account for February was $8.78 billion. Turkiye is expecting a deficit of $22 billion for 2023. But a Reuters poll is projecting a deficit of $45 billion for this year.
“Overall, while the current account deficit remained on its expansionary path in February, the latest indicators hint at further widening in March with a continuing increase in the foreign trade deficit driven by gold trade and core imports,” said ING’s Turkiye chief economist Muhammet Mercan.
Diving into the data, Turkiye’s trade deficit, which represents a big component of the current account, widened by 51.4% in February to $12.08 billion. This was driven by a surge in gold imports and rising costs of energy.
According to the latest data, net non-monetary imports of gold were at nearly $4 billion, Bloomberg reported. And that is despite Turkiye taking steps to limit the high gold imports during that month.
Turkiye has seen a surge in gold demand as citizens embraced the precious metal as a hedge against inflation, which ran at a pace of over 85% at one point last year, and local currency devaluation.
Mercan did note that gold imports almost halved last month due to a tightening in regulations, showing their lowest level since July 2022. “Going forward, the impact of these regulations and domestic demand [on gold] will be key for the current account outlook,”Mercan said.
Meanwhile, the services side reported a surplus of $2.3 billion due to a rise in tourism.
In January, Turkiye saw a record deficit of $10 billion. In 2022, the gap in the current account reached $48.8 billion for the full year the largest since mid-2018.
This is a concern for Turkish President Recep Tayyip Erdogan, who is gearing up for next month’s elections and is working on a plan to use the weaker currency to boost exports and lower the deficit.
According to market consensus polls, inflation in Turkiye is still expected to run above 40% by the year-end.