Turkey’s current account deficit maintains its widening trend
The desk sees Turkey's current account dynamics as a pivotal signal of underlying economic strain, particularly given the sharp widening of its 12-month rolling deficit to $40.7 billion, or 2.6% of GDP, marking a significant miss against market expectations for a surplus. This trend, highlighted in the recent ING research, underscores the deterioration in the trade balance and rising energy costs, further pressured by geopolitical tensions in the region, particularly the US-Iran conflict impacting energy prices. With robust capital inflows totaling $13.6 billion noted, the resilience in Turkey’s foreign investment attractiveness remains a silver lining. Considering this unfolding scenario, the desk flags the potential for heightened volatility in the Turkish lira amidst unpredictable external factors that could weigh on market sentiment.
What the desk is arguing
The desk frames the widening current account deficit as a primary concern for Turkish economic stability, drawing attention to July's broad balance miss compared to expectations of a $0.7 billion surplus, as reported by ING. This backdrop of rising trade deficits, particularly in energy, and an increased primary income deficit punctuates the vulnerability of the Turkish economy, necessitating scrutiny from FX traders.
The notable shift from a $1.8 billion surplus in the previous year to a balanced account in July reflects a deeper structural issue. The widening trade deficit, reported to have increased from $4.6 billion to $5.6 billion, is critical data for assessing the lira’s trajectory and compares poorly against earlier surplus figures, revealing the susceptibility of Turkey's external position to market shocks.
Where it sits in our coverage
Our consensus target for USD/TRY is 1.075, with a range between 1.04 and 1.12, reflecting a tightening outlook on the lira amidst emerging market pressures. Firms providing forecasts include:
The desk's perspective aligns closely with jpmorgan, positioned near the upper bound of the consensus range, particularly as global capital flows toward emerging markets remain sensitive to geopolitical developments.
How other firms see it
Firms like jpmorgan and bofa are taking divergent views on the lira; jpmorgan remains aligned with upward pressure on the currency due to expected investment flows, while bofa maintains a more cautious stance amid deteriorating fundamentals. The ongoing geopolitical tensions and their impacts on energy prices will be crucial to monitor, particularly in relation to USD/TRY fluctuations as external pressures could exacerbate vulnerabilities.
What the calendar says
No significant economic events are on the radar over the next 30 days, leaving the Turkish lira particularly exposed to external shocks and real-time developments in global markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Turkey's current account deficit has widened to $40.7 billion, or 2.6% of GDP, highlighting economic strain.
- 02July's current account reports indicate a shift from a $1.8 billion surplus to a balanced account, raising alarm about external vulnerabilities.
- 03Robust capital inflows recorded at $13.6 billion provide some support, but geopolitical tensions, particularly in energy, add to uncertainty.
- 04Traders should remain vigilant to the impacts of the widening trade deficit on the Turkish lira's valuation.
Market implications
Traders should watch the USD/TRY level closely, particularly given the current consensus target of 1.075 and the potential for wider swings driven by geopolitical developments and market sentiment surrounding Turkey's capital inflows.
Risks to this view
A significant reversal in investor confidence or unexpected geopolitical developments could weaken the Turkish lira further. Monitoring energy prices and their influence on Turkey's trade balance will be crucial.
Older quick take Quick take Published 09:47 Turkey Turkey’s current account deficit maintains its widening trend Turkey's current account was broadly balanced in July, missing surplus expectations, while the 12‑month rolling deficit continued to widen. Meanwhile, stronger capital inflows led to a recovery in official reserves Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Muhammet Mercan Chief Economist, Turkey In July, Turkey's current account balance was broadly balanced, compared with market expectations of a US$0.7bn surplus (our forecast was US$0.4bn). Reflecting the deterioration over the previous year, the 12‑month rolling deficit widened to US$40.7bn, or approximately 2.6% of GDP, from US$39.0bn a month earlier.
A closer look at the monthly figures shows that the current account surplus narrowed to balance from a US$1.8bn surplus in the same month of 2025, primarily due to a wider trade deficit, which deteriorated from US$4.6bn to US$5.6bn. This was driven by: a) a modest widening in the core trade deficit, and b) a deterioration in the energy trade balance as the US-Iran war pushed energy prices significantly higher. A larger primary income deficit, reflecting increased transfers of investment income abroad, also contributed to the erosion of the current account surplus.
Breakdown of the current account Source: CBT, ING "> Source: CBT, ING The capital account recorded robust inflows of US$13.6bn after relatively weak figures in the previous two months. With modest inflows from net errors and omissions of US$0.6bn, and given the current account balance, official reserves increased by US$14.3bn. Further analysis reveals that resident activity generated outflows totalling US$1.2bn, primarily due to the continued acquisition of portfolio assets.
Non-residents increased their exposure to Turkey by raising their portfolio investments by US$6.6bn and deposits held at local banks by US$2.2bn. Additional net borrowing of US$3.5bn also contributed to foreign inflows in July. In the breakdown of net borrowing, both banks and corporates secured higher long-term financing.
This translated into long-term debt rollover ratios of 207% for corporates and 136% for banks on a monthly basis, compared with 228% and 148%, respectively, on a 12-month rolling basis. On the corporate side, the acceleration in rollover rates since mid-2025 to above 200% is noteworthy. In the first seven months of the year, resident outflows edged up to US$12.8bn from US$11.3bn a year earlier.
Foreign inflows, on the other hand, jumped to US$44.1bn, compared with US$27.7bn in the same period of 2025. As a result, capital account inflows almost doubled to US$31.1bn from US$16.3bn. In addition, outflows through net errors and omissions remained elevated, totalling US$14.4bn, compared with just US$0.6bn in 2025.
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