Turkey’s current account deficit rose by 10% y/y to $5.89bn in May while the January-May deficit also rose, by 59% y/y to $27.7bn, the central bank announced on July 11.

The market was expecting a deficit of $5.45bn for the month, according to a Reuter’s poll of economists.

May decline in annual growth pace of Turkey’s current account gap confirmed that expected rebalancing is on the way. The widening gap across the first four months of 2018 was a serious concern for those trying to get a grip on Turkey's overheating economy, which other data released on June 11 showed grew at the stellar rate of 7.4% in the first quarter of this year.

The initial sign of re-balancing came in May foreign trade figures when growth in the year on year foreign trade gap figure fell sharply to 6% thanks to the fast depreciation experienced by the Turkish lira during the month. The trade deficit widened alarmingly over the first four months of 2018.

A contraction in Turkey’s foreign trade shortfall has been recorded for the first time since June last year. It shrank by 9% y/y to $5.51bn in June this year, according to preliminary data from the customs ministry released on July 2.

Analysts digesting the latest trade figures will also note that the manufacturing PMI index for Turkey pointed to a third straight month of contraction, running from April to June.

The 12-month cumulative current account deficit reached $57.6bn in May, up from $57.1bn in April and $36.3bn in May 2017.

The Reuters poll of economists also predicts that annual current account gap to increase 10% y/y to $52.1bn in 2018. According to the latest central bank survey published on June 11, Turkey’s end-2018 current account deficit expectations remained constant at $53.5bn from April to May.

On April 17, the International Monetary Fund (IMF) announced in its latest edition of the World Economic Outlook that it expects Turkey’s current account deficit to come at 5.4% of GDP in 2018, slightly better than 5.5% in 2017.

Turkey has one of the worst current account deficits in the World and its economic health, consequently, is dangerously reliant on hot inflows of foreign external financing to enable growth. The political and economic outlook in the country is not secure enough to attract sufficient longer-term stable foreign investment capital.

“There is a risk of a hard landing for Turkey’s overheating, credit-fuelled economy,” S&P said on May 1 when it cut Turkey’s credit rating further into junk. “This is reflected in the rising imbalances in Turkey’s economy, most notably in its widening debt-financed current account deficit and high inflation.”