Turkey Economics: May CAD exceeds expectations amid competitiveness concerns

Research evidence excerpt

Turkey Economics: May CAD exceeds expectations amid competitiveness concerns

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13 Jul 2026 04:07:44 ET │ 9 pages

Turkey Economics

May CAD exceeds expectations amid competitiveness concerns

CITI'S TAKE

In our view, recent developments, including the May current account print,

reinforce concerns around Turkey's external competitiveness. With

inflation proving sticky under the CBT's exchange rate-anchored

framework, our analysis showed that real appreciation has become Ilker DomacAC

increasingly apparent across alternative REER metrics. Notably, the +971-4509-9588

divergence between ULC-based and price-based measures suggests that ilker.domac@citi.com

firms are absorbing cost pressures through margin compression rather

Gultekin IsiklarAC than passing them through to prices--a pattern that may prove

challenging to sustain. Taken together, our broader assessment of +90-212-319-4915

gultekin.isiklar@citi.com Turkey's competitiveness position suggests that the real appreciation

observed since mid-2023 is not anchored in commensurate productivity

or structural improvements. Unlike the mid-2000s, when currency

strength coincided with reform momentum and productivity gains,

comparable buffers look less evident today.

Standing at US$1.46bn, the current account deficit in May came in wider than the

consensus forecast (US$1.0bn) and our projection (US$1.2bn). The deviation from

our forecast is primarily driven by larger-than expected tourism outflows. When

compared with the equivalent period of last year, a quick glance at the May data

points to a narrower gap in the goods balance amid a softer surplus in the services

balance and a wider gap in the primary income balance (Figure 2). Compared to the