Download CENTRAL BANK OF THE REPUBLIC OF TURKEY Durmu YILMAZ

CENTRAL BANK OF THE
REPUBLIC OF TURKEY
Presentation before the Council of Ministers
Durmuş YILMAZ
Governor
24 June 2010
1
Presentation Outline
I.
Overall Assessment
II.
Global Crisis and its Impact on Turkey
III. Latest Developments in the Turkish
Economy
IV. Monetary Policy
V.
Fiscal Policy
VI. Inflation Outlook
2
I. Overall Assessment
3
Ongoing Recovery in Economic Activity
Seasonally Adjusted Real GDP
(2004 Q1 – 2009 Q4, 2008 Q1=100)
105
100
96.9
100
95
90
85
86.6
80
75
1
2 3
4
2004
1 2
3
2005
4
1 2
3
2006
4 1
2
3 4
2007
1
2
3 4
2008
1
2 3
4
2009
Source: TurkStat, CBT
4
Signs of Recovery in Employment
Seasonally Adjusted Unemployment Rates
(Jan 2007 - Mar 2010, percent)
20
18.3
Non-farm
Unemployment Rate
18
15.9
16
14.9
14
12.7
12.6
12
Unemployment Rate
9.9
10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
8
Source: TurkStat, CBT
5
Increased Access to Loans
Corporate Loans and Loans to SMEs
(Jan 2008 – Apr 2010, Jan 2008=100)
170
Corporate Loans Excl. SMEs
160
150
140
130
120
Loans to SMEs
110
100
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
90
Source: BRSA, CBT
6
Low Interest Rate Environment Continues
Real Market Rate
Real Policy Rates
(Jun 2010, percent)
(Benchmark Interest Rate on Government Securities,
45
Chile
Thailand
Turkey*
Czech
S.Korea
Phillippin
Mexico
Malaysi
Hungary
S.Afrika
Poland
China
Brazil
Aug 2001 – Jun 2010, percent)
40
35
30
25
20
15
10
5
Source: Bloomberg, CBT
10.0
900
9.5
8.0
6.3
6.0
6.0
500
5.6
5.5
5.4
5.3
5.1
5.0
Turkey
02-10
08-09
02-09
4.0
Slovakia
Italy
Poland
Spain
Hungary
Lithuania
Turkey
Ireland
Portugal
Letonia
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
0
Romania
2.0
Iceland
100
07-09
4.0
3.1
Greece
200
06-09
4.4
4.0
3.0
05-09
4.6
France
600
2.8
Germany
7.0
04-09
08-08
6.9
700
Source: Bloomberg, CBT
02-08
(Jun 2010, percent)
9.0
Greece
800
300
08-07
10-Year Euro-denominated Bond Returns in Selected
Countries
(Apr 2009 – Jun 2010)
400
02-07
08-06
02-06
* Based on 12-month inflation expectations.
Source: Undersecretariat of Treasury, CBT
5-year CDS Premia in Turkey and Greece
1000
08-05
5.0
02-05
4.0
08-04
3.0
02-04
2.0
08-03
1.0
02-03
0.0
08-02
-1.0
02-02
-2.0
08-01
0
-3.0
Source: Bloomberg, CBT
7
Low Interest Rate Environment Continues
Interest on Government Securities in Greece*
and European Central Bank Policy Rate
Interest on Government Securities in Turkey*
and CBT Borrowing Rate
(Feb 2009 – Jun 2010, percent)
(Feb 2009 – Jun 2010, percent, compound)
20
20
18
Interest Rate in Greece
with 2-year maturity
16
18
16
14
12
14
10
12
8
Interest on Government Securities
6
10
4
European Central Bank
Policy Rate
2
0
8
CBT Borrowing
Rate
* With 2-year maturity
Source: Bloomberg, CBT
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
6
* With 2-year maturity
Source: BRSA, CBT
8
How Have We Come This Far?
Debt Stock in Greece and Turkey
Budget Deficit in Greece and Turkey
(2006 – 2011*, ratio to GDP, percent)
(2006 – 2011*, ratio to GDP, percent)
140
0
120
-2
-4
100
Maastricht Criteria
-6
Maastricht Criteria
80
-8
60
-10
40
-12
20
-14
0
-16
Greece
2006
Turkey
2007
2008
2009
2010
2011
*Medium Term Program Targets (2010-2011) and expectations of the European
Commission
Source: the European Commission, Undersecretariat of Treasury, CBT
Greece
2006
2007
Turkey
2008
2009
2010
2011
*Medium Term Program Targets (2010-2011) and expectations of the European
Commission
Source: the European Commission, Undersecretariat of Treasury, CBT
9
How Can Market Interest Rate Remain at Low Levels?
Risk Premium
Nominal
Interest Rate
Inflation
Real Interest Rate
Sustainability of Public Debt
and Fiscal Discipline
Prudent monetary and
fiscal policies,
Competitiveness-enhancing
arrangements
Structural reforms to raise
domestic savings
10
Public Debt and Fiscal Discipline
Implementation of projections in the Medium Term Program as
well as structural reforms,
Completion of legal arrangements regarding the Fiscal Rule,
Other implementations to avoid concerns over the sustainability of
public debt, to enhance medium and long-term predictability in
fiscal policy and to reinforce the atmosphere of confidence,
will contribute to the decline of the risk premium in Turkey
and will assist in keeping interest rates at low levels.
11
How to Raise Domestic Savings
Increasing enrollment in the individual pension system,
Raising the age of retirement from 42 to 65,
Improving capital markets,
Attaching more importance to financial education
The above-mentioned steps, together with possible future
initiatives will positively influence the propensity to save in
Turkey.
12
Inflation Outlook
Inflation is expected to assume a decreasing trend as the temporary factors taper off.
Inflation Realizations, Projections and Targets
(Sep 2008 – Mar 2013, percent)
14
12
Control
Horizon
10
8
Forecast Range*
6
Output Gap
4
End-Year Inflation
Targets
Uncertainty Band
2
0
-2
-4
-6
03-13
12-12
09-12
06-12
03-12
12-11
09-11
06-11
03-11
12-10
09-10
06-10
03-10
12-09
09-09
06-09
03-09
12-08
-10
09-08
-8
*the possibility of inflation staying within the forecast range is 70 percent.
Source: CBT
13
II. Global Crisis and its Impact on
Turkey
14
Reasons for the Global Crisis
As keeping real policy rates at low levels for a prolonged time during periods of rapid
growth can lead to excessive increases in indebtedness ratios, it emerges as a risk factor
against financial stability.
Ratio to GDP of the Annual Change in Real Policy Rate and
Household Indebtedness Ratio in the US
(Jan 1984 – Dec 2008, percent)
Excessive
indebtedness
(2003-2007)
12
10
8
Indebtedness Ratio
6
4
2
Real Policy Rate
0
Excessive low interest
(2002-2006)
-2
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
-4
Source: Bloomberg, CBT
15
Signs of Recovery in Global Economy
The recovery trend in the global economy, which became pronounced in the last quarter of
2009, continued in the first quarter of 2010.
Industrial Production in Developed and
Developing Countries
PMI Realizations in Developed and
Developing Countries
(Jan 2005 – Apr 2010, annual percentage change)
(Jan 2005 – May 2010)
20.0
60
Developing Countries
Developing Countries
15.0
55
10.0
5.0
50
0.0
45
-5.0
-10.0
Developed Countries
40
Developed Countries
-15.0
-20.0
2005
35
2006
Source: Bloomberg, CBT
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
Source: Bloomberg, CBT
16
Signs of Recovery in the Global Economy
Relatively low level of growth expectations of our biggest export market European Union
indicates that recovery in external demand will be slow.
Growth Projections for 2010
External Demand Index of Turkey *
(annual percentage change)
(Mar 2006 – December 2011, June 2008=100)
Apr 10
7
October 09
6
5.2
Apr 09
5
4.2
Global Economic Activity Index
106
104
102
3.7
4
3.1
100
3.1
3
98
1.9
96
1.5
1.5
1.0
1
94
External Demand Index of Turkey
0.5
92
0
World
Source: IMF, CBT
US
EU
11-11
07-11
03-11
11-10
07-10
03-10
11-09
07-09
03-09
11-08
07-08
03-08
11-07
07-07
-1
03-07
03-06
-0.3
11-06
90
0.0
07-06
2
108
Turkey
* The shares of countries within the exports of Turkey and weighted GDP data are
employed in the calculation of the external demand index of Turkey.
Source: Bloomberg, Consensus Forecasts, IMF WEO, TurkStat, CBT
17
Global Risks – Loans and Unemployment
Problems in credit markets linger to some extent and unemployment rates remain at high
levels, which in turn increase future uncertainties.
Credit Developments in the US and Euro Area
Unemployment Rates in the US and Euro Area
(Jan 2000 – May 2010, annual percentage change)
(Jan 1995 – May 2010, percent)
12
15.00
11
10.00
Euro Area
10
9
5.00
8
Euro Area
7
0.00
6
US
5
-5.00
US
4
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Source: Bloomberg, CBT
1995
3
-10.00
Source: Bloomberg, CBT
18
Global Risks – Public Finance
The rapidly increasing budget deficits and public debt stocks resulting from expansionary
fiscal policies implemented - especially in developed countries - are important risk factors
that can adversely affect private demand by increasing long-term interest rates.
Primary Surplus*
Public Debt Stock
(2005 - 2015, ratio to GDP)
(2005 - 2015, ratio to GDP)
140
3
Developed G-20 countries
2
120
Developing G-20 Countries
1
100
0
80
-1
-2
60
-3
40
-4
Developed G-20 Countries
-5
20
Developing G-20 countries
-6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
*Cyclical movements-adjusted
Source: IMF WEO Apr 2010
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: IMF WEO Apr 2010
19
Global Risks – Risk Premia
Countries with high debt burdens see sharp increases in their risk premia. Meanwhile, the
risk premium of Turkey has remained relatively stable thanks to the support of the sound
financial sector and the low rate of indebtedness.
CDS Premia of Selected Countries*
(Apr 2009 – Jun 2010)
1000
900
800
Greece
700
600
500
400
Portugal
300
Spain
Italy
200
100
Turkey
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
0
*for 5 Years
Source: Bloomberg, CBT
20
Financial Stability in Turkey
Despite its historically high levels of volatility and extreme susceptibility to the global
risk appetite, the relatively stable course of the Turkish lira continued
in the first quarter of 2010 as well.
FX Basket and EMBI+ Turkey
Exchange Rate Volatility in Selected Countries *
(June 2007 – Jun 2010)
(Jan 2006 – Jun 2010)
2.1
1600 0.04
TL / Exchange Rate Basket
(0,5 Euro+0,5 USD)
2.0
1400
Exchange rate volatility range
in developing countries
1.9
1200 0.03
1.8
1.7
1000
Turkey
1.6
800
0.02
1.5
600
1.4
1.3
400
0.01
1.2
200
Source: Bloomberg, CBT
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
10-06
07-06
0.00
04-06
06-10
04-10
02-10
12-09
10-09
08-09
06-09
04-09
02-09
12-08
10-08
08-08
06-08
04-08
02-08
12-07
10-07
08-07
0
06-07
1.0
01-06
EMBI+ Turkey
(right axis)
1.1
*Standard deviation of 50 days; Brazil, Chile, Czech Rep., Hungary, Mexico,
New Zealand, Poland, S. Africa, S. Korea (maximum and minimum values)
Source: Bloomberg, CBT
21
Financial Stability in Turkey
Compared to other developing countries, no significant change has occurred in the value
of the Turkish lira.
(as of Jan 2009, percentage change)
(as of Jan 2010, percentage change)
10
24
7
5
10 10
8
10
7
5
19 18
16
20
7
6
7
7
5
4
3
2
2
2
2
0
2
-1
2
0
-1
-2
-5
-3
- 2 -3
-1
-10
-5
-10
-8 -8 -10
-13
-20
-12
-17 -17
-30
-15
-28
-40
-13
-14
-17
-20
-23
Source: Bloomberg, CBT
Hungary
Poland
Romania
Chile
Turkey
Argentina
Brazil
Vietnam
S.Korea
S.Africa
Philliipnes
India
Ukraine
Peru
Thailand
Mexico
Indonesia
Croatia
Colombia
Malaysia
Serbia
Hungary
Romania
Poland
Argentina
Vietnam
Turkey
Czech Rep.
Ukraine
Phillippines
Croatia
India
S.Korea
Malaysia
Thailand
Mexico
Peru
Colombia
Chile
Indonesia
S.Africa
Brazil
-25
Serbia
27
Appreciation of Local Currencies
against US dollar
Czech Rep.
30
Appreciation of Local Currencies
against US dollar
Source: Bloomberg, CBT
22
Comparison of 2001 and 2008 Crises
Compared to the 2001 crisis, the recovery in economic activity is faster.
GDP in 2001 and 2008 Crises *
(Real level, Seasonally-adjusted)
105
100
95
90
Current Crisis
2001 Crisis
85
t-2
t-1
t
* the value for the term “t”
Source: TurkStat, CBT
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
is 100. The t term is 2000Q4 for the 2001 crisis and 2008Q3 ’ for the current situation
23
Comparison of 2001 and 2008 Crises
The difference between the current situation and the 2001 crisis is that the Turkish economy
is subject to an extraordinary global demand shock. While the contraction in domestic
demand remained more limited, contrary to the 2001 crisis, the decline in the net export was
higher.
2001 Crisis and the Turkish Economy
2008 Crisis and the Turkish Economy
(2000 Q2– 2003 Q1, Seasonally-adjusted)
(2008 Q1 – 2009 Q3, Seasonally-adjusted)
115
115
GDP
Domestic Demand
GDP
Domestic Demand
Net Export
110
110
105
105
100
100
95
95
90
90
85
85
80
80
t-2
t-1
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
*the value for the term “t” is 100. t term is 2000Q4 for the 2001 crisis.
Source: TurkStat, CBT
t+8
t+9
Net Export
t-2
t-1
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
* the value for the term “t” is 100. t term is 2008Q3’ for the current situation.
Source: TurkStat, CBT
24
Labor Market
The decline in non-farm employment remained limited compared to the 2001 crisis thanks to
support by domestic demand, whereas the fall in industrial employment was sharper due to
the external demand shock.
2001-2008 Crises and Non-farm Employment*
2001-2008 Crises and Industrial Employment *
(Person, Seasonally-adjusted)
(Person, Seasonally-adjusted)
108
106
104
104
102
100
100
96
98
Current Crisis
96
Current Crisis
92
2001 Crisis
2001 Crisis
94
88
t-2
t-1
t
t+1
*the value for the term “t”
’ for the current situation
Source: TurkStat, CBTc
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
is 100. The t term is 2000Q4 for the 2001 crisis and 2008Q3
t-2
t-1
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
* the value for the term “t” is 100. The t term is 2000Q4 for the 2001 crisis and
2008Q3 ’ for the current situation
Source: TurkStat, CBT
25
III. Latest Developments in the
Turkish Economy
26
Turkish Economy
Recently released data indicate that the mild recovery process
in economic activity continues.
Seasonally-adjusted Real GDP
Growth Components
(2004 Q1 – 2009 Q4, 2008 Q1=100)
(2008 Q1 – 2009 Q4, year-on-year, percent contribution)
105
10
Net Exports
100
100
96.9
5
95
0
90
-5
85
86.6
-10
Final Domestic Demand
80
-15
75
1 2 3 4 1 2
2004
3 4 1
2005
Source: TurkStat, CBT
2 3
2006
4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
2009
1
2
3
2008
4
1
2
3
4
2009
Source: TurkStat, CBT
27
Turkish Economy
Turkey ranked among the fastest growing countries along with Eastern Asian countries in
the last quarter of 2009 and this performance is expected to continue in 2010 as well.
Growth Rate Expectations for 2010
Growth Rates in 2009Q4
(annual percentage change)
(annual percentage change)
11
12
10
10
9
8
8
6
7
4
6
2
5
4
0
3
-2
2
-4
Source: Consensus Forecasts, Mar 2010
Hungary
S.Africa
Czech Rep.
Poland
Colombia
Israel
Phillippines
Chile
Mexico
Thailand
Argentina
Russia
Turkey
S.Korea
Peru
Indonesia
Malaysia
Brazil
India
Romania
Hungary
Czech Rep.
Mexico
Russia
S.Africa
New Zelland
Israel
Colombia
Phillippines
Poland
Brazil
Malaysia
Indonesia
India
Turkey
Thailand
-1
China
-8
S.Korea
0
China
1
-6
Source: Consensus Forecasts, May 2010
28
Private Consumption
The gradual recovery in private consumption expenditures continued
in the first quarter of the year.
Real Private Consumption Expenditures*
(2005 Q1 – 2010 Q1, 2007 Q4 = 100)
105
100
100
97.1
95
90
89.2
85
Estimate
80
1
2
3
4
2005
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2010
*Seasonally Adjusted
Source: TurkStat, CBT
29
Private Investment
Although private investment expenditures have displayed an upward trend since mid-2009,
they still hover around low levels.
Expectations for Fixed Capital Investment
Expenditures
Real Private Investment Expenditures*
(2005 Q1 – 2010 Q1, 2008 Q1 = 100)
(Apr 2007 – May 2010, percent)
110
30
Private Construction Investments
20
100
10
90
0
-10
80
-20
70
-30
Private Machinery –Equipment Investments
-40
Estimate
-50
*Seasonally Adjusted
Source: TurkStat, CBT
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2010
-60
04-10
3
01-10
2
10-09
1
07-09
2006
4
04-09
3
01-09
2
10-08
1
07-08
2005
4
04-08
3
01-08
2
10-07
1
07-07
50
04-07
60
Source: CBT
30
Production Side
Industrial production has displayed an upward trend since the second quarter of 2009.
However, uncertainties over foreign demand impede industrial production from resuming
its pre-crisis level.
Seasonally Adjusted
Industrial Production Index
Seasonally Adjusted Capacity Utilization Rate
in Manufacturing Industry
(Jan 2005 – Apr 2010, Mart 2008=100)
(Jan 2007 – May 2010, percent)
105
85
100.0
79.4
100
80
94.4
95
75
90
70
85
71.5
65
80
60
61.0
79.6
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-10
09-09
05-09
01-09
09-08
05-08
01-08
09-07
05-07
01-07
09-06
05-06
01-06
09-05
05-05
01-05
Source: TurkStat, CBT
01-07
55
75
Source: CBT
31
Production Side
Production of capital goods, intermediate goods and non-durable consumer goods display
modest recovery.
Production of Intermediate Goods, Non-Durable Consumer Goods
and Capital Goods*
(Jan 2005 – Apr 2010, 2005=100)
150
Production of Intermediate
Goods
140
130
120
110
100
Production of NonDurable Consumer
Goods
90
Production of
Capital Goods
80
01-10
09-09
05-09
01-09
09-08
05-08
01-08
09-07
05-07
01-07
09-06
05-06
01-06
09-05
05-05
01-05
70
* Seasonally Adjusted
Source: TurkStat, CBT
32
Demand Indicators
Moderate recovery is observed in domestic and export order expectations
for the next three months.
Demand Indicators
Export Expectations*
(Jan 2008 – Jun 2010)
(Jan 2008 – Jun 2010)
50
80
40
BTS – Next 3 Months’
Domestic Order Expectation
30
40
BTS – Next 3 Months’
Export Order Expectation
30
70
20
20
60
10
10
0
-10
50
0
40
-10
-20
-20
BTS – Last 3 Months’
Export Order
30
-30
-30
-40
20
PMI – New Orders
Index (right axis)
-50
Source: Markit, CBT
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
10 -50
01-08
-60
-40
*Seasonally adjusted
Source: CBT
33
Demand Indicators
Strong recovery in external demand is not expected without marked improvements in global
economic growth. The weak pace of economic recovery especially in the Euro Area poses a
downside risk on exports.
Exports and Imports Quantity Indices*
Growth Rate Forecasts in USA and Euro Area
(Jan 2005 – Apr 2010, Jan 2003 = 100)
(2008 Q2 – 2011 Q2, 2008 Q2 = 100)
180
104
Exports Quantity Index
(excl. Gold)
170
160
Forecast
103
US
102
101
150
100
140
99
98
130
97
120
96
Imports Quantity
Index
110
95
Euro Area
94
* Seasonally Adjusted, 2-month moving average, April forecast has been used.
Source: TurkStat, CBT
01-10
09-09
05-09
01-09
09-08
05-08
01-08
09-07
05-07
01-07
09-06
05-06
01-06
09-05
05-05
01-05
100
2
3
2008
4
1
2
3
2009
4
1
2
3
2010
4
1
2
2011
Source: Consensus Forecast, CBT
34
Demand Indicators
Economic activity is recovering faster in the services sector and domestic-oriented
manufacturing sector.
Capacity Utilization Rates of Firms trading in
Domestic and Foreign Markets
Credit Developments by Sectors
(Jan 2007 – Apr 2010, Jan 2007 = 100)
(Mar 2007 – Apr 2010)
220
80
200
75
Services
Firms trading in domestic
market.
180
70
160
65
140
Industry
60
120
100
55
80
50
Source: BRSA, CBT
03-10
12-09
09-09
06-09
03-09
12-08
09-08
06-08
03-08
12-07
09-07
06-07
03-07
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
Firms trading in foreign
market
Source: CBT
35
Stocks
Uncertainties over aggregate demand make firms less eager to accumulate stock
compared to periods of strong growth.
Stock Change*
Stock Indicators of Finished Goods
(2005 Q1 – 2010 Q1, deflated by 1998 constant prices, billion TL)
(Jan 2007 – Jun 2010)
1.0
2.0
25
1.5
Stock Change
0.5
1.0
0.5
0.0
-0.5
60
BTS- Stock of Finished Goods
(Above Normal-Below Normal)
20
15
55
10
0.0
5
-0.5
0
-1.0
-5
-1.5
-10
-2.0
-15
-2.5
-20
-3.0
-25
50
-1.0
45
PMI Stock of Finished Goods
(right axis)
Estimate
*Seasonally Adjusted
Source: TurkStat, CBT
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2010
40
04-10
3
01-10
2
10-09
1
07-09
2006
4
04-09
3
01-09
2
10-08
1
07-08
2005
4
04-08
3
01-08
2
10-07
1
01-07
-2.0
07-07
-1.5
04-07
Stock Level (right axis)
Source: Bloomberg, CBT
36
Labor Market
Although there has been a modest improvement in employment conditions, unemployment
rates remain at high levels.
Unemployment Rates*
Non-Farm Employment*
(Jan 2007 – Mar 2010, percent)
(Jan 2007 – Mar 2010, million people)
20
17.0
18.3
16.8
18
Non-Farm
Unemployment Rate
15.9
16.6
16
14.9
16.4
14
12.7
12.6
16.2
12
16.0
Unemployment Rate
9.9
10
15.8
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
*Seasonally Adjusted
Source: TurkStat, CBT
01-07
15.6
8
*Seasonally Adjusted
Source: TurkStat, CBT
37
Labor Market
Industrial employment, which was most adversely affected by the crisis and became the
main factor for the rise in non-farm unemployment, continues to increase.
The Distribution of Changes in Non-Farm
Unemployment
Employment in Industry and Services*
(Jan 2007 - Mar 2010, million people)
(Feb 2007 – Mar 2010, annual percentage contribution)
11.1
4.6
Đstihdam Kaybının Etkisi
8.0
Katılım Oranı Etkisi
11.0
4.5
Nüfus Artışı Etkisi
6.0
10.9
Tarım Dışı Đşsizlik Oranı Yıllık Fark
4.4
4.0
10.8
4.3
10.7
2.0
4.2
Services
10.6
0.0
4.1
10.5
* Seasonally Adjusted
Source: TurkStat, CBT
0210
1109
0809
0509
0209
1108
0808
0508
-6.0
0208
3.8
1107
-4.0
0807
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
10.2
3.9
0507
Industry (right axis)
10.3
-2.0
0207
4.0
10.4
Source: TurkStat, CBT
38
Real Wage Developments
With moderate recovery in economic activity, real wage payments started to rise again.
Real Wage Payments and Private Consumption
(2005 Q1 – 2009 Q4, deflated by 1998 prices, billion TL)
14.0
120.0
Consumption
Expenditures
13.5
115.0
110.0
13.0
105.0
12.5
Real Wage Payments*
(right axis)
100.0
12.0
95.0
11.5
90.0
1
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
4
2009
* Weighted average of total wage payments of industry, construction, trade, restaurants-hotels
and transportation-communication sectors, seasonally adjusted.
Source: TurkStat, CBT.
39
Confidence Indices and Leading Indicators
Real sector and confidence indices confirm the recovery in expectations.
Leading Indicators
Real Sector and Consumer Confidence Indices
(Jan 1992 – May 2010)
(Jan 2007 – Jun 2010)
130
115
Real Sector
Confidence IndexCBT
120
110
110
105
100
100
90
80
95
70
90
60
Consumer Confidence Index
– CBT
Consumer Confidence
Index CNBC-e
50
85
80
Source: CNBC-e, CBT
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
40
75
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: CBT
40
Credit Market
The positive trend in the credit market, which started in the last quarter of 2009, became
more evident in the first quarter of 2010.
Weekly Change in Total Credit Volume*
(Jan 2007 – Jun 2010, annualized 13-week moving average)
50
40
30
20
10
.
0
-10
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
-20
•Total credits extended by deposit, development, investment and participation banks along with consumer financing
firms; exchange rate adjusted
Source: BRSA, CBT
41
Commercial Loans
Tight loan standards affected SMEs more adversely than other firms. Recently, there have
been some improvements in NPLs and the amount of credits granted to SMEs.
Commercial and SME Loans
Non-Performing Loans
(Jan 2008 – Apr 2010, Jan 2008=100)
(Jan 2008 – Apr 2010, percent)
170
8.0
160
7.0
150
140
6.0
Loans to SMEs
130
Commercial Loans Excluding SMEs
120
110
5.0
Commercial
Loans Excluding
SMEs
4.0
100
3.0
Loans to SMEs
80
01-08
02-08
03-08
04-08
05-08
06-08
07-08
08-08
09-08
10-08
11-08
12-08
01-09
02-09
03-09
04-09
05-09
06-09
07-09
08-09
09-09
10-09
11-09
12-09
01-10
02-10
03-10
04-10
2.0
billion TL
Commercial
Loans to SMEs Loans Excluding
SMEs
04.2009
80.0
163.6
04.2010
92.6
189.1
Source: BRSA, CBT
01-08
02-08
03-08
04-08
05-08
06-08
07-08
08-08
09-08
10-08
11-08
12-08
01-09
02-09
03-09
04-09
05-09
06-09
07-09
08-09
09-09
10-09
11-09
12-09
01-10
02-10
03-10
04-10
90
percent
Loans to
SMEs
Commercial
Loans Excluding
SMEs
04.2009
04.2010
6.2
6.6
3.7
3.6
Source: BRSA, CBT
42
Consumer Loans
In the second quarter of the year, the recovery in consumer loans and the decline in the ratio
of non-performing consumer loans continued.
Subcategories of Consumer Loans
Ratio of Non-Performing Consumer Loans
(Jan 2008 – Jun 2010, Jan 2008=100)
(Jan 2008 – Jun 2010, percent)
175
12
150
10
Mortgages
Credit Cards
8
125
Mortgages
6
100
Personal
Loans
Credit Cards
4
75
Personal
Loans
Auto Loans
2
Auto Loans
TOTAL
Mortgages
Auto
Loans
06.09
108.9
119.9
37.8
40.3
6.0
4.8
35.0
40.1
30.1
34.7
06.10
145.7
51.2
4.3
51.0
39.1
Billion TL
(monthly avrg.)
06.08
* Deposit Banks
Source: CBT
Personal
Credit Cards
Loans
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
0
01-08
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
50
percent
TOTAL
Mortgages
Auto
Loans
Personal
Credit Cards
Loans
06.08
06.09
1.6
3.4
0.8
1.8
4.5
8.5
2.1
4.3
6.1
9.0
06.10
3.4
1.6
8.6
4.7
9.5
* Deposit Banks
Source: CBT
43
Credit Conditions
Credit interest rates remain at low levels.
Credit Interest Rates*
Consumer Credit Interest Rates*
(Jan 2008 – Jun 2010, annual percentage)
(Jan 2008 – Jun 2010, annual percentage)
26
26
Personal Creadit
Interest Rates
24
Consumer
24
22
22
20
20
18
18
16
16
14
Auto
14
12
Commercial Credit
Interest Rates
10
12
Mortgages
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
* 2-week moving average
Source: BRSA, CBT
01-08
10
8
* 2-week moving average
Source: BRSA, CBT
44
Credit Conditions
The favorable outlook in financial tightness indicators, which became more evident in the
last quarter of 2009, continues.
Commercial Credit Interest Rates and Deposit
Interest Rates*
Mortgage Interest Rates and Benchmark
Interest Rate on Government Securities *
(Jan 2006 – Jun 2010, annual percentage)
(Jan 2006 – Jun 2010, 4-week moving average,
annual percentage)
26
26
Commercial Credit
Interest Rates
24
22
22
20
20
18
18
16
16
14
14
12
12
8
Benchmark Interest Rate on
Government Securities
10
Deposit Interest
Rates
10
Mortgage Interest
Rates
24
8
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
10-06
07-06
04-06
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
10-06
07-06
04-06
01-06
* 4-week moving average, Weighted average, flow interest rates.
Source: CBT
01-06
6
6
* 4-week moving average, Weighted average, flow interest rates.
Source: CBT
45
Credit Conditions
Bank Loans’ Tendency Surveys indicate that the demand for commercial loans has
slightly improved, and that the negative contribution by investment demand is subsiding.
Demand for Commercial Loans
Credit Standards for Commercial Loans
(2007 Q1 – 2010 Q1)
(2007 Q1 – 2010 Q1)
180
160
160
Expectation
140
Realization
120
140
100
120
80
100
60
40
80
Expectation
60
1
2
3
2007
Source: CBT
4
1
2
3
2008
4
1
Realization
20
2
3
2009
4
1
2
2010
0
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2
2010
Source: CBT
46
Credit Conditions
Surveys also suggest that the demand for consumer loans has increased and credit
tightening on these loans has ceased.
Demand for Mortgages and
Expectations
Credit Standards for Consumer Loans
(2007 Q1 – 2010 Q1)
(2007 Q1 – 2010 Q1)
200
200
Realization
175
175
150
Mortgages
Auto
150
Other
125
125
100
100
75
75
Expectation
50
50
25
25
0
0
1
2
3
2007
Source: CBT
4
1
2
3
2008
4
1
2
2009
3
4
1
2
2010
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2010
Source: CBT
47
Commercial Activities
Recently, the number of bad cheques has clearly decreased. The rapid increase in the
number of new firms proves that economic activity continues to recover.
Ratio of the Number of Bad Cheques to
Total Cheques
Number of New Firms and GDP
Manufacturing Industry
(1999 Q1 – 2009 Q4, yoy percentage change)
(Jan 2005 – May 2010, percent)
45
20
12.0
10.0
15
New Firms
10
(right axis)
30
15
5
Quarterly Moving Average
0
8.0
0
-15
-5
-30
6.0
-10
-45
-15
4.0
-60
-20
2008
5.60
2009-I 2009-II 2009-III 2009-VI 2010-I
10.40 9.15
6.79
6.34
4.82
*As of May 2010
Source: ICHC, CBT
2010-II*
4.52
Pe rce nta ge
Cha nge
Ma nufacturing
Industry
Ne w ly Founde d
Firms
09 Q3
08 Q4
-75
08 Q1
07 Q2
06 Q3
05 Q4
05 Q1
04 Q2
03 Q3
02 Q4
02 Q1
01 Q2
00 Q3
99 Q4
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
10-06
07-06
04-06
01-06
10-05
07-05
04-05
01-05
2007
5.04
99 Q1
-25
2.0
Manufacturing
Industry
08-IV
09-I
09-II
09-III
09-IV
-12.0
-22.3
-11.7
-4.5
12.8
-31.4
-30.6
-15.8
-2.8
30.5
Source: TurkStat, CBT
48
Balance of Payments
With the revival of economic activity in the second half of 2009, foreign trade deficit started
to rise.
Foreign Trade Balance
Current Account Balance*
(Jan 2005 – Apr 2010, billion USD)
(Jan 2000 – Apr 2010, ratio to GDP, percent)
45
8
41.4
Energy
40
Current Account Deficit
Excluding Energy
6
36.2
35
4
28.1
30
2
25
21.3
0
20
-2
15
Foreign Trade Deficit
Excluding Energy
10
-4
5
-6
Current Account Deficit
Source: TurkStat, CBT
01-10
09-09
05-09
01-09
09-08
05-08
01-08
09-07
05-07
01-07
09-06
05-06
01-06
09-05
05-05
01-05
0
-8
00
01
02
03
04
05
06
07
08
09
10
*2010 Q1 estimate
Source: TurkStat, CBT
49
Balance of Payments
The private sector debt rollover ratio started to stabilize around 100 percent in the first
quarter of 2010.
Private Sector Debt Rollover Ratio
Balance of Payments, Some Subcategories
(Jan 2008 – Apr 2010, Ratio of External Debt Utilization to
Principal Payments, 3-month moving average, percent)
(Jan 2008 – Apr 2010, 12-month cumulative total, billion dollar)
140
250
50
40
130
Non-Bank Sector
(right axis)
120
Direct
Investments
200
30
Portfolio
Investments
150
20
110
100
100
90
10
0
50
80
-10
0
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
07-08
05-08
-30
03-08
03-10
01-10
11-09
09-09
-50
07-09
05-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
03-09
Banks
60
Source: TurkStat, CBT
Private Sector
Loans*
-20
01-08
70
09-08
Commercial
Loans
•Effect of amendment to Decree No. 32 is taken out
Source: TurkStat, CBT
50
Balance of Payments
When the effect of amendment to Decree No. 32 is removed, the non-bank sector external
debt rollover ratio is estimated to be around 100 percent.
15
Domestic Banks’ FX Denominated Credits
External Debt Rollover Ratio of Non-Bank Sector
(Sep 2008 – Apr 2010, cumulative total, billion USD)
(Sep 2008 – Apr 2010, percent)
250
Amendment to Decree No 32
10
Amendment to Decree No 32
FX Denominated
Credits from
Domestic Branches
Non-Bank Sector External
Debt Rollover Ratio (Effect of
amendment to Decree No. 32
is removed)
200
5
150
0
100
-5
-10
FX Denominated
Credits from
Abroad Branches
-15
50
Non-Bank Sector
External Debt Rollover
Ratio
0
09-08 11-08 01-09 03-09 05-09 07-09 09-09 11-09 01-10 03-10
Source: TurkStat, CBT
09-08 11-08 01-09 03-09 05-09 07-09 09-09 11-09 01-10 03-10
Source: TurkStat, CBT
51
Balance of Payments
Balance of Payments between January 2009 and December 2009
UTILIZATION
Billion USD
SOURCE
Billion USD
Current Account Balance
14.0
Net Errors and
Omissions
4.7
Loans
13.9
Foreign Direct
Investment
6.3
Portfolio Investments
7.5
(Commercial Loans)
(Banking Sector Loans)
(Public Sector Loans)
(Corporate Sector Loans)
Other
(1.2)
(4.1)
(-0.9)
(9.5)
2.7
(Equity)
(Debt instruments)
(Bank deposits)
Reserve Assets
Source: TurkStat, CBT
(Official Reserves)
(FX assets of banks)
(Deposits of other sectors)
(2.8)
(0.1)
(7.5)
12.0
(-0.1)
(6.1)
(6.0)
52
IV. Monetary Policy Stance
53
Monetary Policy Stance
The relative soundness of the financial system in Turkey has enabled the Central Bank of
Turkey to focus on restraining the adverse effects of the financial crisis on the Turkish
economy without conflicting with the primary objective of maintaining price stability.
Policy Rates in Inflation-Targeting Emerging
Economies and in Turkey
Changes in Policy Rates in Emerging
Markets
(Jan 2007– May 2010, percent)
(Nov 2008 – Jun 2010, percentage point)
T urkey
Chile
20
18
16
-10.25
-7.25
-7.00
Colombia
Hungary
S.Africa
Peru
Romania
Turkey
14
-6.25
-5.50
-4.75
-4.00
-3.75
Brazil
Mexico
Egypt
Russia
Indonesia
12
10
8
Poland
T hailand
S.Korea
Israel
Czech Rep.
6
4
Inflation-Targeting Emerging
Economies
2
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
-2.50
-2.50
-2.25
-2.25
-2.00
-2.00
-1.75
Phillippine
T aiwan
0
Source: Central Banks, CBT
-3.75
-3.75
-3.25
-3.00
-12
-10
-8
-6
-4
-2
0
Source: Central Banks, CBT
54
Monetary Policy Stance
At a time when rising levels of public debt worldwide are expected to place upward pressure
on interest rates, CBT’s policy rates are the main determinant of market rates in Turkey and
this confirms the effectiveness of monetary policy.
CBT Borrowing Interest Rate and Benchmark Interest
Rate on Government Securities
(13 Feb 2009 – 17 Jun 2010, percent, compound)
18
16
14
12
Benchmark Interest Rate on
Government Securities
10
8
CBT Borrowing Interest Rate
Source: BRSA, CBT
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
6
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
June 09
July 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
May 10
Jun 10
Borrowing
Interest Rate
16.25
15.00
13.00
11.50
10.50
9.75
9.25
8.75
8.25
7.75
7.25
6.75
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
Change
-0.50
-1.25
-2.00
-1.50
-1.00
-0.75
-0.50
-0.50
-0.50
-0.50
-0.50
-0.50
-0.25
0.00
0.00
0.00
0.00
0.00
0.00
0.00
55
Monetary Policy Stance
In well-functioning economies, a decline in real interest rates during times of recession is an
expected development, which Turkey has never experienced before.
Inflation and Policy Rates in Selected Countries
(Jun 2010, percent)
Policy Rates
Chile
Thailand
Turkey*
Czech Rep.
S.Korea
Phillipines
Mexico
Malaysia
Hungary
S.Africa
Poland
China
Brazil
1.00
1.25
6.50
0.75
2.00
4.00
4.50
2.50
5.25
6.50
3.50
5.31
10.25
2010 Inflation
Expectations
3.50
3.50
8.01
1.50
2.75
4.60
5.00
2.10
4.40
5.40
2.30
3.40
5.45
Real Policy
Rates
-2.42
-2.17
-1.40
-0.74
-0.73
-0.57
-0.48
0.39
0.81
1.04
1.17
1.85
4.55
* Borrowing interest rate
Source: Bloomberg, CBT
56
Monetary Policy Stance
Since 4 August 2009, the CBT has purchased USD 9.7 billion via foreign exchange buying
auctions and injected around TRY 14.6 billion into the market.
FX Buying and Selling Auctions against TRY and the FX Basket
(Jan 2008 – Jun 2010*)
1.4
2.1
FX Buying Auctions
(a total of USD 9.7 billion)
2.0
Equally weighted US
Dollar and Euro
Basket
(Right axis)
0.9
1.9
0.4
1.8
1.7
-0.1
1.6
-0.6
1.5
05-10
03-10
01-10
11-09
09-09
1.4
07-09
05-09
03-09
01-09
11-08
07-08
05-08
03-08
01-08
-1.1
09-08
FX Selling Auctions
(a total of USD 1 billion)
*As of June 18, 2010
Source: CBT
57
Real Interest Rates
Real market interest rates, which displayed a steady decline on the back of CBT’s policy
rate cuts, did not turn upwards despite the recovery in economic activity and this
suggests that, in the post-crisis period, real interest rates are likely to remain below the
pre-crisis level.
Real Interest Rates in Turkey*
Real Interest Rates in Developing Countries*
(Jun 2009 – Jun 2010, 2-year, percent)
(2-year, percent)
7.0
8
6.5
6.0
7
5.5
6
5.0
5
4.5
4.0
4
3.5
3.0
3
2.5
2
2.0
1.5
1
1.0
0
Czech R.
Malaysia
S. Korea
Mexico
Chile
S.Africa
Hungary
* 2-year nominal interest rates generated by yield curve and inflation expectations over 24 months have
been used.
Source: CBT, TurkStat
Turkey
-1
Poland
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
0.0
Brazil
0.5
Source: Bloomberg, Consensus Forecast CBT
58
Exit Strategy
The Central Bank has been providing the banking system with more liquidity than needed
since the second quarter of 2008. With the gradual normalization of global markets, the CBT
announced details of its Exit Strategy on 14 Apr 2010.
TRY Liquidity
(Jan 2008 – Jun 2010, billion TL)
30
Weakly REPO Funding
25
3 Months REPO Funding
Drawn from Interbank Money Market
20
Net Liquidty Injected
15
10
5
0
-5
-10
-15
06-10
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
01-09
12-08
11-08
10-08
09-08
08-08
07-08
06-08
05-08
04-08
03-08
02-08
01-08
-20
Source: CBT
59
Exit Strategy – FX Liquidity
• The FX required reserves ratio may gradually be increased at a
measured pace,
• Foreign exchange deposit lending rates announced by the Central
Bank may be increased in line with developments in global
interest rates,
• The intermediary function of the Central Bank in the foreign
exchange deposit market will be abolished after the effects of
developed countries’ exit strategies are monitored; and the
maturity of the foreign exchange deposits will be decreased from 3
months to 1 week.
60
Technical Interest Rate Adjustment – First Step
In the first stage of our exit strategy, the amount of liquidity that was provided as part of the
overfunding policy has been gradually reduced and in the second stage, the technical
interest rate adjustment was made. Accordingly, the one-week maturity repo auction rate
became the policy rate.
Technical Interest Rate Adjustment
GLP Borç Verme Oranı
TCMB Borç Verme Oranı
100 bp
500 bp
PY Borç Verme Oranı
250 bp
100 bp
50 bp
TCMB POLĐTĐKA FAĐZ ORANI
Haftalık Repo Đhale Faiz Oranı
450 bp
Đkincil Piyasa Faiz Oranı
TCMB Borçlanma Oranı
GLP Borçlanma Oranı
10:00
11:00
Interbank+APĐ
16:00
17:00
Saatler
Geç Likidite Penceresi
61
Technical Interest Rate Adjustment– Second Step
As the liquidity shortage increases in line with expectations, the margin between
CBT O/N borrowing and one week repo auction rates may be widened. The secondary market
average O/N rate will be targeted to fluctuate around the one week repo rate.
Example: Technical Interest Rate Adjustment – Second Step
GLP Borç Verme Oranı
TCMB Borç Verme Oranı
100 bp
PY Borç Verme Oranı
75 bp
250 bp
TCMB POLĐTĐKA FAĐZ ORANI
Haftalık Repo Đhale Faiz Oranı
75 bp
Đkincil Piyasa Faiz Oranı
TCMB Borçlanma Oranı
GLP Borçlanma Oranı
10:00
11:00
Interbank+APĐ
16:00
17:00 Saatler
Geç Likidite Penceresi
62
IV. Fiscal Policy
63
Public Finance
Budget deficits and public debts increased rapidly worldwide due to the measures taken
against the crisis and the decrease in tax revenues. Turkey is likely to stand out with her low
public debt.
Public Debt and Budget Deficit in Turkey
and Developing Countries
Public Debt and Budget Deficit in Turkey
and Developed Countries
(2003-2012, percent)
(2003-2012, percent)
100
70
2012
Average of
Developing Countries
65
2003
2003
Average of
Developed
Countries
80
Public debt/GDP
Public debt/GDP
60
55
2012
50
2008
2008
2003
60
2003
2012
2012
45
40
Turkey
Turkey
2008
40
2008
20
35
-2
0
2
4
Budget Deficit/GDP
6
Source:IMF, Ministry of Finance, Undersecretariat of Treasury,
Medium-Term Program (2010-2012), Program for 2009
8
10
-2
0
2
4
6
8
10
Budget deficit/GDP
Source:IMF, Ministry of Finance, Undersecretariat of Treasury,
Medium-Term Program (2010-2012), Program for 2009
64
Public Finance
Budget deficits and public debts increased rapidly in European countries because of low
growth rates and the measures taken during the crisis.
Public Debt Estimates for EU Countries
and Turkey for 2011
Budget Deficit Estimates for EU Countries
and Turkey for 2011
(Ratio to GDP, percent)
(Ratio to GDP, percent)
Greece
Italy
Belgium
Portugal
France
Euro Arae
Ireland
UK
Germany
Hungary
Austria
Malta
Spain
Netherlands
Southern Cyprus
Poland
Latvia
Finland
Denmark
Turkey
Lithuania
Slovenia
Slovakia
Czech Rep
Sweden
Romania
Luxembourg
Bulgaria
Estonia
48,8
Maastricht Criterion
0
20
40
60
80
Source: European Commission, MTP, CBT
100
120
140
Ireland
UK
Latvia
Greece
Spain
Lithuania
Portugal
Southern Cyprus
Romania
France
Poland
Czech Rep
Slovakia
Slovenia
Netherlands
Italy
Belgium
Denmark
Germany
Austria
Turkey
Hungary
Luxembourg
Malta
Finland
Estonia
Bulgaria
Sweden
-4.0
Maastricht Criterion
0
-2
-4
-6
-8
-10
-12
Source: European Commission, MTP, CBT
65
Public Finance
The recovery in tax revenues, which started as of the last quarter of 2009, continued in the
first quarter of 2010 and played an important role in the favorable performance of the
primary budget balance.
Tax Revenues
Indirect Tax Revenues
(2007 Q1 – 2010 Q1, million TL, quarterly real sum )
(2007 Q1 – 2010 Q1, million TL, quarterly real sum )
16
40
Indirect Taxes
Import Tax
14
35
12
30
10
25
Domestic VAT
Direct Taxes
8
20
Special Consumption
Tax
6
15
4
10
2
0
5
1
2
3
4
1
2007
Source: Ministry of Finance, CBT
2
2008
3
4
1
2
3
2009
4
1
2010
1
2
3
4
1
2007
2
3
2008
4
1
2
3
2009
4
1
2010
Source: Ministry of Finance, CBT
66
Fiscal Rule
The Fiscal Rule, which is planned to be introduced as of 2011, is expected to further
reinforce fiscal discipline and contribute to establishing and maintaining macroeconomic
stability and thus to enhancing the effectiveness of monetary policy.
∆a = -0.33 (at-1 – 1) – 0.33 (b – 5)
∆a
at-1
b
: Revision of the ratio of the central government deficit to GDP
: Ratio of the central government deficit to GDP for the previous year
: Growth rate of the real GDP
67
Public Finance
The fiscal rule stipulates that using the additional rise in tax revenues in years in which
economic growth surpasses the threshold of 5 percent will provide room for maneuver to
reduce public debt, which in turn will enable the implementation of a countercylical
monetary policy.
12
11,9
Central Government Budget Deficit
EU Defined Public Debt
(2002 – 2012, Ratio to GDP, percent)
(2002 – 2012, Ratio to GDP, percent)
11,5
80
73.7
70
67.4
50
46.1
4,9
Maastricht
Criterion: 3%
4,0
3,2
40
49.0
48.8
47.8
2012
5,5
5,2
52.3
2011
6
59.2
60
45.5
39.4
39.5
2008
Medium-Term
Program
Maastricht Criterion:
60%
Medium-Term
Program
2007
9
2010
8,8
3
1,6
1,8
30
1,1
0,6
2009
2006
2005
2004
2003
2012*
2011*
2010*
2009
2008
2007
2006
2005
2004
2003
2002
2001
*Medium-Term Program (2010 -2012) Objectives
Source: Ministry of Finance, Medium-Term Program
2002
20
0
*Medium-Term Program (2010 -2012) Objectives
Source: Undersecretariat of Treasury, CBT
68
IV. Inflation Outlook
69
Inflation Developments
In May, year-on-year consumer prices inflation became 9.10 percent.
Consumer Prices Inflation
SCA-I Index
(Jan 2007 – May 2010, annual percentage change)
(Jan 2007 – May 2010, annual percentage change)
13
12.0
12
12
Tax-Adjusted I-Index
10
11
10
8
9
9.1
8
7
6
4
6
2
SCA-I Index
5
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
01-07
Source: TurkStat, CBT
01-07
0
4
*SCA-I indicator adjusted for the change in tax rates.
Source: TurkStat, CBT
70
Inflation Developments
In May 2010, the contribution of food and energy items to annual inflation decreased to
4 points.
Contribution to Annual CPI Inflation
CPI by Groups
(Jan 2005 – May 2010, annual percentage change)
(Percentage Change in the first 5 months)
14
30
Main Goods
Service
Food
Energy
Alcohol Tobacco Gold
2006-2008 Ortalaması
12
25
10
20
2009
2010
15
8
10
6
5
4
0
2
-5
Source: TurkStat, CBT
05.10
01.10
09.09
05.09
01.09
09.08
05.08
01.08
09.07
05.07
01.07
09.06
05.06
01.06
09.05
05.05
01.05
0
-10
Enerji
Gıda
Temel Mallar Alkol Tütün
Altın
Hizmet
Source: TurkStat, CBT
71
Inflation Developments
Annual services inflation decreased to 6.05 percent owing to the decline in communication
group prices.
Services Group Prices
Real Rent
(Feb 2008 – May 2010, annual percentage change)
(Mar 2008 – May 2010, annual percentage change)
18
16
16
Service Excl. Meal and
Transportation
14
Meal and Transportation
12
14
12
10
10
8
8
Source: TurkStat, CBT
04-10
02-10
12-09
10-09
08-09
06-09
04-09
02-09
12-08
10-08
08-08
06-08
04-08
04-10
02-10
12-09
10-09
08-09
06-09
04-09
02-09
12-08
0
10-08
0
08-08
2
06-08
2
04-08
4
02-08
4
02-08
6
6
Source: TurkStat, CBT
72
Inflation Developments
In Turkey, unprocessed food prices display a fluctuating course and that leads to
significant uncertainty with respect to forecasting.
Food Prices
(Nov 2008 – May 2010, annual percentage change)
30
45
40
Unprocessed Food
25
Unprocessed Meat Prices
35
20
Processed Meat Prices
30
Cheese and Other Milk
Products
25
15
33.8
28.6
20
10
10.2
5
15
18.1
10
Processed Food
3.5
5
0
0
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
01-09
12-08
05-10
04-10
03-10
02-10
01-10
12-09
11-09
10-09
09-09
08-09
07-09
06-09
05-09
04-09
03-09
02-09
01-09
12-08
11-08
Source: TurkStat, CBT
11-08
-5
-5
Source: TurkStat, CBT
73
Inflation Developments
While the severe declines in the prices of unprocessed foods are effective in decline of
annual inflation, core inflation indicators remained consistent with the medium-term targets.
Key Inflation Indicators*
Inflation Diffusion Index*
(Apr 2007 – May 2010)
(Jan 2007 – May 2010)
50
1.6
1.4
40
1.2
1.0
Average
30
0.8
20
0.6
0.4
SCA-I
10
0.2
SCA-H
01-10
07-09
01-09
07-08
01-08
07-07
04-10
01-10
10-09
07-09
04-09
01-09
10-08
07-08
04-08
01-08
10-07
07-07
04-07
* Quarterly averages, seasonally and tax adjusted
Source: TurkStat, CBT
01-07
0
0.0
* Seasonally adjusted 2-month averages of the difference between the shares in CPI
of items with increasing prices and items with falling prices.
Source: TurkStat, CBT.
74
Inflation Developments
Volatility in unprocessed food prices in Turkey is quite high compared to other countries.
Monthly Volatility in Unprocessed Food Prices:
Comparison between EU-27 Countries and Turkey*
Monthly Volatility in Unprocessed Food
Prices in Mediterranean Countries
(2006-2009 Period, Standard Deviation)
(2006 - 2009 Period)
15
EU27
Slovenia
Max
10
Greece
Poland
-5
Standard Deviation
5
-10
Min
Finland
Latvia
0
Malta
GCASC
Bulgaria
Hungary
Turkey
3,5
4,0
4,5
*The chart illustrates Turkey and nine of the EU-27 countries with the highest volatility
in the mentioned period.
Source: Eurostat, CBT.
Italy
3,0
Spain
2,5
France
2,0
Slovenia
1,5
Greece
1,0
Malta
0,5
GCASC
0,0
Turkey
-15
Source: Eurostat, CBT.
75
Inflation Developments
Long distribution chains, infrastructure deficiencies and unregistered economic activities in
the food sector highlight the importance of structural arrangements for attaining price
stability.
Volatility
Ranking*
(as per EU-27)
Average
Lowest
Highest
Width
Standard
Deviation
Unprocessed Food
1,0
-10,4
10,4
20,8
4,1
1
Fruits
1,5
-22,3
31,0
53,3
9,4
2
Vegetables
0,9
-20,1
23,4
43,5
9,1
3
Meat
1,2
-7,0
6,4
13,3
2,7
1
Unprocessed Food
0,2
-1,5
1,4
2,8
0,7
Fruits
0,2
-4,7
4,3
8,9
1,8
Vegetables
0,2
-4,2
4,8
9,0
2,3
Meat
0,2
-0,3
0,8
1,1
0,3
Turkey
EU-27
* Ranking from the most volatile to the least volatile.
Source: Eurostat, CBT
76
Inflation Expectations
The inflation expectations that increased due to rising inflation in the first four months of
the year, were positively affected with the gradual waning of the temporary factors.
Inflation Expectations
(Jan 2007 – Jun 2010, annual percentage change)
14
12
10
CPI
8
24-Month Forward
6
I Index
4
2
05-10
03-10
01-10
11-09
09-09
07-09
05-09
03-09
01-09
11-08
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
0
Source: TurkStat, CBT
77
Inflation Forecasts
Annual inflation is expected to overshoot the end-2010 target of 6.5 percent and remain
consistent with the end-2011 and 2012 targets of 5.5 and 5.0 percent, respectively.
Inflation Realizations, Forecasts and Targets
(Sep 2008 – Mar 2013, percent)
Baseline scenario assumptions:
2011
2012
Oil Prices
$ 85
$ 90
$ 90
Food Prices
9%
7%
7%
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
Uncertainty Band
Year End Targetsi
Output Gap
Control
Horizon
Inflation Forecasts :
2010
8.4 %
2011
5.4 %
2012
5.0 %
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
06.11
09.11
12.11
03.12
06.12
09.12
12.12
03.13
Percent
2010
Forecast Range*
*Indicates a confidence interval of 70 percent.
Source: CBT
78
Conclusion
Data pertaining to the first quarter of 2010 indicate that
recovery in domestic demand has grown more stable and
become widespread.
The increase in labor compensation alongside employment
growth has been supporting the recovery in private
consumption demand.
The contribution of the developments in credit markets to
domestic economic activity has increased recently.
79
Conclusion
Nevertheless, uncertainties pertaining to the global economy
persist and no apparent rebound is observed in foreign
demand yet.
Despite the recent partial recovery, resource utilization
remains subdued and this continues to be a drag on
investment and employment.
Therefore, the recovery in economic activity is expected to
be a gradual one and capacity utilization rates are not likely
to return to pre-crisis levels for an extended period.
80
Conclusion
Inflation in the coming months, may display a more favorable outlook
than envisaged in the April Inflation Report. Beside this, when the
possible effects of the less restrictive import regulations for red meat
and oil price developments are taken into consideration, the
realization of inflation will be able to be closer to the target of 6.5
percent as compared to the 2010 year-end estimates of April Inflation
Report.
However, the pricing behavior is closely monitored due to the inflation
expectations, which are still above the medium-term targets.
In the light of the uncertainties regarding global economy and positive
developments in inflation, it is considered to maintain policy rates at
current levels for some time, and to keep them at low levels for a long
period.
81
CENTRAL BANK OF THE
REPUBLIC OF TURKEY
Presentation before the Council of Ministers
Durmuş YILMAZ
Governor
24 May 2010
82