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Contents
1.
2.
3.
4.
5.
6.
7.
OVERVIEW
1
1.1. Monetary Policy Implementation and Monetary Conditions
1
1.2. Macroeconomic Developments and Main Assumptions
4
1.3. Inflation and Monetary Policy Outlook
8
1.4. Risks and Monetary Policy
9
INTERNATIONAL ECONOMIC DEVELOPMENTS
11
2.1. Global Growth
12
2.2. Commodity Prices
17
2.3. Global Inflation
19
2.4. Financial Conditions and Risk Indicators
21
2.5. Capital Flows
25
2.6. Global Monetary Policy Developments
26
INFLATION DEVELOPMENTS
33
3.1. Inflation
33
3.2. Expectations
42
SUPPLY AND DEMAND DEVELOPMENTS
43
4.1. Gross Domestic Product Developments and Domestic Demand
44
4.2. External Demand
48
4.3. Labor Market
52
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
71
5.1. Financial Markets
71
5.2. Financial Intermediation and Loans
79
PUBLIC FINANCE
91
6.1. Budget Developments
92
6.2. Developments in the Debt Stock
95
MEDIUM-TERM PROJECTIONS
101
7.1. Current State of the Economy, Short-Term Outlook and Assumptions
101
7.2. Medium-Term Outlook
104
7.3. Risks and Monetary Policy
107
BOXES
Box 2.1. Recent Developments in the Euro Area
30
Box 4.1. The Underlying Trend of Economic Activity Using Seasonally Adjusted Data
57
Box 4.2. Real Export Developments by Regions
60
Box 4.3. The Recent Course of Import Prices
64
Box 4.4. GDP, Labor Force, Employment and Unemployment
66
Box 5.1. The Effects of the CBRT’s Monetary Policy Decisions on Reserves
85
Box 5.2. Consumer Loan Margins and Credit Supply
88
Box 6.1. Main Features of the New Incentive System
98
Box 7.1. Differentiating the Domestic and External Demand in Estimating the Output Gap
110
Box 7.2. Inflation Expectations and the Communication
114
Central Bank of the Republic of Turkey
1. Overview
In the first quarter of 2012, global economic activity continued to slow
down as projected, while global risk appetite improved notably on easing
concerns over the Euro Area. The prevention of a disorderly Greek default amid
the completion of debt restructuring, as well as ECB’s embarking on another
round of 3-year liquidity operation, partially improved perceptions over the Euro
Area debt crisis. Furthermore, the better-than-expected outlook in the U.S.
economy also contributed to the air of confidence. As a result, global risk
appetite was heightened, thereby accelerating capital flows to emerging
economies in the first quarter of the year. However, the recent resurge of bond
yields amid mounting concerns over the Spanish economy, as well as the lowerthan-anticipated rise in the U.S. employment, interrupted the improvement of
perceptions about the global economy. Consequently, capital flows to
emerging economies have been more volatile as of early second quarter.
Developments in the inter-reporting period indicate ongoing fragilities in
the global financial markets. Despite the 4-year period since the outbreak of
the global crisis, advanced economies are still going through deleveraging. The
problems in the Euro Area, uncertainties regarding the U.S. economy and China
as well as supply-side risks on energy prices are still present. Moreover, debt
markets remain stagnant and concerns over financial market actors are
heightened even in a period of rapidly surging asset prices and loose monetary
policy stance, thereby suggesting persistent volatility in global risk perceptions,
thus confirming the significance of adopting a flexible monetary policy
framework.
1.1. Monetary Policy Implementation and Monetary
Conditions
Against heightening macro financial risks in the first half of 2011, the
Central Bank of the Republic of Turkey (CBRT) aimed at steering the economy
gradually towards a more balanced growth composition. Accordingly, in order
to slow down loan growth, necessary measures were adopted with the support
of other institutions. Moreover, policies were implemented against excessive
deviation of exchange rates from economic fundamentals in either direction
(Charts 1.1.1 and 1.1.2).
Inflation Report 2012-II
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Central Bank of the Republic of Turkey
Chart 1.1.1.
Chart 1.1.2.
TL and Emerging Market Currencies*
Consumer Loan Growth
(11.01.2010=1)
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
Turkey
2011
Emerging Economies
1.4
2012
2007-2011 Average
60
1.34
50
1.28
40
1.22
1.16
30
1.1
20
1.04
10
* Emerging economies include Brazil, Chile, Czech Republic,
Hungary, Mexico, Poland, South Africa, Indonesia, South Korea,
Colombia and Turkey. Increases denote depreciation of the
currency.
Source: Bloomberg, CBRT.
Dec
Nov
Oct
Sep
Aug
Jul
Jun
Apr
May
Mar
0
Jan
1110
1210
0111
0211
0311
0411
0511
0611
0711
0811
0911
1011
1111
1211
0112
0212
0312
0412
0.92
Feb
0.98
Source: CBRT.
New data releases in the inter-reporting period indicate that the
balancing process in the economy continues as envisaged. Accordingly, loan
growth has slowed down significantly since the second half of 2011, thereby
improving the current account balance remarkably (Chart 1.1.3). Domestic
demand growth was controlled in this period, while the contribution of net
exports increased markedly (Chart 1.1.4). In other words, the composition of
growth assumed a robust outlook.
Chart 1.1.3.
Chart 1.1.4.
Current Account Balance
Contribution of Net External Demand to Annual
GDP Growth (Percent)
(Seasonally Adjusted, Billion USD)
Current Account
Current Account (excl. energy)
Imports
Exports
Net Exports
4
2000
1000
2
0
-1000
0
-2000
-2
-3000
-4000
-4
-5000
-6000
-6
-7000
-8
-8000
1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
* As of February.
Source: TurkStat, CBRT.
2
2008
2009
2010
2011 2012
20102011
2
3
2010
4
1
2
3
2011
4
1*
2012
* Estimate.
Source: TurkStat, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Having achieved the desired outcomes with respect to alleviating macro
financial risks, monetary policy has focused on maintaining price stability as of
October 2011. The cumulative effects of the rises in import prices and the
depreciation of the Turkish lira, tax adjustments in administered prices (tobacco
and energy items) and hikes in unprocessed food prices led to a surge in
inflation in the last quarter of the year. Although these developments are mostly
temporary, the resulting high inflation brought about the risk of deterioration in
inflation expectations. Accordingly, in order to prevent a worsening in the
pricing behavior, the CBRT has implemented a strong monetary tightening as of
October, by widening the interest rate corridor upwards and effectively using
the liquidity operations (Charts 1.1.5 and 1.1.6).
Chart 1.1.5.
Chart 1.1.6.
CBRT Policy Rate and the Interest Rate Corridor
CBRT Funding and the Average Funding Rate
(Percent)
(Percent)
Interest Rate Corridor
Outstanding Funding (Billion TL)
80
14
12
14
Average Funding Rate (right axis)
1-week Repo Rate
70
Adoption of 1-week repo rate
as the policy rate
12
60
10
10
50
8
8
40
6
6
30
4
4
20
Source: CBRT.
0412
0312
0212
0112
1211
0
1111
0
1011
2
0911
0412
0212
1211
1011
0811
0611
0411
0211
1210
1010
0810
0610
0410
0210
0
10
0811
2
Source: CBRT.
Utilizing the flexibility offered by the interest rate corridor, an additional
monetary tightening has been delivered three times since October (in
December, March and April) (Chart 1.1.6). During the episodes of additional
monetary tightening, the CBRT significantly raised the average cost of liquidity
provided to the market by reducing the funding supplied through quantity
auctions. On the other hand, the upper limit on the interest rate corridor was
slightly lowered in February, following the heightening in the global risk appetite
owing to the improvement in perceptions regarding the Euro Area debt crisis
(Chart 1.1.5). In the meantime, the CBRT still maintained its tight monetary policy
stance. Accordingly, in April, the MPC underlined that additional monetary
tightening might be implemented more frequently in order to prevent a
deterioration in the inflation outlook that may be driven by price adjustments to
Inflation Report 2012-II
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Central Bank of the Republic of Turkey
energy items and other temporary factors. In addition, the MPC stated that it
would be appropriate to preserve flexibility in monetary policy in the event that
uncertainties regarding the global economy persist.
Keeping the interest rate corridor wide, while occasionally implementing
additional tightening ensures a tight monetary policy stance. As a matter of
fact, the downward slope of the yield curve and the slowdown in consumer
loan growth rates as well as the relatively high interest rates on loans confirm
that monetary and financial conditions are tight (Charts 1.1.7 and 1.1.8).
Chart 1.1.7.
Chart 1.1.8.
Yield Curve*
Consumer Loan Rates
(Flow, Annualized, Percent)
January 26, 2012
Automobile
April 20, 2012
Personal
22
10
Housing
Narrowing of the
Interest Rate Corridor
9.5
17
BRSA Measures
9
12
8.5
* Calculated from the compounded returns on bonds quoted in ISE
Bonds and Bills Market by using Extended Nelson Siegel (ENS) method.
Source: ISE, CBRT.
0412
0312
0212
0112
1211
1111
1011
0911
4
0811
3.5
0711
3
0611
2.5
0511
2
Maturity(year)
0411
1.5
0111
1
0311
7
0.5
0211
Yield (percent)
Widening of the
Interest Rate Corridor
Source: CBRT.
1.2. Macroeconomic Developments and Main Assumptions
Inflation
In the first quarter of 2012, inflation remained in tandem with the January
Inflation
Report
projections,
standing
at
10.43
percent
at
end-March
(Chart 1.2.1). The higher-than-envisioned increases in oil prices in this period
drove energy prices above projections. In the meantime, unprocessed food
prices followed a more favorable course than envisaged.
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 1.2.1.
January 2012 Inflation Forecasts and Realizations (Percent)
12
Forecast Range*
Uncertainty Band
Year-End Inflation Targets
Actual Inflation
10
8
6
4
2
1212
0912
0612
0312
1211
0911
0611
0311
1210
0
* Shaded region indicates the 70 percent confidence interval for the forecast.
As the cumulative effects of exchange rate movements faded, the
annual core inflation trended downwards in the first quarter of the year.
Meanwhile, prices of services maintained a mild course (Chart 1.2.2). Against
these developments, core inflation indicators exhibited a downward trend after
an extended period (Chart 1.2.3).
Chart 1.2.2.
Chart 1.2.3.
Prices of Core Goods and Services
Core Inflation Indicators SCA-H and SCA-I
(Annual Percent Change)
(Annual Percent Change)
Core Goods
14
H SCA-H
Services
ISCA-I
12
12
10
10
8
8
6
6
4
4
Source: TurkStat, CBRT.
0312
0811
0111
0610
1109
0409
0908
0208
0707
1206
0506
0305
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
0
0309
-2
1208
2
0908
0
1005
2
Source: TurkStat.
Supply and Demand
National income data regarding the last quarter of 2011 indicate that
aggregate demand conditions were broadly in line with the outlook presented
in the January Inflation Report. Economic activity, which continued to
decelerate owing to weaker domestic demand, sustained its growth at a slower
pace due to the positive contribution of net exports (Chart 1.2.4).
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Central Bank of the Republic of Turkey
Chart 1.2.4.
GDP and the Final Domestic Demand
(Seasonally Adjusted, 2008Q1=100)
GDP
115
Final Domestic Demand
110
105
100
95
90
85
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2005
2006
2007
2008
2009
2010
2011
Source: TurkStat, CBRT.
Industrial production data regarding early-2012 indicate that economic
activity was weaker than expected in the first quarter of the year. Nevertheless,
this is considered to stem largely from temporary factors like unfavorable
weather conditions and uncertainties regarding global economy. Hence, a
mild recovery is expected as of the second quarter. Indeed, the upward course
of the indicators on orders and consumption goods for February and March
points that the decline in the economic activity is temporary.
In the first quarter of the year, the indicators for the global economy and
external demand were also in line with the expectations. Growth rates in both
advanced and emerging economies continued to slow down, while the Euro
Area growth outlook especially remained weak.
In sum, the outlook for domestic and external economic activity
remained broadly unchanged in the inter-reporting period. Accordingly, as in
the previous reporting period, inflation forecasts are based on the assumption
that the economy will assume a mild path of growth by the second quarter and
aggregate demand conditions will continue to support the fall in inflation.
Commodity, Import and Food Prices
Since the publication of the January Inflation Report, oil prices remained
significantly above the assumed path due to supply-side developments
(Chart 1.2.5). Accordingly, oil price assumption, which was USD 110 per barrel in
the previous reporting period, was increased to USD 120 per barrel for 2012, and
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
USD 115 per barrel for 2013. The contribution of this revision to the inflation
forecast for end-2012 was 0.4 percentage points on the upside. On the other
hand, in tandem with the decline in non-energy import prices, import price
index displayed a better-than-expected course (Chart 1.2.5), pulling down the
inflation forecast for end-2012 by around 0.2 percentage points. Meanwhile,
import price projections based on commodity futures remained broadly
unchanged in the inter-reporting period.
Chart 1.2.5.
Revisions to Oil and Import Price Assumptions*
Oil Prices (USD/bbl)
January 2012
135
Import Prices (2003=100)
January 2012
April 2012
April 2012
190
125
180
115
105
170
95
160
85
75
150
65
140
55
45
* Shaded region indicates the forecast period.
Source: Bloomberg, CBRT.
1213
0613
1212
0612
1211
0611
1210
0610
1209
0609
1213
0613
1212
0612
1211
0611
1210
0610
1209
0609
130
* Shaded region indicates the forecast period.
Source: TurkStat, CBRT.
In sum, despite the better-than-expected prices in non-energy imports in
the first quarter of the year, import prices slightly pulled up the inflation forecast
for end-2012, due to the upward revision in energy prices, which have a
stronger effect on the consumer price index. Meanwhile, the assumption for
annual food inflation was maintained as 7.5 percent throughout the forecast
horizon.
Fiscal Policy and Tax Adjustments
Regarding the fiscal outlook, the medium-term inflation forecasts take the
revised projections of the MTP as given. Hence, the baseline scenario envisages
that the ratio of primary expenditures to GDP will remain flat, and the structural
budget balance will not deteriorate. Moreover, the stipulated tax cuts and
government incentives within the new incentive system, which was publicly
announced on April 5, are considered to have no adverse effects on the fiscal
balance.
Inflation Report 2012-II
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Central Bank of the Republic of Turkey
Tobacco prices are assumed to remain constant throughout 2012 amid
tax adjustments to tobacco products in October 2011, while increasing in
January 2013 as implied by the tax adjustments in October 2011. Furthermore,
other tax adjustments and administered prices are assumed to be consistent
with the inflation targets and automatic pricing mechanisms.
1.3. Inflation and Monetary Policy Outlook
Forecasts are based on the assumption that additional monetary
tightening will be implemented more frequently, and consequently, annualized
loan growth rate will hover around 14 percent. Accordingly, inflation is
expected to be, with 70 percent probability, between 5.3 and 7.7 percent (with
a mid-point of 6.5 percent) at the end of 2012, and between 3.4 and 7.0
percent (with a mid-point of 5.2 percent) at the end of 2013. Inflation is
expected to stabilize around 5 percent in the medium term (Chart 1.3.1).
Chart 1.3.1.
Inflation and Output Gap Forecasts
Forecast Range*
Year-End Inflation Targets
Uncertainty Band
Output Gap
12
10
Control
Horizon
8
Percent
6
4
2
0
-2
0315
1214
0914
0614
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
-4
* Shaded region indicates the 70 percent confidence interval for the forecast.
Overall, notwithstanding the adverse effect of the upward revisions to
energy prices in 2012, the year-end inflation forecast was kept unchanged at
6.5 percent, envisioning that an additional monetary tightening would be
implemented to counterbalance this effect. In this respect, the inflation forecast
is based on the assumption that loans will grow milder, and aggregate demand
conditions will further support disinflation compared to the previous reporting
period.
Inflation is expected to follow a highly volatile course in the second
quarter. The direct effects of electricity and natural gas price hikes in April will
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
be around 0.5 percentage points to consumer inflation. Therefore, inflation will
temporarily increase, reaching its peak in April. Due to base effects in
unprocessed food prices, annual inflation is expected to display a sharp fall in
May, while increasing back in June (Chart 1.3.1).
Inflation is expected to follow a downward course, as the tight monetary
policy implemented by the CBRT since October contains the second round
effects, and hence, the cumulative impacts of the temporary price movements
taper off. Accordingly, inflation will decline gradually starting from the third
quarter, assuming a markedly downward trend by the final quarter of the year
(Chart 1.3.1).
It should be emphasized that any new data or information regarding the
inflation outlook may lead to a change in the monetary policy stance.
Therefore, assumptions regarding the monetary policy outlook underlying the
inflation forecast should not be perceived as a commitment on behalf of the
CBRT.
1.4. Risks and Monetary Policy
The high course of inflation and the recent deterioration in the short-term
inflation expectations pose risk on the pricing behavior. Due to sharp price
increases in the third quarter of 2011, inflation is envisioned to remain
remarkably above the target until the last quarter of 2012, requiring a close
monitoring of the pricing behavior. Although the delivered monetary tightening
of the CBRT since October, besides mild domestic demand conditions have
alleviated upside risks on inflation by containing secondary effects, inflation
expectations will be cautiously and carefully monitored in the upcoming period,
and necessary measures will be taken to keep medium-term inflation outlook
consistent with the target.
Ongoing uncertainties regarding global economy require further flexibility
in monetary policy against volatility in capital flows. Notwithstanding the
alleviating concerns regarding the Euro Area sovereign debt problem in the first
quarter of 2011, the unfavorable course of growth as well as the currently
elevated borrowing costs across the region keep debt sustainability debates
alive. Moreover, ongoing deleveraging in the Euro Area banking system feeds
into financial fragilities, increasing the probability of a renewed deterioration in
the risk appetite. On the other hand, the risk appetite may recover faster than
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Central Bank of the Republic of Turkey
expected, should problems regarding the global economy are solved sooner
and more decisively than envisaged. Overall, the possibility that global capital
flows will continue to be volatile in the forthcoming period confirms the
appropriateness of the existing flexibility in the monetary policy framework.
Hence, the CBRT will continue to monitor global developments closely, and
take the required measures promptly.
Another risk factor in the forthcoming period is the uncertainty regarding
oil prices. Although the weak course of the global economy largely contains the
upside risks to commodity prices, ongoing supply-side problems pose upside risk
to energy prices in the short term. Should such a risk materialize, the CBRT will
not react to temporary price movements, yet will not tolerate any deterioration
in expectations.
Unprocessed food prices pose downside risk to inflation outlook over 2012.
The probability for a downward correction in unprocessed food prices after
hitting the recent-high in end-2011, besides the favorable precipitation during
the recent months, increase the likelihood of a better-than-envisioned course
for unprocessed food prices throughout the year. Inflation may reach the target
faster than projected in the baseline scenario, should the food prices follow a
more favorable course than expected.
The CBRT monitors fiscal policy developments closely while formulating its
monetary policy. The baseline scenario forecasts of the Report are based on
the MTP framework, therefore assuming that fiscal discipline will be maintained.
A revision in the monetary policy stance may be considered, should the fiscal
stance deviate significantly from this framework, and consequently have an
adverse effect on the medium-term inflation outlook.
Strengthening the structural reform agenda that would ensure the
sustainability of the fiscal discipline and reduce the saving deficit will contribute
to the relative improvement of Turkey’s sovereign risk, thereby supporting price
stability and the financial stability. Making progress in this direction will also
provide room for monetary policy maneuver and support social welfare by
keeping interest rates of long-term government securities permanently at low
levels. In this respect, taking necessary steps towards implementation of the
structural reforms envisaged by the MTP is of utmost importance.
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Inflation Report 2012-II
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2. International Economic Developments
In the last quarter of 2012, global economic activity accelerated
moderately. Growth forecasts for 2012 remained virtually unchanged despite
the better-than-anticipated performance of the global economy, with
markedly growing divergences across regions. As a matter of fact, downward
revisions in the growth prospects for the Euro Area are notable, especially in
debt-ridden countries.
In the inter-reporting period, the possibility of a disorderly default in
Greece has been alleviated, thus attenuating risk perceptions regarding the
region. However, the weaker growth outlook in heavily-indebted countries
caused renewed concerns. Spain, which is troubled by high unemployment
rates, unsettled problems in the real estate market and the failure to control
local government spending is at the center of concerns regarding the region
(Box 2.1). The surge in Spain’s borrowing costs not only affected Italy and other
neighboring countries, both also worsened the performance of the global
markets through the risk appetite. The unfavorable course of the Euro Area
growth in addition to elevated borrowing costs heighten controversies over
debt sustainability, while the social resistance against the adopted measures
besides the imminent elections feed into uncertainties. Meanwhile, the failure to
establish European Financial Stability Facility (EFSF) as a permanent funding
institution, besides the inability to create an efficient security wall by merging
EFSF with the European Stability Mechanism, the permanent rescue funding
program, weakened the possibility for a notable financial contribution to be
provided by G-20 countries.
Overall, finding a permanent solution to the problems in the Euro Area is
likely to take up a long time. This fact coupled with the pursued monetary
easing in advanced economies implies that global risk appetite may continue
to be volatile.
The early-2012 data releases for the U.S. economy indicated a betterthan-expected outlook for the economic activity, while the favorable course of
employment invigorated the prospects for growth. On the other hand, Fed
maintained its cautious stance throughout the period despite this positive
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Central Bank of the Republic of Turkey
outlook. As a matter of fact, the employment data for March, which lagged
below the expectations, confirmed the Fed’s cautious stance. In the period
ahead, the U.S. economic outlook and the global risk appetite will mostly
depend on the developments regarding the extension of the Fed’s bond swap,
which entails the exchange of short-term securities with the long-term ones, as
well as the possibility for the implementation of a new round of easing.
Having been adversely affected by the global turmoil, economic activity
in emerging economies decelerated in the last quarter of 2011, while leading
indicators suggested a recovery in the first quarter of 2012. Accordingly, central
banks in emerging economies adopted a remarkably less aggressive stance.
Despite the favorable outlook in the first quarter, the experience of the Euro
Area debt crisis reveals that emerging economies are instantly affected by the
problems in the advanced economies. Hence, in the forthcoming period,
problems regarding advanced economies, especially the Euro Area countries,
are likely to relapse, weighing on emerging economies through foreign trade
and interrupted capital flows.
Amid soaring energy prices, commodity prices surged in the last quarter.
Rather than demand-side pressures, soaring prices were mainly fuelled by
supply-side problems that emerged due to the contemplated embargo to be
applied to Iran. In view of the fact that Iran is a major oil producer, price
increases are likely to persist in the event of a further deepening in the political
unrest.
2.1. Global Growth
The year-on-year change in GDP-weighted global production, which has
decelerated since mid-2010, declined further in the last quarter of 2011. Exportweighted annual growth has also continued to slow down, indicating that
uncertainties in advanced economies, and especially the unfavorable growth
outlook in the European countries with a major share in the export-weighted
global production index, continued to curb global trade in the last quarter of
the year (Chart 2.1.1).
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.1.1.
Chart 2.1.2.
Global Production*
Global Growth Rates*
(Annual Percent Change)
(Annual Percent Change)
Advanced Economies
Emerging Economies (right axis)
Export-Weighted
GDP-Weighted
6
4
4
10
8
2
6
2
0
4
0
-2
2
-2
-4
-4
0
-6
-6
2007
2008
2009
2010
2007
2011
* Weighted by each country’s share in global GDP and Turkey’s
exports for GDP-weighted and export-weighted indices, respectively.
Source: Bloomberg, CBRT.
-2
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2008
2009
2010
2011
* Weighted by each country’s share in global GDP.
Source: Bloomberg, CBRT.
The composite indices indicate that in the last quarter of 2011, the yearon-year growth of the economic activity lost pace both in advanced and
emerging economies (Chart 2.1.2). The U.S. economy, which presented a
favorable outlook in the last quarter of the year, contributed positively to growth
in advanced economies, while the Euro Area growth continued to display an
acute outlook amid the aggravating debt crisis in the second half, thus pulling
down growth in advanced economies (Chart 2.1.3). The regional breakdown of
growth in emerging economies indicates a continued deceleration across
regions in the last quarter (Chart 2.1.4).
Chart 2.1.3.
Chart 2.1.4.
Growth Rates in Selected Advanced Economies
Growth Rates in Emerging Economies by Regions
(Annual Percent Change)
(Annual Percent Change)
U.S.A.
Asia
Eastern Europe
Euro Area
6
14
4
10
2
6
0
2
-2
-2
-4
-6
-6
-10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
Source: Bloomberg.
2009
2010
2011
Latin America
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
2009
2010
2011
Source: Bloomberg, CBRT.
In the last quarter of 2011, the U.S. economy posted a quarter-on-quarter
GDP growth by 3 percent in annualized terms. Meanwhile, labor market
followed a benign course, adding to the consumer and investor confidence,
thus contributing positively to the U.S. economic outlook. However, as
underpinned by the Fed officials, the aggregate demand shortfall is likely to
Inflation Report 2012-II
13
Central Bank of the Republic of Turkey
persist, thus growth will remain on a slow track. The analysis of the labor market
developments indicates that despite the favorable course in the last quarter of
2011 and early-2012, March readings fell behind expectations, and main
indicators on unemployment hover below the pre-crisis levels (Table 2.1.1).
Table 2.1.1.
The U.S. Employment Indicators
2011
Unemployment
(seasonally adjusted, percent)
Educated
Non-Educated
Employment (non-farm, private, million)
Average Duration of Unemployment (week)
Discouraged Workers (million)
Part-time Workers (million)
First-time Appliers to Unemployment Benefits
(average monthly, thousand)
2012
2007
2010
Q1
Q2
Q3
Q4
January
February
March
4.6
9,6
9.0
9.0
9.1
8.7
8.3
8.3
8.2
2.7
6.3
5.8
6.0
6.0
5.8
5.5
5.5
5.6
5.0
115.4
16.9
1.4
4.4
11.4
107.4
33.1
2.5
8.9
10.5
108.5
37.8
2.7
8.4
10.8
109.1
39.2
2.5
8.6
10.6
109.5
40.3
2.6
8.8
10.1
110.0
40.3
2.6
8.5
9.5
110.5
40.1
2.8
8.2
9.4
110.7
40.0
2.6
8.1
9.1
110.8
39.4
2.4
7.7
319
460
409
438
404
393
381
373
357
Source: Bloomberg.
In addition, the U.S. real estate market has yet to recover fully, thus
feeding into concerns over the sustainability of the last quarter’s favorable
outlook (Chart 2.1.5). The ongoing deleveraging by households, real estate
market problems, elevated oil prices and concerns over the Euro Area continue
to pose downside risks to U.S. growth. As a matter of fact, the headline PMI
edged up in the first quarter, while declining back to December figures in
March (Chart 2.1.6).
Chart 2.1.5.
Chart 2.1.6.
Real Estate Prices in the U.S.
PMI Indices in the U.S.
S&P Case Schiller
Headline
FHFA
New Orders
65
222
60
197
55
50
172
45
40
147
35
30
122
25
97
Source: Bloomberg.
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0112
0111
0110
0109
0108
0107
0106
0105
0104
0103
0102
20
Source: Bloomberg.
In the last quarter of 2011, the Euro Area growth slowed down to 2-year
low, by registering a quarterly growth of 0.7 percent in annualized terms. Having
posted the 2-year low by end-2011, manufacturing industry and services PMI
edged up in the first quarter of 2012, still registering a reading below 50
(Chart 2.1.7).
14
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.1.7.
PMI Indices in the Euro Area
Manufacturing Industry
Services
60
55
50
45
40
35
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
30
Source: Bloomberg.
The Chinese economy, which provided the highest contribution to growth
in emerging economies during the post-crisis recovery period, decelerated
further in the first quarter of 2012, registering a lower-than-expected growth by a
year-on-year 8.1 percent. The Chinese economic growth was mainly driven by
consumption, while slightly fuelled by external demand (Chart 2.1.8). In the
period ahead, leading indicators imply an accelerated GDP growth for China,
while the recent fluctuations in the Chinese housing market should be carefully
monitored in terms of their possible effects on growth. As of March, commercial
and residential property sales declined notably by a year-on-year 15 percent
and 18 percent, respectively (Chart 2.1.9).
Source: Bloomberg.
0310
0909
Residential
0309
0908
0308
0907
0307
0906
Commercial
0306
0312
0911
0311
0910
-40
0310
0
0909
-20
0309
50
0908
0
0308
100
0907
20
0307
150
0906
40
0306
200
0905
60
0305
80
250
0904
300
0304
100
0312
(Annual Percent Change)
350
0911
Property Sales in China
(12-Month Cumulative, Billion USD)
0311
Chart 2.1.9.
Trade Balance
0910
Chart 2.1.8.
Source: Bloomberg.
Global growth forecasts remained broadly unchanged in the interreporting period. Global PMI figures indicate that manufacturing industry and
services edged up in early-2012, while declining back by March (Chart 2.1.10).
Inflation Report 2012-II
15
Central Bank of the Republic of Turkey
Chart 2.1.10.
Chart 2.1.11.
JP Morgan Global PMI Indices
Global Production Indices*
(2008Q2=100)
Manufacturing Industry
January 2012 (Export-Weighted)
April 2012 (Export-Weighted)
January 2012 (GDP-Weighted)
April 2012 (GDP-Weighted)
Services
65
108
60
106
55
104
50
102
45
100
40
98
35
96
Actual
Forecast
94
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
30
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
2009
2010
2011
2012
* Weighted by each countries’ share in Turkey’s exports.
Source: Bloomberg, Consensus Forecasts, CBRT.
Source: Bloomberg.
Year-end global growth forecasts also remained unchanged in the interreporting period. On the other hand, year-end growth forecasts for the U.S.
economy were revised slightly upwards, while growth projections in Italy, Spain
and Greece were lowered, thus pulling the Euro Area forecasts down in April
(Table 2.1.2). The revised GDP and export-weighted global production indices
by April forecasts of the Consensus Economics remained in consistent with the
outlook presented in the January Inflation Report, confirming that global
problems will continue to weigh on external demand in the period ahead,
given the absence of prospects for a strong recovery in external economies.
Against this backdrop, the external demand outlook for the baseline scenario
was kept unchanged from the previous Report (Chart 2.1.11).
Table 2.1.2.
Growth Forecasts for end-2012
(Annual Percent Change)
World
Advanced Economies
U.S.A.
Euro Area
Germany
France
Italy
Spain
Greece
Japan
U.K.
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil
Eastern Europe
January
April
2.6
2.6
2.2
-0.3
0.5
0.0
-1.3
-0.4
-4.1
1.9
0.5
2.3
-0.4
0.7
0.3
-1.5
-1.6
-5.4
2.0
0.7
5.0
8.4
7.3
3.5
3.3
2.6
5.0
8.4
7.2
3.7
3.3
2.8
Source: Consensus Forecasts.
16
Inflation Report 2012-II
Central Bank of the Republic of Turkey
2.2. Commodity Prices
In the first quarter of 2012, the headline commodity prices hit the 4quarter high on surging energy prices. Industrial metal prices initially trended
upwards upon the favorable data releases for China and the U.S. economy, in
addition to steps taken towards the solution of the Euro Area debt crisis, while
declining back due to heightening downside risks to growth in these
economies. Precious metal prices, which climbed in January on prospects for a
new round of easing, went down amid weakening of these prospects.
Moreover, the declaration of the Indian government to raise gold-import tax led
to a contraction in physical gold demand in India, which is renowned with its
traditionally strong demand for physical gold (Charts 2.2.1 and 2.2.2).
Chart 2.2.1.
Chart 2.2.2
S&P Goldman Sachs Commodity Prices Indices
Crude Ooil (Brent) Prices*
(January 2009=100)
Headline
Industrial Metals
Precious Metals
280
(USD/bbl)
Energy
Agriculture
Spot
0713
0113
0712
0112
0711
0111
0710
0110
40
0109
80
0112
60
0711
120
0111
80
0710
160
0110
100
0709
200
0109
120
0709
140
240
Source: Bloomberg.
Futures (January)
Futures (April)
* Futures (January) and Futures (April) denote the arithmetical
average of the prices quoted in futures contract during January 1 and
January 16, and April 1 and April 16, respectively.
Source: Bloomberg.
Supply-side developments continued to pose upside risk to oil prices,
causing oil prices to record ever high levels since the 2011 turmoil in Libya. EU’s
decision for an embargo on Iran will be put into effect on July 1, driving both
European as well as other countries to seek for alternative oil suppliers in order to
meet their crude oil need, thereby generating significant fragility by raising
political risks in the region and decreasing the effective idle production
capacity upon the withdrawal of Iran’s crude oil from the international market.
Meanwhile, the declaration by Saudi Arabia to raise production capacity in
order to meet the need for crude oil in the event that Iran withdraws from the
international oil market, stood out as a favorable development regarding the
crude oil market.
Inflation Report 2012-II
17
Central Bank of the Republic of Turkey
In the last quarter of 2011, non-OPEC countries have also posed supplyside pressures on oil. Crude oil produced in Southern Sudan is refined and
pipelined in Sudan to international markets. Following the dispute between the
two countries on the duty rates to apply to transportation of oil trade, Southern
Sudan shut down oil production. Additionally, the technical setbacks in the
North Sea, besides the persisting turmoil in Syria and Yemen weighed on oil
supply.
The cold winter season in Europe and Russia as well as Japan’s rising
demand for oil as an alternative to nuclear energy in electricity production
caused an increased demand for crude oil, and posed an upside pressure on
oil prices. The soaring unconventional oil production in the U.S. and the relatively
milder winter season alleviated the upside pressures on oil prices. Against this
background, the course of oil inventories varied by region, while assuming a
downward trend when OECD countries are taken into account. Hence, the
spread between WTI and Brent oil prices widened (Charts 2.2.3 and 2.2.4).
Chart 2.2.3.
Chart 2.2.4.
OECD Crude Oil Inventories*
Oil Prices
(Million Barrel)
(USD/bbl)
2800
130
2750
30
Brent
WTI
120
25
Spread
2700
110
20
100
15
90
10
80
5
2450
70
0
2400
60
-5
2650
2600
* Dotted lines denote projections on oil inventories.
Source: U.S. Department of Energy.
0412
0112
1011
0711
0411
0111
1010
0710
0410
0113
0112
0111
0110
0109
0108
0107
0106
0105
0104
2500
0110
2550
Source: Bloomberg.
Prices of agricultural products edged up in the first quarter. Despite the
increase in cultivated lands and production, the dry and hot weather
conditions in Latin America, Argentina in particular, coupled with the probability
of an adverse impact of the cold winter season in Europe on the agricultural
production of Russia and Ukraine in particular, are considered to create
significant uncertainty on the prices of agricultural products (Table 2.2.1).
18
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Table 2.2.1.
Production, Consumption and Inventory Forecasts for Agricultural Commodities*
2009/2010
2010/2011
2011/2012
167.1
685.6
65.0,2
202.5
202.5
651.1
654.8
198.7
198.7
694.3
686.8
206.3
147.6
819.4
822.8
144.1
144.1
829.0
848.1
125.0
125.0
865.0
867.3
122.7
60.8
102.6
47.1
116.6
50.5
123.1
119.0
47.1
114.5
50.5
107.7
66.1
WHEAT(million tons)
Initial Inventory
Production
Consumption
Period-end Inventory
CORN (million tons)
Initial Inventory
Production
Consumption
Period-end Inventory
COTTON (million bales)
Initial Inventory
Production
Consumption
Period-end Inventory
* The figures may be inconsistent due to discrepancies among countries on exports and imports data, as well as
the loss and damage in the marketing network.
Source: US Department of Agriculture.
In sum, the fragile global growth outlook and the supply-side problems
mainly fed by the energy sector generate upside risk on commodity prices,
thereby constituting a major risk factor on the course of the global economic
activity in the period ahead.
2.3. Global Inflation
In the first quarter of 2012, inflation rates remained flat in advanced
economies, while continuing to plunge in emerging economies (Chart2.3.1). The
appreciation of exchange rate in emerging economies amid resurging capital
inflows by early-2012 was influential on the course of inflation. Meanwhile, the
high base effect in inflation due to elevated commodity prices in the first
quarter of 2011 has started to wane, therefore accelerating the fall in inflation.
In the meantime, core inflation rates moved in tandem with the headline
inflation in both advanced and emerging economies (Chart 2.3.2).
Chart 2.3.1.
Chart 2.3.2.
CPI Inflation in Advanced and Emerging
Economies
Core Inflation in Advanced and Emerging
Economies
(Seasonally Adjusted, Annual Percent Change)
Inflation Report 2012-II
0112
0711
0111
0710
0109
0708
0108
0112
0
0711
-2
0111
1
0710
0
0110
2
0709
3
2
0109
4
4
0708
5
6
0108
8
Source: Bloomberg, CBRT.
Advanced Economies
Emerging Economies
6
Emerging Economies
0110
Advanced Economies
10
0709
(Seasonally Adjusted, Annual Percent Change)
Source: Bloomberg, Datastream, CBRT.
19
Central Bank of the Republic of Turkey
Inflation compensation soared in the first quarter, especially in the Euro
Area, on the recently surging energy prices, as well as the expansionary
monetary policies implemented by major central banks (Chart 2.3.3).
Chart 2.3.3.
Inflation Compensation in the U.S. and the Euro Area
(Percent)
U.S.A.
3.5
Euro Area
3.0
2.5
2.0
1.5
1.0
0.5
0112
0711
0111
0710
0110
0709
0109
0708
0108
0.0
Source: Bloomberg.
Global inflation forecasts for 2012 were revised upwards in the interreporting period (Table 2.3.1). In the U.S. economy, the optimism brought about
by the better-than-expected macroeconomic data led to notable upward
revision of inflation expectations. In the Euro Area, the rising energy prices
besides the tax rate hikes under the fiscal measures adopted by the debtridden countries were the major factors leading to upward revisions in inflation
forecasts. The persistence of the surge in commodity prices may pose an upside
pressure on global inflation in the period ahead.
Table 2.3.1.
Inflation Forecasts for end-2012
(Annual Percent Change)
World
Advanced Economies
U.S.A.
Euro Area
Germany
France
Italy
Spain
Greece
Japan
U.K.
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil
Eastern Europe
January
April
2.8
3.0
1.9
1.9
1.8
1.7
2.3
1.6
0.8
-0.3
2.7
2.3
2.3
2.0
2.1
3.0
1.8
0.9
-0.2
2.8
4.0
3.5
7.2
6.2
5.3
6.3
3.8
3.3
7.0
6.0
5.1
6.4
Source: Consensus Forecasts.
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
2.4. Financial Conditions and Risk Indicators
The prevention of a disorderly Greek default amid the completion of debt
restructuring improved perceptions about the Euro Area debt crisis, while ECB’s
embarking on the second 3-year liquidity operation also eased markets.
Moreover, the better-than-expected macroeconomic data in the U.S.,
especially for the labor market, also contributed to the air of confidence.
Accordingly, global risk appetite soared in the first quarter of the year. However,
the resurge of bond yields in Spain due to worsening economic outlook and the
lower-than-anticipated rise in the U.S. employment in March adversely affected
the risk appetite, thereby interrupting the course of improvement as of earlyApril (Chart 2.4.1).
Chart 2.4.1.
Global Risk Appetite
(Point)
Credit Suisse Risk Appetite Index
VIX (inverted, right axis)
10
0
8
15
6
4
30
2
0
45
-2
-4
60
-6
0112
0711
0111
0710
0110
0709
0109
0708
75
0108
-8
Source: Bloomberg, Credit Suisse.
In tandem with the soaring risk appetite, stock markets trended upwards
in both advanced and emerging economies. Similarly, emerging market
currencies, which saw notable depreciations in the second half of 2011 due to
aggravating Euro Area debt crisis, re-appreciated in this period amid soaring risk
appetite. However, emerging market currencies depreciated again amid the
considerable deterioration in the risk appetite by early-April (Charts 2.4.2
and 2.4.3).
Inflation Report 2012-II
21
Central Bank of the Republic of Turkey
Chart 2.4.2.
Chart 2.4.3.
Global Stock Markets
Emerging Market Currencies *
(December 2007=100)
MSCI - Emerging Economies
135
MSCI - Advanced Economies
120
120
90
105
60
0112
0711
0111
0710
0110
0709
0109
0708
0112
0711
0111
0710
0110
0709
0109
0708
0108
Source: Bloomberg.
0108
90
30
* Arithmetical average of the exchange rates of emerging market
currencies against the currency basket of 1 USD and 1 euro. Equals
100 on June 2007 and an upward movement denotes depreciation
of the emerging market currencies.
Source: Bloomberg.
Despite adopted measures by the ECB and the capital enhancing plans
proposed in accordance with the advice by the European Banking Authority,
the Euro Area debt crisis continues to adversely affect the banking sector. As a
matter of fact, the latest Global Financial Stability Report released by the IMF
states that the Euro Area banking sector is expected to go through a substantial
deleveraging, which will not only worsen the credit markets in the region, but
also the international money and capital markets.
TED and OIS spreads narrowed after the completion of the first 3-year
liquidity operation at the end of December 2011, while remaining high
compared to pre-turmoil period before the second half of 2011 (Chart 2.4.4).
The euro–USD swap rate also remained high, despite having declined as of end2011, and trended upwards in tandem with the re-elevation of concerns over
Spain (Chart 2.4.5). Notwithstanding the declining USD liquidity in the first quarter
of 2012 provided by the liquidity swap agreement between Fed and other
central banks in order to overcome the global USD liquidity crunch, the swap
rate remained in the negative area, pointing that the counterparty risk is a
major problem, thus confirming the outlook implied by the TED and OIS spreads.
22
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.4.4.
Chart 2.4.5.
3-month TED and OIS Spreads
Euro/USD Currency Swap Rate
(Point)
(1-Year, Basis Point)
0108
Source: Bloomberg.
0112
-135
0711
0
0111
-115
0710
0.5
0110
-95
0112
1
0711
-75
0111
1.5
0710
-55
0110
2
0709
-35
0109
2.5
0708
-15
0108
3
0709
5
OIS Spread
0109
TED Spread
0708
3.5
Source: Bloomberg.
In fact, the current reading on the ITraxx Europe Senior Financials Index
indicates the high level of premium paid against counterparty risk (Chart 2.4.6).
The loss of confidence in the Euro Area banking sector results in higher cost of
borrowing from alternative financing resources.
Chart 2.4.6.
ITraxx Europe Senior Financials Index
(5-year, Basis Point)
350
300
250
200
150
100
50
0112
0711
0111
0710
0110
0709
0109
0708
0108
0
Source: Bloomberg.
The Euro Area debt crisis and its adverse effects on the banking sector
bring about setbacks in the credit mechanism, leading to heightened concerns
over the sustainability of a steady growth. The recent lending survey released by
the ECB pointed that credit conditions were significantly tightened in the
second half of 2011, and credit demand edged down (Chart 2.4.7). Meanwhile,
the latest lending survey of the Fed indicated a decline in credit demand
despite the absence of a notable tightening in credit conditions (Chart 2.4.8).
Inflation Report 2012-II
23
Central Bank of the Republic of Turkey
Chart 2.4.7.
Chart 2.4.8.
Lending Survey in the Euro Area*
Lending Survey in the U.S.*
(Percent)
(Percent)
Loan Standards (Large Firms)
Loan Standards (SME)
Loan Demand (Large Firms)
Loan Demand (SME)
Loan Standards (Large and Middle-Market Firms)
Loan Standards (Small Firms)
Loan Demand (Large and Middle-Market Firms)
-40
-40
-60
-60
* Upward movements indicate tightening in credit conditions.
Source: ECB.
2003
2012
2011
2010
2009
2008
2007
2006
2005
-100
2004
-80
-100
2003
-80
2012
-20
2011
0
-20
2010
20
0
2009
40
20
2008
60
40
2007
80
60
2006
80
2005
100
2004
Loan Demand (Small Firms)
100
Source: Fed.
Analysis of the commercial paper market as well as the asset-backed
securities market in the U.S. is crucial in order to better evaluate the debt
market. The U.S. commercial paper market, which significantly met the liquidity
needs of the financial and the corporate sector in the pre-crisis period, failed to
improve markedly and remained quite below the peak in midst-2007 (Chart
2.4.9). The U.S. commercial paper market, which provides an important source
of liquidity to the European banking sector1, faced challenges regarding new
issues and posted notable declines in the outstanding amount during May 2010
and the second half of 2011, which were both marked by the deepening of the
debt crisis. Having expanded enormously in the pre-crisis period, and thus being
criticized for generating asset bubbles, the U.S. asset-backed securities market
has recently experienced a pause in the downward course of new issues, with
the
outstanding
amount
hovering
quite
below
the
pre-crisis
period
(Chart 2.4.10).
1
Share of foreign financial sector participants is 18 percent as of April 2012.
24
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.4.10.
Chart 2.4.9.
U.S. Asset-Backed Securities Market
Outstanding Commercial Paper in the U.S.
(Billion USD)
(Trillion USD)
Total
Pay Down
New Issue
Outstanding Amount (right axis)
Financial Sector (right axis)
2.5
0.9
100
3500
75
3000
50
2
0.7
2500
25
2000
0
1.5
1500
-25
0.5
1000
-50
1
500
-75
2012*
2011
2010
2009
2008
2007
2006
2005
0
2004
-100
2003
0112
0111
0110
0109
0108
0107
0106
0105
0104
0.3
0103
0.5
* As of March.
Source: Bloomberg.
Source: Fed.
The favorable performance of asset markets in the first quarter of 2012
amid declining risk perception and increasing risk appetite was interrupted by
heightening concerns over Spain, thus signifying the severity of the Euro Area
debt crisis as well as the fragility of the financial markets. Fragilities are also likely
to soar in the event of a lower-than-anticipated economic growth, especially in
the U.S. and China. Moreover, in a period of rapidly surging asset prices and
globally eased monetary policies, inert debt markets besides mounting
concerns over the acting institutions in the market necessitate further cautious
stance.
2.5. Capital Flows
Having experienced outflows in the last quarter of 2011, emerging
economies have seen capital inflows since early-2012. In tandem with the
improving
risk
appetite,
emerging
economies
witnessed
a
gradually
accelerating capital flows in the first two months of the year. Capital inflows
continued in March, albeit at a slower pace. Accordingly, capital inflows
balanced the outflows in the last quarter of 2011, while also registering the 1year high on a quantity basis. The breakdown of portfolio flows indicates that
investors opted for equities in January and February, while mostly demanding
bonds in March. Amid deterioration in the risk appetite as of early-April,
emerging economies experienced capital outflows, especially from the equity
funds (Chart 2.5.1).
Inflation Report 2012-II
25
Central Bank of the Republic of Turkey
Chart 2.5.1.
Portfolio Flows to Emerging Economies
(Billion USD))
Equity Funds
Bond Funds
10
45
VIX Index (right axis)
8
40
6
4
35
2
30
0
-2
25
-4
20
-6
15
-8
280312
290212
010212
040112
071211
091111
121011
140911
170811
200711
220611
250511
270411
300311
020311
020211
10
050111
-10
Source: EPFR, Bloomberg.
Regional breakdown of portfolio flows to emerging economies shows that
Latin American countries have recently attracted capital flows, which more
than compensated for the outflows experienced in the previous quarter.
Meanwhile, owing to the deteriorating growth expectations for the Euro Area,
capital flows to emerging Europe, which has strong commercial and financial
connections with the Euro Area countries, remained fairly limited.
Table 2.5.1.
Regional Breakdown of Portfolio Flows to Emerging Economies*
(Million USD, Percent)
Total
2011Q4
-11,553
2012Q1
32,429
Emerging Asia Latin America
-5,437
(47.1)
14,744
(45.5)
-2,552
(22.1)
9,333
(28.8)
Emerging
Europe
-3,050
(26.4)
5,685
(17.5)
MENA
-514
(4.5)
2,667
(8.2)
* Share of each region is given in parenthesis.
Source: EPFR.
2.6. Global Monetary Policy Developments
In the first quarter of 2012, monetary policy practices continued to remain
loose, albeit at a slower pace, thereby underpinning the easing which was
stated in the previous Report. The global economic activity remained noninflationary, while supply-side problems, especially in oil prices, were interpreted
by the central banks as the major factor to pose upside pressure on inflation.
Against this background, policy rates were either lowered slightly or kept
constant in general.
In the first quarter of 2012, the composite policy rate in advanced
economies edged down on a quarterly basis, while Israel, Sweden and Norway
opted for 25 basis points reduction (Charts 2.6.1 and 2.6.2).
26
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.6.1.
Chart 2.6.2.
Policy Rate Changes in Advanced Economies
from Jan. 2010 to Apr. 2012
(Basis Point)
Apr'12
Feb'12
2011Q4
200
Policy Rates in Advanced Economies*
(Percent)
Mar'12
Jan'12
2010Q1 - 2011Q3
4.5
4.0
150
3.5
100
3.0
50
2.5
0
2.0
-50
1.5
1.0
Czech Rep.
0.5
* As of April 24, 2012.
Source: Bloomberg, CBRT.
0312
0911
0311
0910
0310
0909
0309
0908
0308
0.0
0907
Japan
Euro Area
Norway
Canada
Australia
South Korea
Sweden
Israel
-100
* As of April 24, 2012.
Source: Bloomberg, CBRT.
Policy rates in advanced economies are expected to remain low for an
extended period of time (Chart 2.6.3). In fact, Fed sent no signals for a deviation
from its low long-term policy rate policy, which was announced at the start of
the year. Given the unfavorable prospects for economic activity, especially in
the Euro Area, other major central banks are also unlikely to opt for tightening
until the year-end. In the inter-reporting period, policy rate expectations differed
mostly for the Euro Area countries. In January, the ECB was expected to lower
policy rate by an additional 25 basis points until the year-end, while in April, the
policy rate was expected to be fixed until the second half of 2013. Central
banks in advanced economies, excluding Fed, ECB, BoE and BoJ, are expected
to deliver limited policy rate hikes, especially in the first half of 2013 (Chart 2.6.3).
Chart 2.6.3.
Expected Policy Rates in Advanced Economies
(Percent)
April 24, 2012
5
2012 Year-end
2013Q2
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
U.S.A.
Euro
Area
U.K.
Japan
Canada Australia
South
Korea
Sweden
Source: Bloomberg.
Inflation Report 2012-II
27
Central Bank of the Republic of Turkey
As for the emerging economies, Colombia continued with policy rate
hikes in the first quarter of 2012, while Brazil and Romania diverged from peeremerging economies, by opting for sizeable reductions of 125 and 75 basis
points, respectively. Brazil continued to lower policy rates in April, delivering a
rate cut by 75 basis points. Meanwhile, other emerging economies either kept
their policy rates unchanged or imposed slight reductions (Chart 2.6.4). The
composite index suggests that in the first quarter of 2012, the average policy
rate in emerging economies posted a quarterly decline by 25 basis points to
5.97 percent, and further down to 5.79 percent, following Brazil’s rate cut in April
(Chart 2.6.5). Meanwhile, China and India 2 kept their policy rates unchanged in
the first quarter, while pursuing monetary easing through other policy
instruments. More specifically, China and India reduced required reserve ratios
by 50 and 75 basis points, respectively, while India also opted for quantitative
easing through bond purchases in March. Moreover, the Reserve Bank of India
delivered a discount rate hike by 350 basis points, while also underlining that
rather than being a monetary policy maneuver, the discount rate hike was a
one-time technical adjustment.
Chart 2.6.4.
Chart 2.6.5.
Policy Rate Changes in Emerging Economies from
January 2010 to April 2012*
(Basis Points)
Apr'12
Jan'12
600
500
400
300
200
100
0
-100
-200
-300
-400
Mar'12
Feb'12
2011Q4
2010Q1 - 2011Q3
Policy Rates in Inflation-Targeting Emerging
Economies
(Percent)
Emerging Economies
Turkey
18
16
14
12
10
6
0312
0911
0311
0910
0310
0909
0309
0908
0308
4
0907
Romania
Turkey
South Africa
Russia
Hungary
Colombia
Indonesia
Poland
Malaysia
Peru
Thailand
Chile
Brazil
8
* As of April 24, 2012.
Source: Bloomberg, CBRT.
Expected policy rates for end-2012 differ across countries. Accordingly,
some countries are expected to keep their policy rates unchanged, while
others are expected to deliver policy rates hikes (Chart 2.6.6). However,
expected changes in policy rates are fairly limited, with no expectation for an
aggressive policy response.
2
India lowered policy rates by 50 basis points in April.
28
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 2.6.6.
Expected Policy Rates in Emerging Economies
(Basis Point)
April 24, 2012
202 Year-end
2013Q2
14
12
10
8
6
4
2
Turkey
Poland
South Africa
Thailand
Philippines
Indonesia
China
Chile
Peru
Mexico
Colombia
Brazil
0
Source: Bloomberg.
Inflation Report 2012-II
29
Central Bank of the Republic of Turkey
Box
Recent Developments in the Euro Area
2.1
In
the first quarter of 2012, the ECB conducted further operations regarding
European banks. Completion of the Greek debt restructuring and the approval of
the new aid package were important steps towards the improvement of the
global risk appetite, which was interrupted owing to the resurge in borrowing costs
in Spain and Italy from April onwards. In that respect, the failure to immediately
enforce the fiscal consolidation measures across the region stands out as a major
factor to heighten uncertainties regarding debt sustainability. Against this
background, this Box briefly evaluates recent developments that stand out in the
Euro Area.
ECB
conducted its second 3-year Long-Term Refinancing Operation (LTRO) on
February 29, after running the first on December 21, 2011. With an increased
number of participating banks from the previous operation, 800 banks within the
Eurosystem were provided with a liquidity of euro 530 billion (Chart 1). Although a
sizeable share of the provided liquidity was consequently retained as deposits at
the ECB, the liquidity operations were deemed successful given the limited access
of the Euro Area banks to alternative funding resources. As a matter of fact, the
declining bond yields of the heavily-indebted countries following the operation
alleviated the controversies over debt sustainability.
Chart 1. Long-Term Refinancing Operation and
Bank Deposits
Chart 2. Bond Yield Spreads in Heavily-Indebted
Countries over German Bonds (10-year, Points)
(Billion Euro)
LTRO
1200
Portugal
Ireland
Spain
Italy
Greece (right axis)
18
36
3
6
0
0
0
0412
30
0112
200
1011
12
0711
6
0411
400
0111
18
0112
9
0711
600
0111
24
0710
12
0110
800
0709
15
0109
1000
Source: Bloomberg.
30
Bank Deposits
Source: Bloomberg.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
The gradually deepening debt sustainability problem in Greece was resolved in
March. Under the Private Sector Involvement, 86 percent of the Greek
bondholders agreed to participate in the voluntary swap, and 96 percent of the
outstanding debt was converted upon the government’s retroactively insertion of
the Collective Action Clause. Hence, the Greek debt stock was lowered by euro
100 billion. After the completion of the debt swap and the approval of the
requested structural and cyclical measures at the parliament, EU countries and
the IMF agreed on the release of the aid package amounting to euro 130 billion.
Accordingly, the debt stock to GDP ratio in Greece, which was expected to reach
189 percent in 2012, is estimated to go down to 120 percent by 2020.
Following the debt swap, the bond yield spreads of the Greek bonds dropped,
while bond rates in Portugal, Italy and Spain soared, thereby fuelling concerns
over the region (Chart 2). Contraction of the economic activity, rising
unemployment as well as banking sector problems caused bond yield spreads to
surge, while also deteriorating the risk appetite, thus adversely affecting the nonEuro Area countries as well.
Chart 3. Bad Loans to Total Loans in Spain
Chart 4. Housing Price İndex for Spain
(Percent)
(Nominal, 1995=100)
8
360
7
300
6
240
5
4
180
3
120
2
60
1
Source: Bank of Spain.
Inflation Report 2012-II
2011
2009
2007
2005
2003
2001
1999
1997
1995
2012
2010
2008
2006
2004
2002
0
2000
0
Source: Bank of Spain.
31
Central Bank of the Republic of Turkey
Heavy job loss experienced by the contractual employees that constitute one
thirds of the total labor force was the major source of unemployment in Spain with
a rigid labor market structure.3 Besides labor market problems, the ongoing fall in
the real estate prices led to a surge in bad loans, thus affecting the banking
sector adversely (Chart 3 and 4). The breakdown of bad loans by sectors show
that construction and the related sectors constitute a major portion of the overall
bad loans.
In the period ahead, the Euro Area debt crisis will continue to play a major role
over the course of the global risk appetite. Thus, Euro Area countries should
closely be monitored with respect to their growth and budget performances as
well as their labor market developments. Furthermore, aggravation of the
economic problems in Spain is considered to be the major risk factor in the short
term.
Spain ranks above the OECD average in the index for the strictness of the Employment Protection Legislation, thus implying
that the Spanish labor markets are strict. The contractual employment conditions regulated by the reform program of 1980s
constitute a dual structure in the labor market. Due to average maturity of contracts, which is less than 1 year, contractual
employment declines rapidly and drastically during contractionary periods of demand. This dominating labor market structure
in Spain leads to comparatively notable fluctuations in unemployment than in other advanced countries.
3
32
Inflation Report 2012-II
Central Bank of the Republic of Turkey
3. Inflation Developments
3.1. Inflation
In the first quarter of 2012, annual consumer inflation stood at 10.43
percent, remaining broadly unchanged from the previous quarter. The
accelerative effect of the higher-than-envisioned increases in energy prices
due to developments in international oil prices was contained by the recently
favorable course of unprocessed food prices. Having soared due to
depreciation of the Turkish lira throughout 2011, annual inflation in core goods
assumed a downward course in the first quarter of the year. Meanwhile, prices
of services remained moderate. Hence, inflation remained close to January
Inflation Report forecasts in the first quarter.
Across subcategories, quarterly price changes in main expenditure
groups excluding energy and core goods were below the average of the past
years in the first quarter (Chart 3.1.1). Energy prices had a major effect on the
lingering of high annual inflation in this period. Annual energy inflation rose by 3
percent in the first quarter, adding an extra 0.46 percentage points to inflation
compared to end-2011 (Chart 3.1.2). Meanwhile, the contribution of food
inflation was down by 0.22 percentage points amid the mild course of
unprocessed food prices. Adverse effects of the depreciation in the Turkish lira
on core goods, especially on durables, largely tapered off in this period, and
the contribution of core goods to annual inflation declined by 0.15 percentage
points. Meanwhile, the contribution of services prices to inflation remained
unchanged.
Overall, energy prices posted a higher-than-envisioned rise in the first
quarter amid the upward course of oil prices. Persisting uncertainties regarding
oil prices feed into upside risks on short-term inflation outlook. On the other
hand, the relatively favorable course of unprocessed food prices poses
downside risks to inflation.
Inflation Report 2012-II
33
Central Bank of the Republic of Turkey
Chart 3.1.1.
Chart 3.1.2.
CPI by Subcategories
Contribution to Annual CPI Inflation
(First-Quarter Percent Change)
2006-2011 Average
Core Goods**
Tobacco and Gold*
2012
10
14
8
12
6
Services
Food and Energy***
10
4
8
2
0
6
-2
4
-4
2
-6
Energy Tobacco Core Services
and Goods**
Gold*
CPI
0
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
0611
0911
1211
0312
Food
* Tobacco and Gold: Alcoholic beverages, tobacco and gold.
** Core Goods: Goods excluding food, energy, alcoholic beverages, tobacco and gold.
*** Food and Energy: Food, non-alcoholic beverages and energy.
Source: TurkStat, CBRT.
In the first quarter of the year, unprocessed food prices recorded an alltime-low first-quarter increase with 3.66 percent, and registered an annual
inflation going down to 13.35 percent (Table 3.1.1). In seasonally adjusted terms,
subsequent to the surge in the last quarter of 2011, the unprocessed food prices
declined amid the favorable course of fresh fruit and vegetable prices
(Chart 3.1.3). Having soared substantially in the previous quarter, prices of fresh
fruits and vegetables saw notable downward corrections despite adverse
weather conditions (Chart 3.1.4). Thus, unprocessed food inflation was below
January Inflation Report forecasts in this period, with a declining contribution to
annual inflation down by 1.69 percentage points.
Chart 3.1.3.
Chart 3.1.4.
Unprocessed Food Prices
Fresh Fruit and Vegetable Prices and the CPI
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
(Seasonally Adjusted, Index, 2003=100)
100
260
80
240
60
220
Fresh Fruit and Vegetable Prices
CPI
200
40
180
20
160
0
140
-20
Source: TurkStat, CBRT.
34
1211
0311
0610
0909
1208
0308
0607
0906
0305
0312
1011
0511
1210
0710
0210
0909
0409
1108
80
0608
-60
0108
100
1205
120
-40
Source: TurkStat, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Annual processed food inflation posted a quarter-on-quarter decline by
0.38 percentage points to 9.44 percent (Chart 3.1.5). In this period, the rise in
bread prices by 5.15 percent amid the arrangement in the communique on
Bread and Bread Varieties of the Turkish Food Codex, was the main factor to
contain the decline in annual processed food inflation. Meanwhile, quarterly
inflation in the processed food prices excluding bread remained below
seasonal averages, and decelerated quarter-on-quarter. Having accelerated
since the last quarter of 2010 in line with both domestic and international
developments, prices of fats and oils remained on an upward track, albeit at a
slower pace (Chart 3.1.6). Following the surge in the previous quarter, prices of
dairy products edged down in this period in tandem with the decline in milk
prices, while processed meat products accelerated slightly quarter-on-quarter.
Overall, annual food inflation dropped to 11.25 percent and remained below
the January Inflation Report projections amid the developments in unprocessed
food prices.
Chart 3.1.5.
Chart 3.1.6.
Food Prices
Selected Processed Food Prices
(Annual Percent Change)
(Index, 2003=100)
Processed Food
Processed Meat and Milk Products
Bread and Cereals
Solid and Liquid Fats
Unprocessed Food
35
210
30
200
25
190
180
20
170
15
160
10
150
5
Source: TurkStat, CBRT.
1211
0611
1210
0610
1209
0609
1208
0608
0607
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
110
0309
120
-10
1208
130
-5
1207
140
0
Source: TurkStat, CBRT.
Fuel prices soared by 8.07 percent in the first quarter amid the surge in
international oil prices. Consequently, energy prices rose by 5.08 percent,
adding 0.74 percentage points to inflation in the respective period (Chart 3.1.7
and Table 3.1.1). In the meantime, bottled gas and solid fuel prices also posted
increases well above historical averages by 8.59 and 5.55 percent, respectively.
In addition, water tariff hikes were close to seasonal averages, while increases
to electricity and natural gas tariffs were relatively mild. Thus, annual energy
inflation went up by a quarter-on-quarter 3 percentage points to 13.39 percent
in the first quarter. Hikes in oil prices were reflected on electricity and natural
Inflation Report 2012-II
35
Central Bank of the Republic of Turkey
gas prices by April, thus pulling energy prices up by 3.5 percentage points, and
adding about 0.5 points to CPI inflation.
Chart 3.1.7.
Chart 3.1.8.
Energy Prices
Prices of Core Goods and Services
(Index, 2003=100)
Home Utilities*
(Annual Percent Change)
Fuel
Energy
Core Goods
260
14
240
12
Services
10
220
8
200
6
180
4
160
* Home utilities include electricity, water, natural gas, bottled gas
and solid fuel.
Source: TurkStat, CBRT.
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
0309
-2
0908
120
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
0611
0911
1211
0312
0
1208
2
140
Source: TurkStat, CBRT.
Table 3.1.1.
Prices of Goods and Services
(Quarterly and Annual Percent Change)
CPI
1. Goods
Energy
Food and Non-Alcoholic Beverages
Unprocessed Food
Processed Food
Goods (excl. energy and food)
Core Goods
Durable Goods (excl. gold)
Alcoholic Beverages, Tobacco and
Gold
2. Services
Rent
Restaurants and Hotels
Transport
Communication
Other Services*
I
II
2011
III
IV
Annual
2012
I
1.57
1.53
2.27
3.77
5.08
2.61
-0.68
-1.08
4.26
1.83
2.05
1.37
-2.46
-5.79
0.57
6.32
7.73
1.85
1.07
0.73
2.34
1.18
-1.00
3.03
-0.36
-1.55
3.69
5.66
7.29
4.03
9.57
17.23
3.30
6.93
4.92
1.90
10.45
11.97
10.36
12.21
14.89
9.82
12.51
10.09
12.19
1.55
1.54
5.08
2.89
3.66
2.25
-1.14
-1.32
1.41
0.81
1.67
1.08
1.65
2.28
1.96
1.61
1.05
1.22
0.99
1.80
2.10
-1.71
2.14
4.38
2.02
1.35
2.37
3.07
0.35
2.56
14.46
1.22
1.21
2.14
1.73
0.47
0.65
21.70
6.27
4.71
8.20
9.49
1.04
7.12
-0.33
1.57
0.89
1.99
2.12
0.06
2.24
* Services excluding rents, restaurants, hotels, transport and communication.
Source: TurkStat, CBRT.
Having soared throughout 2011, annual inflation in core goods assumed a
downward course by the first quarter in tandem with the alleviating cumulative
effects of exchange rate. Accordingly, core goods posted a year-on-year
inflation by 9.82 percent in March (Chart 3.1.8). On the back of the slowdown in
durable goods inflation, seasonally adjusted data also signaled a slowdown in
the underlying trend of core inflation in the first quarter (Charts 3.1.9 and 3.1.10).
Subsequent to the rise in January, prices of core goods remained unchanged in
36
Inflation Report 2012-II
Central Bank of the Republic of Turkey
February and March amid the declining prices of electrical and non-electrical
home appliances other than automobiles and white goods. Meanwhile, annual
rate of increases in the prices of core goods excluding durables continued to
trend upwards in this quarter (Table 3.1.2). In particular, due to protection
measures on textiles and ready-wear, clothing prices continued to rise both in
seasonally adjusted terms and on an annual basis, notwithstanding the fall in
the manufacturing prices (Chart 3.1.10).
Table 3.1.2.
Prices of Core Goods
(Quarterly and Annual Percent Change)
Core Goods
Clothing and Footwear
Durable Goods (excl. Gold)
Furniture
Electrical and Non-Electrical Appliances
Automobile
Other Durable Goods
Other
I
II
2011
III
IV
Annual
2012
I
-1.08
-12.04
4.26
0.75
2.87
6.31
2.15
1.82
7.73
25.08
1.85
5.04
-1.26
2.29
2.71
2.09
-1.55
-12.13
3.69
2.88
0.34
5.68
1.85
1.54
4.92
11.72
1.90
4.01
3.29
0.52
3.00
3.44
10.09
8.01
12.19
13.25
5.27
15.52
10.06
9.18
-1.32
-10.90
1.41
3.19
0.94
1.09
1.22
2.76
Source: TurkStat, CBRT.
Chart 3.1.9.
Chart 3.1.10.
Prices of Core Goods
Prices of Core Goods
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
(Annual Percent Change)
Core Goods (excl. durables and clothing)
Durable Goods (excl. gold)
Clothing
15
20
15
10
10
5
5
0
0
-5
Source: TurkStat, CBRT.
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
-10
0906
0312
0611
0910
1209
0309
0608
0907
1206
0306
0605
-10
0306
-5
Source: TurkStat, CBRT.
Having risen by 1.57 percent in the first quarter, prices of services lost
pace compared to previous years (Chart 3.1.11). Prices of services increased by
a year-on-year 6.17 percent by the end of the first quarter (Chart 3.1.8). Across
subcategories, rents, restaurants and hotels as well as communication services
posted quarterly price increases below historical averages (Chart 3.1.11). In
particular, prices were flat in the highly competitive communication services,
remaining below the first-quarter figures in 2011 (Chart 3.1.12). Year-on-year
increase in rent was as low as 4.5 percent. Meanwhile, due to the acceleration
Inflation Report 2012-II
37
Central Bank of the Republic of Turkey
of domestic fuel prices, transport services inflation surpassed the average of the
preceding periods. Overall, consumer inflation remained elevated, while prices
of services exhibited a relatively favorable outlook in the first quarter of the year.
Chart 3.1.11.
Chart 3.1.12.
Prices of Services by Subcategories
Prices of Services by Subcategories
(First-Quarter Percent Change)
(Annual Percent Change)
2006-2011 Average
Other*
Communication
Transport
Rent
Restaurants and Hotels
2012
3.0
20
2.5
16
2.0
1.0
8
0.5
4
0.0
0
Other*
-4
-8
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
0611
0911
1211
0312
Transport
RestaurantsHotels
Services
Communication
12
Rent
1.5
* Services excluding rents, restaurants and hotels, transport and communication.
Source: TurkStat, CBRT.
Seasonally adjusted data point to a flat outlook in the underlying trend of
services inflation in the first quarter (Chart 3.1.13). The diffusion index, which
entails information on the extent of the spillover of the price increases, edged
up during the last month, by remaining below the previous quarter on a
quarterly basis (Chart 3.1.14). Subcategories of the diffusion index suggest that
the relative deterioration in the last month was mainly fuelled by transport and
other services.
Chart 3.1.13.
Chart 3.1.14.
Prices of Services
Diffusion Index of Services Prices*
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
(Seasonally Adjusted, 3-Month Average)
0.7
16
14
0.6
12
10
0.5
8
6
0.4
4
2
0.3
0
Source: TurkStat, CBRT.
38
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0.2
0306
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
-2
* Diffusion index is calculated as the ratio of the number of items with
increasing prices minus the number of items with decreasing prices to
total number of items within a given month.
Source: TurkStat, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
The courses of annual inflation in core indicators SCA-H and SCA-I were
similar to annual core inflation, thereby edging down quarter-on-quarter to 8.28
percent and 7.91 percent, respectively, by the end of March (Chart 3.1.15).
Seasonally adjusted data indicate that the underlying trend of SCA-H remained
flat, while the underlying trend of SCA-I decelerated slightly in the first quarter of
the year (Chart 3.1.16).
Chart 3.1.15.
Chart 3.1.16.
Core Inflation Indicators SCA-H and SCA-I
Core Inflation Indicators SCA-H and SCA-I
(Annual Percent Change)
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
SCA-H
12
SCA-H
SCA-I
SCA-I
20
10
15
8
10
6
5
4
0
2
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
0905
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
0905
0305
Source: TurkStat.
0305
-5
0
Source: TurkStat, CBRT.
Diffusion indices for CPI and SCA-H went down in this period
(Chart 3.1.17). Alternative core inflation indicators monitored by the CBRT also
declined since end-2011 (Chart 3.1.18). However, both the diffusion indices and
the core inflation indicators remained above historical averages.
Chart 3.1.17.
Chart 3.1.18.
CPI and SCA-H Diffusion Indices
Core Inflation Indicators SATRIM and FCORE*
(3-Month Average)
(Seasonally Adjusted, 3-Month Average)
TÜFE
0.6
SATRIM
H
FCORE
1.6
1.4
0.5
1.2
1.0
0.4
0.8
0.6
0.3
0.4
0.2
0.2
0.0
Source: TurkStat, CBRT.
Inflation Report 2012-II
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
0905
-0.2
0305
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
0905
0305
0.1
* SATRIM: Seasonally adjusted trimmed mean inflation.
FCORE: Factor model based core inflation indicator.
(See Box 3.2, Inflation Report 2011-I).
Source: CBRT.
39
Central Bank of the Republic of Turkey
In the first quarter of 2012, the decelerating agricultural inflation and the
appreciation of the Turkish lira were influential on the course of producer prices.
Accordingly, annual producer price inflation declined quarter-on-quarter by 5.1
percentage points to 8.22 percent. In the farm group, prices of vegetable
products as well as fresh fruits and vegetables recorded a relatively mild
increase in this period compared to the first period of 2011 (Table 3.1.3).
Similarly, livestock prices fell by 0.28 percent in the same period (Chart 3.1.19).
Hence, year-on-year farm inflation dropped by 4.38 percentage points to 6.16
percent at the end of the first quarter. Price developments in agricultural
products were reflected on consumer prices through fresh fruit and vegetable
prices, while affecting the subcategories of the manufacturing industry through
certain farm products that are subject to industrial production. The plunge in
domestic cotton prices, which started in early 2011, continued in this period,
causing the prices of the manufacturing of clothing and textiles products to
decline below seasonal averages to 5.77 percent and 1.19 percent,
respectively. Meanwhile, notwithstanding the flat course of livestock prices,
prices of the manufacturing of meat products and processed meat products
were up in this period.
Chart 3.1.19.
Chart 3.1.20.
Agricultural Prices
Manufacturing Industry Prices Excluding Oil
(First-Quarter Percent Change)
(Quarterly Percent Change)
2007-2011 Average
2012
6
3.0
2.5
5
2.0
4
1.5
3
1.0
2
0.5
1
0.0
0
-0.5
Source: TurkStat.
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
Agricultural
Products
0909
Livestock and
Products
0609
Crops, Fruits and
Vegetables
0309
-1.0
-1
Source: TurkStat, CBRT.
Manufacturing prices followed a mild course in the first quarter amid
exchange rate developments (Chart 3.1.20). In particular, appreciation of the
Turkish lira in the first two months had a dominating effect on the manufacturing
prices despite rising international commodity prices. In fact, TL-denominated
import prices posted a quarter-on-quarter decline in this period (Chart 3.1.21).
Thus, manufacturing industry prices excluding oil soared by a low 0.79 percent,
40
Inflation Report 2012-II
Central Bank of the Republic of Turkey
thereby causing the annual inflation to decline by 5.12 percentage points
quarter-on-quarter to 8.30 percent. Prices of intermediate and capital goods
had a benign outlook, despite the interruption of the slowdown in March amid
the relative deterioration in exchange rates, besides the developments in
commodity prices. Meanwhile, durables and non-durable goods saw higher
quarterly price increases by 2.36 percent and 1.4 percent, respectively. Prices of
durables soared mainly on the back of manufacturing of furniture prices, which
have steadily risen on a quarterly basis. The rise in prices of non-durable goods,
on the other hand, was mostly driven by food manufacturing prices. Overall, the
first quarter was marked by a mild course in the prices of manufacturing industry
excluding oil, as well as farm with a relatively weak course for producer prices.
Chart 3.1.21.
USD and TL-Denominated Import Prices
(Index, 2003=100)
Import Prices (USD)
Import Prices (TL)
225
200
175
150
125
0212
0811
0211
0810
0210
0809
0209
0808
0208
0807
0207
0806
0206
100
Source: TurkStat.
Table 3.1.3.
PPI and Subcategories
(Quarterly and Annual Percent Change)
PPI
Agriculture
Crops, Fruits and Vegetables
Livestock and Animal Products
Industry
Mining
Manufacturing
Manufacturing (excl. petroleum)
Manufacturing (excl. petroleum and
basic metals)
Electricity, Gas and Water
I
5.40
5.84
6.81
-1.26
5.31
9.70
6.27
5.55
II
0.77
-1.73
-2.67
-0.39
1.30
1.08
1.98
1.95
2011
III
3.31
-6.03
-9.84
2.68
5.24
4.94
4.98
4.67
IV
3.28
13.09
17.18
5.51
1.48
2.93
0.72
0.70
Annual
13.33
10.53
9.83
6.56
13.92
19.76
14.59
13.42
2012
I
0.65
1.65
0.76
-0.28
0.45
0.90
1.06
0.79
4.85
-4.08
1.53
-4.73
4.12
7.89
1.39
7.91
12.38
6.38
0.93
-4.64
Source: TurkStat, CBRT.
Inflation Report 2012-II
41
Central Bank of the Republic of Turkey
3.2. Expectations
Having risen in the last quarter of 2011 amid soaring annual consumer
inflation, inflation expectations remained flat in the first quarter of 2012.
Expectations did not deteriorate in this period despite the high course of
inflation. However, following the hikes to electricity and natural gas tariffs
effective as of April, especially the 12-month ahead expectations were revised
upwards (Charts 3.2.1 and 3.2.2).
Chart 3.2.1.
Chart 3.2.2.
12- and 24-Month Ahead CPI Expectations*
Inflation Expectations Curve*
(Annual Percent Change)
(Annual Percent Change)
12-Month
April 2012
Inflation Target
24-Month
9
11
8.5
10
8
9
7.5
8
7
7
6.5
January 2012
Uncertainty Band
6
6
5
5.5
4
5
3
4.5
0414
0214
1213
1013
0813
0613
0413
0213
1212
1012
0812
0612
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0412
2
4
* Calculated by linear interpolation of expectations for different time
spans using the CBRT Survey of Expectations, second survey period
results.
Source: CBRT.
* CBRT Survey of Expectations, second survey period results.
Source: CBRT.
The distribution of survey respondents' for both 12-month and 24-month
ahead inflation expectations converged in this period (Charts 3.2.3 and 3.2.4).
Chart 3.2.3.
Chart 3.2.4.
Distribution of 12-Month Ahead Inflation
Expectations*
Distribution of 24-Month Ahead Inflation
Expectations*
January 2012
0.8
April 2012
January 2012
0.80
0.7
0.70
0.6
0.60
0.5
0.50
0.4
0.40
0.3
0.30
0.2
0.20
0.1
0.10
0.0
April 2012
0.00
3
5
7
9
11
2
4
6
8
10
12
14
* Horizontal axis depicts inflation rates, while the vertical axis indicates the Kernel forecast. CBRT Survey of Expectations, second survey period results.
Source: CBRT.
42
Inflation Report 2012-II
Central Bank of the Republic of Turkey
4. Supply and Demand Developments
National accounts data for the last quarter of 2011 remained broadly
consistent with the outlook presented in the January Inflation Report. Domestic
demand remained almost flat, while net external demand was the main driver
of both the quarterly and annual growth, indicating that the economy was
balanced further at a robust pace. Quarterly growth rate, which is indicative of
the underlying trend of the economic activity, varied significantly in the recent
period depending on the method of seasonal adjustment. However, in
cumulative terms, the economic activity has clearly lost momentum following
the first quarter of 2011.
Signals for slowdown were evident in the first quarter of 2012. Despite
having recovered slightly in February after the sharp decline in January,
seasonally adjusted industrial production in the January-February period
remained below the average of the previous quarter, largely due to temporary
factors such as unfavorable weather conditions and external uncertainties. As a
matter of fact, the upward course of indicators on orders, production and
consumption in February and March signals for a rally in production by the
second quarter.
Following the second half of 2011, the period of which was dominated by
external uncertainties, both the global economic activity and the risk appetite
improved remarkably. As of the second half of 2011, exports settled into an
accelerated track of growth, thereby pointing to the balancing of the
economy, and also contributing significantly to favorable perceptions
regarding economic fundamentals. As a matter of fact, the ongoing balancing
in the first quarter, in addition to markedly improved 12-month cumulative
current account deficit eased the key constraint posing downside risks to
growth. Overall, foreign trade and external financing suggest a favorable
outlook regarding growth in the forthcoming period.
Indicators on medium to long-term expectations like employment and
investment plans display an optimistic outlook regarding private demand. This
optimistic outlook is also bolstered by the recently introduced package
entailing government incentives for investments. Widening of the sectoral scope
of incentives, lowering of labor costs and extension of the financing
opportunities are the three main pillars of the new incentive system, which is
Inflation Report 2012-II
43
Central Bank of the Republic of Turkey
estimated to further enhance the investment propensity in the short to medium
term, while improving competitiveness and reducing structural current account
deficit to plausibly and sustainably low levels through reducing of the
dependency on imported intermediate goods in the long term.
The current outlook suggests that the economy will continue to grow in
2012, albeit at a decelerating pace, and aggregate demand conditions will
further support disinflation given the projected mild growth path. In the longer
term, the new incentive system is expected to support potential growth and
contribute to price stability.
4.1. Gross Domestic Product Developments and Domestic
Demand
National accounts data released by TurkStat indicate that GDP posted a
year-on-year increase by 5.2 percent in the last quarter of 2011, thus registering
an annual growth by 8.5 percent over 2011. Demand components were
balanced further in the last quarter, with the net external demand providing the
highest contribution to growth after an extended period. Private demand
continued to bolster growth in the last quarter, albeit at a weaker pace. Public
consumption and investment registered a year-on-year decline, thus signifying
the major negative contribution by public spending to growth for the first time in
a long period.
Seasonally adjusted data indicate that GDP recorded a quarterly
increase by 0.6 percent in the fourth quarter. Despite the ambiguity of the
results for the last quarter, the analysis on the underlying trend of the economic
activity indicates that in cumulative terms, the economy has lost pace since the
first quarter of 2011 (Box 4.1). The course of demand components remained in
line with the outlook presented in the January Inflation Report. Quarterly growth
was mainly fuelled by net external demand, while the domestic demand
followed a flat course (Chart 4.1.1).
44
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 4.1.1.
GDP and the Final Domestic Demand
(Seasonally Adjusted, 2008 Q1=100)
GDP
Final Domestic Demand
115
110
105
100
95
90
85
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2005
2006
2007
2008
2009
2010
2011
Source: TurkStat, CBRT.
First-quarter data point to a weak course for final domestic demand.
Production of consumption goods, indicative of the private consumption
demand, declined in the January-February period. Meanwhile, imports of
consumption goods increased during the same period (Chart 4.1.2). Following
the decline in January, domestic sales of automobiles increased in February
and March, yet lagging behind the last quarter of 2011 (Chart 4.1.3). Similarly,
consumer confidence remained weak, displaying a mild recovery in February
and March (Chart 4.1.4). Consumer loans continued to register a mild growth in
the first quarter of the year (Chart 4.1.5).
Chart 4.1.2.
Chart 4.1.3.
Production and Import Quantity Indices of
Consumption Goods
Domestic Automobile Sales
(Thousand, Seasonally Adjusted)
(Seasonally Adjusted, 2005=100)
Production
Imports (right axis)
125
120
230
60
210
55
190
115
170
50
45
40
110
150
35
130
105
100
95
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
2005
2006
2007
* As of February.
Source: TurkStat, CBRT.
Inflation Report 2012-II
2008
2009
2010
20112012
30
110
25
90
20
70
15
12341234123412341234123412341
2005
2006
2007
2008
2009
2010
20112012
Source: AMA, CBRT.
45
Central Bank of the Republic of Turkey
Chart 4.1.4.
Chart 4.1.5.
Consumer Confidence
Weekly Consumer Loans
(Weekly Percent Change, 13-Week Average)
CNBC-e
Total
Personal
CBRT (right axis)
120
100
1.5
110
95
1.0
100
90
90
85
80
80
70
75
60
70
Housing
Automobile
0.5
-0.5
Source: TurkStat, CNBC-e.
0312
0911
0311
0910
0310
0909
0309
0908
0308
-1.0
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
0309
0.0
Source: CBRT.
Leading indicators point to a weak course for investment demand
besides consumption demand. Production of capital goods posted a quarteron-quarter decline in the January-February period, while imports of capital
goods increased during the same period (Chart 4.1.6). Following the decline in
January, domestic sales of light and heavy commercial vehicles accelerated in
February and March, albeit slowly throughout the quarter (Chart 4.1.7).
Chart 4.1.6.
Chart 4.1.7.
Production and Import Quantity Indices of
Capital Goods (Seasonally Adjusted, 2005=100)
Domestic Sales of Commercial Vehicles
Light Commercial
Heavy Commercial (right axis)
Imports
Thousands
200
180
160
30
4.5
25
4.0
3.5
20
140
5.0
Thousands
Production
(Thousand, Seasonally Adjusted)
3.0
120
15
2.5
100
2.0
10
80
1.5
60
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
* As of February.
Source: TurkStat, CBRT.
2008
2009
2010
5
1.0
1234123412341234123412341234123412341
2011 2012
2003 2004 2005 2006 2007 2008 2009 2010 2011
2012
Source: AMA, CBRT.
In sum, the first-quarter indicators show that domestic demand remained
almost flat (Chart 4.1.8). The slowdown in the economy is also supported by
production indicators. Industrial production recently followed a volatile and
weak course, which has dominated the economy since October 2011. The
ongoing downward course of economic activity in the construction-affiliated
sectors is also a major indicator to signify the phase of the continuing
deceleration in the economy (Chart 4.1.9).
46
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 4.1.8.
Chart 4.1.9.
Final Domestic Demand
Production of Mineral Materials and Private Sector
Construction Investment
(Seasonally Adjusted, 2008Q1=100)
((Seasonally Adjusted, 2005=100)
Production
115
Construction Investment
130
125
110
120
105
115
100
110
105
95
100
95
90
90
85
85
80
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010
2005
20112012
2006
2007
2008
2009
2010
20112012
* As of February for production and estimate for construction
investment.
Source: TurkStat, CBRT.
* Estimate.
Source: TurkStat, CBRT.
Despite registering a quarterly decline in the first quarter in tandem with
the unfavorable outlook in January, industrial production headed upwards in
February and March. Consumer confidence indices as well as the job
opportunities index and investment propensity, leading indicators which entail
expectations on the future course of the economy, signal for a moderate
recovery
in
the
February-March
period.
Meanwhile,
3-month
ahead
expectations for orders improved, and the composite leading indicators implied
a rallying economic activity by the second quarter of the year (Charts 4.1.10
and 4.1.11).
Chart 4.1.10.
Chart 4.1.11.
3-Month Ahead Expectations for Orders
Leading Indicators Index*
(Up-Down, Seasonally Adjusted, Percent)
(Seasonally Adjusted)
Exports
50
Domestic Market
104
103
40
102
30
101
20
100
10
99
98
0
97
-10
Source: CBRT.
Inflation Report 2012-II
0312
0311
0310
0309
0308
0307
0306
0305
0304
0303
0302
0301
0300
0399
0397
94
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
0411
0711
1011
0112
0412
95
-30
0398
96
-20
* Methodology is based on Atabek-Demirhan, A. and E. ErdoğanCoşar, 2012, İktisadi Faaliyet Analizi: Öncü Göstergeler ve Ekonomi
Saati Yaklaşımı (in Turkish), CBRT Economic Notes No.12/02.
Source: CBRT.
47
Central Bank of the Republic of Turkey
4.2. External Demand
National accounts data for the last quarter of 2011 suggest a marked
balancing of the demand components. Exports of goods and services posted a
year-on-year increase by 6.7 percent, while imports contracted for the first time
after eight quarters, registering a year-on-year decline by 5.1 percent in the last
quarter. Thus, net external demand provided the largest contribution to growth
after an extended period (Chart 4.2.1).
Despite aggravating global problems, exports of goods and services
displayed a remarkable quarterly growth in seasonally adjusted terms, and
accelerated substantially in the second half of 2011. Imports of goods and
services posted a quarterly fall, thus posting a decline for three consecutive
quarters (Chart 4.2.2). Quarterly growth was mainly fuelled by net external
demand, while domestic demand followed a flat course, thereby pointing to
the stronger balancing of the demand components.
Chart 4.2.1.
Chart 4.2.2.
Contribution of Net External Demand to Annual
GDP Growth
Exports and Imports of Goods and Services
(Seasonally Adjusted, 1998 Prices, Billion TL)
(Percent)
Imports
Exports
Exports
Net Exports
Imports
9.0
4
8.5
2
8.0
0
7.5
-2
7.0
6.5
-4
6.0
-6
5.5
5.0
-8
1
20102011
* Estimate.
Source: TurkStat, CBRT.
2
3
2010
4
1
2
3
2011
4
1*
2012
1234123412341234123412341234
2005
2006
2007
2008
2009
2010
2011
Source: TurkStat, CBRT.
As an indicator for the balancing of the economy, exports settled into an
accelerated track of growth by the second half of 2011, and enhanced further
in the first quarter. Export quantity index posted a quarter-on-quarter growth in
the January-February period of 2012. Thus, having followed a volatile course in
the post-crisis period, exports of goods gained stability by registering an
interrupted growth for four consecutive quarters (Chart 4.2.3).
48
Inflation Report 2012-II
Central Bank of the Republic of Turkey
The EU-27 countries, our major trading partner holding nearly the 50
percent share of our exports, contracted by a year-on-year 0.3 percent in the
last quarter of 2011, with growth projections exhibiting an acute outlook for
2012. Accordingly, exports to EU-27 countries will be curbed, while total exports
will be stimulated by brisk demand in alternative destinations, North Africa and
the Middle East in particular (Chart 4.2.4 and Box 4.2). In other words,
heightened search for alternative markets amid the slowdown in domestic
demand will have a positive effect on the export outlook, in tandem with the
alleviating political unrest in North Africa.
Chart 4.2.3.
Chart 4.2.4.
Quantity Indices for Exports and Imports
Global and Regional Imports
(Seasonally Adjusted, 2003=100)
(Real, Seasonally Adjusted, 2003=100
Global
Euro Area
Central and Eastern Europe
North Africa and Middle East
Export Quantity Index
Import Quantity Index
200
250
230
180
210
160
190
170
140
150
120
130
100
110
90
80
1234123412341234123412341234123412341*
2003 2004 2005 2006 2007 2008 2009 2010 2011
2012
* Estimate for March.
Source: TurkStat, CBRT.
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
2003 2004 2005 2006 2007 2008 2009 2010 20112012
* As of February.
Source: Netherlands Bureau for Economic Policy Analysis.
Other indicators on exports suggest that, since November 2011, the Turkish
lira has depreciated more heavily against the USD than the currencies of other
emerging economies. Similarly, the real exchange rate based on emerging
economies remains low (Chart 4.2.5). Accordingly, the exchange rate continues
to fuel exports. Meanwhile, the medium-term growth pace of both the GDP and
the export-weighted global production index remained unchanged in the interreporting period (Chart 4.2.6). Overall, the gradual recovery in exports is
envisioned to continue in the period ahead.
Inflation Report 2012-II
49
Central Bank of the Republic of Turkey
Chart 4.2.5.
Chart 4.2.6.
TL and Emerging Market Currencies*
(November 2010=1) and the Real Exchange Rate
Export and GDP-Weighted Global Production
Indices
(2003=100)
(Seasonally Adjusted, 2009 Q1=100)
Export-Weighted (October 2011)
Export-Weighted (January 2012)
GDP-Weighted (October 2011)
GDP-Weighted (January 2012)
Emerging Economies
TL
Real Exchange Rate (right axis)
1.4
115
114
110
1.3
105
1.2
100
111
108
95
1.1
90
1.0
105
85
80
102
0.9
75
70
1110
1210
0111
0211
0311
0411
0511
0611
0711
0811
0911
1011
1111
1211
0112
0212
0312
0412
0.8
* Emerging economies include Brazil, Chile, Czech Republic, Hungary,
Mexico, Poland, South Africa, Indonesia, South Korea, and Colombia. As
of April 23, 2012.
Source: Bloomberg, CBRT.
99
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2009
2010
2011
2012
2013
Source: Bloomberg, CBRT.
The import quantity index, which has followed a downward course as of
the second quarter of 2011, continued to decline further in the JanuaryFebruary period of 2012 amid the slowdown in domestic demand and the
depreciation of the Turkish lira. Across subcategories, imports of intermediate
goods decreased, while imports of investment goods excluding consumption
goods and transport edged up (Chart 4.2.7). A more detailed analysis of
imports signifies diversification across subcategories. In other words, following
the first quarter of 2011, durables and semi-durable consumption goods
displayed a slight decline compared to passenger cars and industry-related
transport vehicles, thereby pointing to the subcategory of imports, in which the
effects of policy measures aiming for a slowdown in domestic demand and
balancing in demand components are felt most profoundly. The current import
outlook for subcategories which are in the direct domain of the monetary
policy, i.e. those with high sensitivity to exchange rate and financing conditions,
indicates that the economy moves as envisaged (Chart 4.2.8).
50
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 4.2.7.
Chart 4.2.8.
Import Quantity Indices
Import Quantity Indices by Subcategories
(Seasonally Adjusted, 2003=100)
(Seasonally Adjusted, 2011Q1=100)
Total Imports
Capital Goods
Intermediate Goods
Consumption Goods
170
Durables
Semi-Durable Goods
Transport Vehicles Incidental to Industry
Automobile
140
150
120
130
100
110
80
90
60
70
40
50
20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
* As of February.
Source: TurkStat, CBRT.
2008
2009
2010
20112012
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
2005
2006
2007
2008
2009
2010
20112012
* As of February.
Source: TurkStat, CBRT.
In sum, net external demand is estimated to further support growth in the
first quarter of the year (Chart 4.2.1). The current outlook for export and import
quantity indices points to an ongoing balancing in the first quarter (Chart 4.2.3).
The balancing of exports and imports in terms of quantity has reflected
only modestly on the current account balance due to relative price
developments. Amid soaring energy prices, terms of trade have deteriorated as
of the second quarter of 2009, continuing throughout the last quarter of 2011
(Chart 4.2.9). Meanwhile, the recently downward course of import prices
excluding energy contained the adverse effects of energy prices on terms of
trade (Box 4.3). Amid the discontinued deterioration in terms of trade by the first
quarter of 2012 and the ongoing balancing of goods, 12-month cumulative
current account deficit is estimated to post a notable correction by end-March
(Chart 4.2.10). However, in order to bring current account deficit to desired
levels in the long term, goods should be further balanced without an additional
deterioration in terms of trade, and also through managing of the domestic
demand.
Inflation Report 2012-II
51
Central Bank of the Republic of Turkey
Chart 4.2.9.
Chart 4.2.10.
Terms of Trade
Current Account Balance
(2005=100)
(12-Month Cumulative, Billion USD)
Terms of Trade (excl. energy)
Terms of Trade
115
Current Account (excl. energy)
Current Account
20
10
110
0
105
-10
100
-20
-30
95
-40
90
-50
85
-60
-70
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010
-80
0205
0705
1205
0506
1006
0307
0807
0108
0608
1108
0409
0909
0210
0710
1210
0511
1011
0312
80
20112012
* As of February.
Source: TurkStat,CBRT.
* Estimate for March.
Source: TurkStat,CBRT.
4.3. Labor Market
Employment developments in the last quarter of 2011 were consistent
with the outlook presented in the January Inflation Report. Having been fuelled
by the services sector, non-farm employment maintained its uptrend. In this
period, unemployment rates continued to decline due to soaring employment
as well as the weak course of labor force participation. Employment increased
quarter-on-quarter across all sectors in January 2012,, while labor force
participation decreased and the unemployment rates continued to decline
(Charts 4.3.1 and 4.3.2). Growth of non-farm labor force participation has
remained weak, both recently as well as throughout the post-crisis period in
general, standing out as a major factor to contribute to the decline in
unemployment rates (Box 4.4).
Chart 4.3.1.
Chart 4.3.2.
Farm and Non-Farm Employment
Unemployment and Labor Force Participation
(Seasonally Adjusted, Million)
(Seasonally Adjusted, Percent)
18
Labor Force Participation Rate (right axis)
51
Unemployment Rate
Non-Farm Unemployment Rate
50
16
49
14
48
12
47
10
46
Non-Farm Employment
18.5
Farm Employment (right axis)
8.5
18.0
8.0
17.5
7.5
17.0
7.0
16.5
6.5
16.0
6.0
15.5
5.5
15.0
5.0
14.5
4.5
14.0
4.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
* As of January.
Source: TurkStat, CBRT.
52
2009
2010
2011 2012
20
8
45
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011 2012
* As of January.
Source: TurkStat, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Non-farm employment increased notably in 2011. Having increased
strongly in the first quarter of 2011, employment has increased weakly towards
the year-end amid losses in the industrial and construction sector employment.
In general, growth of non-farm employment gained momentum in the last
quarter, displaying divergent patterns across sectors. More specifically, the
industrial employment, which has started to decline in the third quarter,
continued to decrease in the last quarter, albeit at a slower pace. Construction
sector, which remained robust in the first three quarters of the year,
experienced employment losses in the last quarter. Employment in the services
sector continued to head upwards in the last quarter. Accordingly, services
sector contributed positively to seasonally adjusted non-farm employment in
the last quarter of 2011, while construction and industrial employment had a
negative contribution (Charts 4.3.3 and 4.3.5). Industry and construction sector
employment rallied in December 2011 and January 2012, respectively.
Moreover,
services
sector
employment
continued
to
rise
steadily
in
January 2012.
The growth rate of value added in the construction sector slowed down
in the first quarter, and followed a flat course as of the second quarter of 2011
(Chart 4.3.4). In the meantime, construction sector employment continued to
surge until the last quarter of the year, while assuming a downward course by
the last quarter in tandem with the weakening value added. Unregistered
employment fell more notably than registered employment, especially in
December (Chart 4.3.3). The decline in registered employment was short-lived
and employment rallied in January, thus implying that the slowdown in
economic activity was perceived to be temporary or limited, hence signaling a
favorable
outlook
regarding
employment
conditions.
Meanwhile,
the
production of non-metallic mineral products, which are inputs for the
construction sector, also having informative value regarding the construction
operations, decreased in the first quarter of 2012, resulting in weaker prospects
for construction employment (Chart 4.3.4).
Inflation Report 2012-II
53
Central Bank of the Republic of Turkey
Chart 4.3.4.
Chart 4.3.3.
Employment, Value Added and Production of
Mineral Materials in the Construction Sector
Employment in Services and Construction Sectors
(Seasonally Adjusted, Million)
(Seasonally Adjusted, 2005=100)
1.8
12.2
11.7
1.6
1.4
11.2
1.2
10.7
1.0
0.8
10.2
0.6
Production
160
Thousands
Construction-Registered
Construction-Unregistered
Services (right axis)
2.0
Value Added
Employment
140
120
100
9.7
0.4
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0107
0706
9.2
0106
0.2
2005
2006
2007
2008
2009
2010
20112012
* As of January for employment and February for production.
Source: TurkStat, CBRT.
Source: TurkStat, CBRT.
Having followed a weak course in the first half of the year, industrial
production recovered by the third quarter, yet remaining volatile (Chart 4.3.5).
Registered industrial employment moved in tandem with the production
developments, while total employment including unregistered employment
posted a lagged increase in December. Uncertainties regarding economic
activity put a cap on employment in this period. In January, both registered
and total employment continued to surge. The employment indicator PMI has
increased since the third quarter of 2011, moving consistently with the
developments in production and registered employment. PMI points to a rise in
employment in the first quarter of 2012, notwithstanding the slight decline
(Chart 4.3.6). Accordingly, employment is estimated to increase in the first
quarter of 2012, while uncertainties regarding economic activity in the U.S. and
the Euro Area may curb the improvement of production and the employment
conditions.
Chart 4.3.5.
Chart 4.3.6.
Industrial Employment and Production
Manufacturing Industry Employment
(Quarterly Percent Change) and PMI Employment
(Seasonally Adjusted)
(Seasonally Adjusted)
Industrial Employment
Industrial Production (right axis)
Industrial Employment-Registered
135
130
6
65
Manufacturing Industry Employment
PMI (right axis)
4
60
125
2
55
115
0
50
110
-2
45
-4
40
95
-6
35
90
-8
30
120
105
Source: TurkStat, CBRT.
54
0312
0911
0311
0910
0310
0909
0309
0908
0308
0907
0307
0906
0306
0905
0212
0811
0211
0810
0210
0809
0209
0808
0208
0807
0207
0806
0206
0805
100
Source: TurkStat, Markit, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 4.3.7.
Chart 4.3.8.
Household Spending and Real Wage Payments*
Non-Farm Hourly Labor Cost
(Seasonally Adjusted, 2007=100)
(Seasonally Adjusted, 2008=100)
Real Wage Payments
Labor Earnings (annual percent change, right axis)
Real Labor Earnings*
120
Consumption Spending
(excl. furniture, household appliances and maintenance,
transport and communication)
110
14
115
108
12
110
106
105
104
100
102
95
100
90
98
85
96
80
94
1234123412341234123412341234
2005
2006
2007
2008
2009
2010
2011
* Calculated as the weighted average of total wages paid in
industrial, construction, trade, accommodation-catering services,
transport-warehousing sectors. Deflated by CPI.
Source: TurkStat, CBRT.
10
8
6
4
2
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
2009
2010
2011
*Deflated by CPI.
Source: TurkStat, CBRT.
In the first quarter of 2012, real wage payments continued to bolster the
demand for goods, which are particularly sensitive to current income
(Chart 4.3.7). In the last quarter of 2011, non-farm hourly real earnings index
released under the Labor Cost Indices edged down on a quarterly basis
(Chart 4.3.8). Real unit wages, which also entail productivity increases, soared
across sectors other than industry in this period (Chart 4.3.9). As stated in the
January Inflation Report, real unit wages increased amid the weak course of
industrial production, and declined back in the last quarter due to rising
production. Meanwhile, real unit wages in services and construction sectors
registered increases. During this period, which was marked by flat course of
hourly real wages, the rise in real unit wages was driven by the decline in
average productivity. In both sectors, employment posted a higher increase
than the rise in production/turnover. Against this background, industrial sector
prices were not exposed to labor cost pressures in the first quarter of 2012, while
the upward trend in the services sector over 2011 may remarkably weigh on the
services inflation in the period ahead.
Inflation Report 2012-II
55
Central Bank of the Republic of Turkey
Chart 4.3.9.
Chart 4.3.10.
Real Unit Wages (Wage per Hour Worked/Productivity)
Job Opportunities Index and Non-Farm
Employment/Labor Force
(3-Month Average)
(Seasonally Adjusted, 2008=100)
Industry
Services*
115
Job Opportunities over the next 6 months
Construction
Non-Farm Employment/Labor Force
(right axis)
99
110
89
94
88
89
87
84
86
79
85
74
84
69
83
64
82
59
81
105
100
95
90
85
80
1234123412341234123412341234
2005
2006
2007
2008
2009
2010
2011
* Real unit wages in the services sector are calculated as the ratio of
total wage payments to turnover. As for the industrial and construction
sectors, total wage payments are divided by production and CPI,
respectively.
Source:, TurkStat, CBRT.
0205
0705
1205
0506
1006
0307
0807
0108
0608
1108
0409
0909
0210
0710
1210
0511
1011
0312
75
Source: TurkStat, CBRT.
In sum, employment surged in the services sector in the last quarter of 2011,
while decreasing in the construction and industrial sectors, thus restricting the
growth of non-farm employment. During December 2011 and January 2012,
employment rallied in the industrial and construction sectors. Leading indicators
in the first quarter point to a favorable course for industrial employment. Job
opportunities index under the CBRT’s Consumer Tendency Survey, which reflects
the employment prospects for households, also points to a rise in employment
opportunities, thereby reinforcing the favorable expectations regarding
employment conditions (Chart 4.3.10). The slowdown in construction operations
in the first quarter of 2012 will continue to reflect on the construction
employment, while non-farm employment will continue to trend upwards amid
rising employment in construction and services sectors (Chart 4.3.11).
Chart 4.3.11.
Non-Farm Value Added and Employment
(Seasonally Adjusted)
1998 Prices
Billion TL
27
Million
Value Added
18.5
Employment (right axis)
18.0
17.5
25
17.0
16.5
23
16.0
21
15.5
15.0
19
14.5
17
14.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010
2011 2012
* Estimate.
Source: TurkStat, CBRT.
56
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Box
The Underlying Trend of Economic Activity Using Seasonally Adjusted
4.1
Data
Monitoring
the underlying trend of economic activity is essential for decision-
makers under the inflation targeting framework. Assessing the current stance of the
economy over the business cycle constitutes the basis of the decision-making
process, thereby affecting the forecasts. To this aim, seasonally adjusted data as
well as their monthly and quarterly percent changes are frequently used. However,
seasonal adjustment may significantly differ with respect to methodology and the
sample size, thus leading to substantial backward revisions and uncertainty. This
uncertainty causes controversies over the assessment of the underlying trend of
economic variables, thereby complicating the real-time policy analysis. This issue
has been highly debated in the post-crisis period, also for advanced economies
like the U.S. and the Euro Area, therefore signifying the need for a cautious
approach in interpreting seasonally adjusted data with serious breaks.1
Table 1. Quarterly GDP Growth by Alternative Model Specifications and Sample Size
MODEL SPECIFICATION
TURKSTAT
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
Last 3-quarter average
1998
4.2
1.6
1.3
1.3
0.6
1.1
AUTOMATIC*
199
8
4.5
2.1
0.3
0.7
1.2
0.8
1999
4.2
1.9
0.3
1.0
1.0
0.7
2000
3.7
2.0
0.2
1.2
0.6
0.7
2001
3.8
2.2
0.5
1.1
0.8
0.8
2002
4.1
2.0
0.3
0.9
0.8
0.7
2003
3.8
2.2
0.5
1.1
0.7
0.8
2004
4.5
1.7
0.6
0.5
1.3
0.8
2005
3.6
2.3
0.7
0.6
0.5
0.6
* Seasonally adjusted by Tramo-Seats using the Demetra software. Unlike the model specification determined by the TurkStat, automatic model results
were obtained by leaving specifications like logarithmic transformation, average correction, outlier specification and ARIMA model selection to be
automatically determined by the Demetra procedures.
Source:TurkStat, CBRT.
Central banks are growingly more concerned about the course of the underlying
trend in economic activity as economic growth converges to its potential. In fact,
changes in output gap, given its recent underlying trend, highly influence the
decision for policy to be eased or tightened. For example, according to national
accounts data released by the TurkStat, GDP posted a quarter-on-quarter growth
by 0.6 percent in the last quarter of 2011. Corresponding to 2.4 percent in
annualized terms, this rate signals a marked slowdown in economic activity.
Moreover, the gradual decline in quarterly growth rates since the last quarter of
2010 indicate that the economy settled on a mild growth path on account of the
adopted measures since November 2010 for slowing down the domestic demand
(Table 1).
1
For further details, see ECB (2009).
Inflation Report 2012-II
57
Central Bank of the Republic of Turkey
On the other hand, the results of seasonal adjustment, also as briefly mentioned
above, depend on the sample size in addition to model as well as the outlier
specification. Table 1 shows the seasonally adjusted quarterly growth rates
produced by recursively shifting the starting point one year forward. The
immediate end result is the different policy implications suggested by the model
of TurkStat and the automatic model when using the whole sample from 1998.
Accordingly, while the official data in the first column signal a gradual economic
slowdown, the alternative specification in the second column implies a gradual
acceleration in the second half of 2011 (Table 1).
Chart 1. Seasonally Adjusted GDP by Direct vs. Indirect Approach
(1998 Prices, Billion TL)
January 2012
Actual (Indirect)
Actual (Direct)
30
29
28
27
26
25
24
23
22
21
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2005
2006
2007
2008
2009
2010
2011
Source:TurkStat, CBRT.
Another
important point to note on seasonal adjustment is that direct and
indirect approaches may tell different stories about the underlying trend of
economic activity. While the above comparison is based on GDP data obtained
through direct seasonal adjustment, the indirect approach aggregates data on
the individually seasonally adjusted components of the GDP. In the last quarter of
2011, the seasonally adjusted GDP obtained through indirect approach (dotted
orange line) is compatible with the outlook presented in the January Inflation
Report (grey line). On the contrary, as in the above comparison, direct and
indirect approaches imply a different outlook regarding the course of economic
activity throughout 2011. In particular, in the third quarter of 2011, the two
approaches even differ in terms of the direction of the course, thus signifying the
need for a cautious stance in interpreting seasonally adjusted data.
58
Inflation Report 2012-II
Central Bank of the Republic of Turkey
In sum, assessing the underlying trend of economic activity by using seasonally
adjusted data requires a cautious approach. Correspondingly, putting aside the
last period, a cumulative assessment of the past three quarters suggests that
economic activity has lost momentum since the onset of 2011. Having
decelerated markedly in the first quarter of 2012, economic activity will resume its
mild growth path by the second quarter as implied by the leading indicators.
REFERENCES
ECB, 2009, Seasonal Adjustment of Short-Term Economic Indicators for the Euro
Area in the Current Recession, ECB Monthly Bulletin August 2009: 63-67.
Inflation Report 2012-II
59
Central Bank of the Republic of Turkey
Box
4.2
Real Export Developments by Regions
Turkey has recently diversified export destinations, consequently leading to lower
share of exports to EU and North America, while a higher share of exports to the
Middle East, North Africa and other Asia. However, the recently growing
economic and political unrest in export destinations signified the need for
gathering regional export data in order to monitor external demand. On the other
hand, assessing regional exports by using only nominal data may not suffice to
evaluate external demand thoroughly. Hence, this Box analyzes Turkey’s exports
to major destinations, by using real exports data.2
In
order to derive real exports data by regions, a straightforward method is to
deflate the nominal regional exports data by export unit value index. This method
may prove reliable for regions with similar sectoral composition of exports.
However, the sectoral composition of Turkey’s exports varies over time and across
regions. Furthermore, export prices differ across sectors as well. 3 Thus, real exports
data by regions are computed using sectoral export prices. In addition, real
exports data calculated by using the general export price index as well as the
nominal export data are also included in the analysis for assessing regional
exports.
Analysis
of exports to EU, Turkey’s main export destination, reveals that real
exports computed by using general export prices with base year 2003 fell behind
real exports derived by using sectoral export prices (Chart 1). This gap is owed to
price increases in exports to EU (manufactured goods-mainly motor vehicles,
clothing and textiles) to lag behind general export price increases. Unlike nominal
exports data, real exports data suggest that real exports to EU were not heavily
affected by the economic crisis experienced towards 2011. Last quarter data on
real exports to EU imply a flat course for exports to the region.
2 For
further details on the analysis and the methodology, see Aldan and Çulha (2012).
For further details on sectoral export price developments and their effect on general export prices, see Aldan and Üngör
(2011).
3
60
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Real exports to non-EU European countries exhibit high volatility when sectoral
export prices are discarded. On the other hand, volatility lessens significantly
when sectoral export prices are included in the measurement of real exports
(Chart 1). Given the significant share of gold exports to non-EU European
countries, the divergence of the gold prices from the general export prices
constitutes the fundamental source of this volatility. Accordingly, amid soaring
gold exports as well as high gold prices in February, real exports measured by
general export prices signaled for a recovery in exports, while real exports
measured by sectoral export prices implied a relatively mild recovery.
Chart 1. Exports to EU and non-EU Europe
(Seasonally Adjusted, 2003=100)
EU
Non-EU Europe
Nominal Exports
300
Real Exports (sectoral prices)
600
Nominal Exports
Real Exports (sectoral prices)
Real Exports (general prices)
Real Exports (general prices)
200
400
150
300
100
200
50
100
0
0
* As of February.
Source: TurkStat, CBRT.
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
500
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
250
* As of February.
Source: TurkStat, CBRT.
Due to iron and steel prices, price effect was notable on exports to the Middle
East, especially during 2008 (Chart 2). In other words, nominal exports as well as
real exports using general export prices soared, while real exports measured by
sectoral prices displayed a moderate growth. The recent data indicate that the
effect of the political unrest in Syria was largely contained. Accordingly, nominal
exports posted a recovery and real exports displayed a mild growth. In fact, real
exports measured by sectoral prices reached an all-time-high by exceeding the
peak in 2008. Having declined until 2011 amid political tensions, real exports to
North Africa have recently exhibited a strong rebound (Chart 2).
Inflation Report 2012-II
61
Central Bank of the Republic of Turkey
Chart 2. Exports to Middle East and North Africa
(Seasonally Adjusted, 2003=100)
Middle East
North Africa
Nominal Exports
Nominal Exports
Real Exports (sectoral prices)
700
Real Exports (sectoral prices)
600
Real Exports (general prices)
600
Real Exports (general prices)
500
500
400
400
300
300
200
200
0
0
* As of February.
Source: TurkStat, CBRT.
Analysis of
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
100
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
100
* As of February.
Source: TurkStat, CBRT.
exports to other Asian countries suggest that after the sharp fall in
2008, nominal exports surged, while real exports posted a mild growth (Chart 3).
However, exports to other Asia edged down in the first quarter of 2012. Exports to
North America, both in nominal and real terms, have recently signaled a rapid
surge (Chart 3).
Chart 3. Exports to Other Asia and North America
(Seasonally Adjusted, 2003=100)
Other Asia
Nominal Exports
Real Exports (sectoral prices)
Real Exports (general prices)
500
180
450
160
400
140
350
120
300
100
250
80
200
60
150
20
0
0
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
40
50
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1*
100
* As of February.
Source: TurkStat, CBRT.
62
North America
Nominal Exports
Real Exports (sectoral prices)
Real Exports (general prices)
* As of February.
Source: TurkStat, CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
In sum, seasonally adjusted data for early-2012 indicate that the adverse effects
of the weak course of real exports to EU and other Asian countries are largely
counterbalanced by the strong course of exports to other regions, and
particularly North Africa and North America.
REFERENCES
Aldan, A. and O. Çulha, 2012, Bölgesel İhracat Miktar Endeksleri (in Turkish), CBRT
Economic Notes No.12/12.
Aldan, A. and M. Üngör, 2011, 2003-2010 Dönemi Dış Ticaret Fiyat Artışlarının
Sektörel Kaynakları (in Turkish), CBRT Economic Notes No. 11/18.
Inflation Report 2012-II
63
Central Bank of the Republic of Turkey
Box
4.3
The Recent Course of Import Prices
Driven by supply-side problems amid geopolitical tensions, soaring energy prices
in the first quarter of 2012 have greatly occupied the public agenda, given the
associated upside risks to inflation and the current account balance. However, the
course of non-energy import prices is relatively more crucial than energy prices in
assessing the current account outlook. Hence, this Box analyzes the recent course
of import prices, both for energy and non-energy goods.
In
addition to energy4, which has the leading share in Turkey’s imports, basic
metals5, chemical products, machinery and equipment, motor vehicles as well as
clothing and textiles6 have major shares in imports (Table 1). As of 2011, energy
imports accounted for 22.5 percent of total imports, while the share of non-energy
imports reached 50.7 percent. Thus, besides energy imports, the prices of nonenergy imports are also influential on import prices.
Table 1. Sectoral Distribution of Imports
(Percent)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Energy
Basic
Metals
Chemical
Products
Machinery
and
Equipment
Motor
Vehicles
Clothing
and
Textiles
17.9
16.7
14.8
18.2
20.7
19.9
23.9
21.2
20.7
22.5
11.3
13.5
14.8
14.6
15.2
17.2
17.9
12.7
14.2
15.2
16.8
16.2
15.5
15.0
14.0
13.9
13.4
15.2
14.6
13.8
12.6
11.7
10.6
10.5
10.3
10.1
8.4
8.9
8.4
8.8
5.7
9.2
12.1
10.6
9.5
8.9
7.7
7.6
8.5
8.3
6.2
5.7
5.1
4.7
4.5
4.7
4.1
5.0
5.2
4.6
Source:TurkStat.
Since the second half of 2011, energy import prices have diverged notably from
the non-energy import prices. In other words, energy prices displayed a gradual
and continuous surge in tandem with the rising global energy prices, while nonenergy import prices plunged during the same period. Non-energy import prices
declined further in the first quarter of 2012 (Charts 1 and 2).
4
5
6
Including crude oil, natural gas, coal and electricity.
Including spare and scrap.
Including leather products.
64
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 1. Energy and Non-Energy Import Prices
Chart 2. Global Energy and Energy Import Prices
(2006=100)
(2006=100)
Global Energy Prices
Energy Import Prices
Non-Energy Import Prices
200
Energy Import Prices
180
170
180
160
160
150
140
140
130
120
120
110
100
100
80
90
80
60
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
2008
2009
2010
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
20112012
* As of February.
Source: TurkStat, CBRT.
2006
2007
2008
2009
2010
2011 2012
* As of February.
Source: TurkStat, CBRT.
The ongoing downward course of non-energy import prices is mainly driven by
the prices of basic metals as well chemical products, which have major shares in
imports by 15.2 percent and 13.8 percent, respectively. Meanwhile, import prices
of machinery and equipment in addition to motor vehicles have also displayed a
downward course.
Chart 3. Import Price Index by Sectors
(2006=100)
Chart 4. Import Price Index by Sectors
(2006=100)
Energy
Machinery and Equipment
Basic Metals
Motor Vehicles
Chemical Products
180
170
160
150
140
130
120
110
100
90
80
Clothing and Textiles
140
130
120
110
100
90
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
* As of February.
Source: TurkStat, CBRT.
2008
2009
2010
2011 2012
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
2008
2009
2010
2011 2012
* As of February.
Source: TurkStat, CBRT.
In sum, the higher-than-expected increases in oil prices caused energy prices to
rise above forecasts in the inter-reporting period. Meanwhile, the favorable
course of non-energy import prices partly compensated for the adverse effects of
the rising energy prices on inflation. As for the current account balance, the
recent downward course of the non-energy import prices counterbalanced the
rise in energy import prices. Therefore, not only the energy prices, but also the
prices of non-energy imports, which comprise a significant share of imports, should
be closely monitored while assessing the developments in the current account
balance.
Inflation Report 2012-II
65
Central Bank of the Republic of Turkey
Box
GDP, Labor Force, Employment and Unemployment
4.4
Economic
growth accompanied by employment growth is essential for social
welfare. This Box analyzes the capacity of economic activity to generate
employment and to reduce unemployment between 2005 and 2011. By using
quarterly data on the changes in GDP, labor force, employment and
unemployment during the 2005Q2-2011Q4 period, the analysis is conducted for
two
subsamples,
2005Q2-2008Q2
and
2009Q4-2011Q4,
by
also
including
unemployment forecasts for 2012. Table 1 presents the average annual growth
rates of GDP, labor force, employment and unemployment for the above
subsamples. While GDP posted high growth rates in both periods, the associated
increase in employment and the fall in unemployment differed between the two
periods.
Table 1. GDP, Labor Force, Employment and Unemployment*
(Average Annual Growth by Quarters)
Non-Farm
Total
Non-Farm
Total
Non-Farm
Unemployment
Total
Employment
Non-Farm
Labor Force
Total
GDP
Period
2005Q2-2008Q2
6.7
7.3
1.7
4.1
1.9
4.8
-0.2
-0.5
2009Q4-2011Q4
8.7
9.1
3.9
2.8
6.1
5.6
-1.8
-2.1
* Change in unemployment is the year-on-year change in the unemployment rate.
Source: TurkStat, CBRT.
The averages of the annual growth in total and non-farm GDP by quarters were
quite similar, while non-farm employment posted a higher growth rate than total
employment
unemployment
during
rates
the
2005Q2-2008Q2
declined
slightly.
period
The
(Table1).
negligible
Meanwhile,
improvement
in
unemployment rates despite high economic growth is noteworthy in this period.
GDP posted a higher growth rate in the 2009Q4-2011Q4 period, with total
employment and non-farm employment increasing by 6.1 percent and 5.6
percent, respectively. In the meantime, unemployment fell sharply during this
period.
Table 2 presents the ratio of the average annual growth rates of employment and
unemployment to GDP by quarters for the two subsamples. Accordingly, one may
conjecture about the extent of the increase in employment and decrease in
unemployment brought about by the GDP growth.
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Central Bank of the Republic of Turkey
Table 2. Sensitivity of Employment and Unemployment to GDP Growth
Change in Employment/
Change in GDP
Average
Change in Unemployment/
Change in GDP
Average
Total
Non-Farm
Total
Non-Farm
2005Q2-2008Q2
0.280
0.631
-0.017
-0.070
2009Q4-2011Q4
0.747
0.635
-0.218
-0.241
Subsamples
Source: TurkStat, CBRT.
During
2005Q2-2008Q2 period, 1 percentage point increase in GDP brought
about 0.3 percent increase in employment. Meanwhile, 1 percentage point
increase in non-farm GDP growth led to a remarkable 0.6 percent increase in nonfarm employment (Table 2). Similarly, in the 2009Q4-2011Q4 period, GDP growth
resulted in an even higher growth in employment, with 1 percentage point
increase in GDP growth bringing about 0.75 percent growth in employment. On
the other hand, the growth in non-farm employment in response to GDP growth
remained unchanged since the previous period. In both periods, growth of total
employment differed from the growth of non-farm employment owing to the
behavior of the agricultural sector. During the 2005Q2-2008Q2 period, the increase
in employment was less effective on reducing the unemployment rate due to the
simultaneous increase in the labor force participation. On the other hand, in the
second period, the increase in employment exceeded the increase in the labor
force participation, thereby reducing unemployment rates considerably. Hence,
higher employment may be brought about by economic growth, while lower
unemployment may only be attained contingent upon the course of the labor
force participation.
Against
this background, Table 3 presents under various scenarios and
assumptions regarding the percentage change in the labor force, the direction of
the course of unemployment corresponding to a 4 percentage point increase in
GDP. In other words, columns show the possible annual percent change in the
labor force, while rows show the sensitivity of employment growth to GDP growth.
The direction of the course of unemployment is found by comparing the
percentage changes in employment and labor force, while employment growth is
measured by multiplying the sensitivity with the percent change in GDP.
Inflation Report 2012-II
67
Central Bank of the Republic of Turkey
Table 3. Unemployment Forecasts for 2012 with 4 percent GDP Growth
Expected Annual Growth of the Labor Force
1.5
2.0
2.5
3.0
4.0
0.4
fall
rise
rise
rise
rise
0.6
fall
fall
rise
rise
rise
0.8
fall
fall
fall
fall
rise
Sensitivity
Source: CBRT.
The course of unemployment over 2012 are shown in the shaded region for various
sensitivity and labor force growth figures, which are considered to be relatively
plausible. The sensitivity of labor force to GDP growth has recently been elevated
(Table 2). In addition, the unemployment figures in January 2012 as well as the
employment growth also confirm the improvement in the capacity of GDP to
generate employment, and signal for further improvement throughout 2012. Thus,
the sensitivity is anticipated to remain within 0.6-0.8 over 2012. The growth rate of
labor force has increased recently, mainly as a result of the added worker effect
exclusive to crisis periods (Table 1). Thus, envisioning that the growth rate of labor
force is likely to decline below the recent averages, labor force is estimated to
post a growth rate between 1.5-3.0 in 2012.7
Accordingly, one may conclude that unemployment is likely to decline given a 4
percent increase in GDP, as depicted by the shaded region in Table 3. Similarly,
Tables 4 and 5 also confirm the expectation for a fall in unemployment under
various assumptions regarding GDP growth in 2012.
Table 4. Unemployment Forecasts for 2012 with 3.5 percent GDP Growth
Expected Growth of the Labor Force
1.5
2.0
2.5
3.0
4.0
0.4
rise
rise
rise
rise
rise
0.6
fall
fall
rise
rise
rise
0.8
fall
fall
fall
rise
rise
Sensitivity
Source: CBRT.
For further details on the compatibility of the female labor force behavior in Turkey with respect to additional labor force
exclusive to crisis periods, see Başkaya and Şengül (2012).
7
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Central Bank of the Republic of Turkey
Table 5. Unemployment Forecasts for 2012 with 4.5 percent GDP Growth
Expected Growth of the Labor Force
1.5
2.0
2.5
3.0
4.0
0.4
fall
rise
rise
rise
rise
0.6
fall
fall
rise
rise
rise
0.8
fall
fall
fall
fall
rise
Sensitivity
Source: CBRT.
In
sum, this Box presents unemployment forecasts for 2012 under various
assumptions regarding GDP and labor force growth as well as the sensitivity of
employment to GDP growth. Accordingly, unemployment rates are expected to
decline by year-end under the condition that the course of labor force and the
sensitivity of employment to GDP growth record the expected figures.
REFERENCES
Başkaya, Y. S. and G. Şengül, 2012, Türkiye’de Emek Piyasasının Çevrimsel
Hareketinin Cinsiyet Bazında Analizi (in Turkish), CBRT Economic Notes No.
12/09.
Inflation Report 2012-II
69
Central Bank of the Republic of Turkey
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Central Bank of the Republic of Turkey
5.
Financial
Markets
Intermediation
Financial
and
5.1. Financial Markets
First-quarter data on the global economy indicate signs of recovery, while
also implying ongoing downside risks. The ECB took measures for the solution of
the debt problem and continued with monetary easing in order to boost
economic growth. Despite having declined amid adopted measures, bond
yields of the debt-ridden countries continue to remain elevated. Moreover, with
a view to bolstering economic growth, the Bank of Japan also implemented
monetary easing in the first quarter. Monetary easing by major central banks,
alleviating uncertainties on the resolution of the Greek debt problem coupled
with the favorable outlook in the U.S. growth, thereby improving the global risk
appetite (Chart 5.1.1). However, the absence of signals for further monetary
easing by major central banks, concerns over the debt problem in the Euro
Area and the downward revision of growth forecasts for the Chinese economy
have recently deteriorated the global risk appetite. Despite the adopted
measures, growth forecasts remained broadly unchanged in the first quarter, for
both advanced and emerging economies.
Chart 5.1.1.
Volatility Index*
VIX
90
VIX Volatility (right axis)
0.12
80
0.1
70
60
0.08
50
0.06
40
30
0.04
20
0.02
10
0412
0112
1011
0711
0411
0111
1010
0710
0410
0
0110
0
* 150-day standard deviation of the daily VIX.
Source: Bloomberg, CBRT.
Favorable developments improving the global risk appetite in the interreporting period have also lowered risk premium in emerging economies
(Chart 5.1.2). However, risk premium edged up on the recently adverse
developments regarding the global economy as well as soaring oil prices.
Turkey’s risk premium remained in tandem with the other emerging economies
in this period (Chart 5.1.3).
Inflation Report 2012-II
71
Central Bank of the Republic of Turkey
Chart 5.1.2.
Chart 5.1.3.
EMBI
Relative EMBI
(01.31.2011=1)
Europe
Latin America
Europe
Latin America
Turkey
Asia
600
Turkey
Asia
1.05
550
1
500
0.95
450
400
0.9
350
300
0.85
250
0.8
200
0.75
150
Source: Bloomberg.
0412
0312
0312
0312
0212
0412
0212
1211
1011
0811
0611
0411
0211
0112
0.7
100
Source: Bloomberg, CBRT.
Monetary easing in advanced economies and the favorable course of
global risk perceptions accelerated portfolio flows, especially the equity flows,
to emerging economies (Chart 5.1.4). As for Turkey, inflows to equity market and
outflows from the GDBS market were observed during January and February
(Chart 5.1.5), mainly on the back of profit realizations by non-residents amid
declining market rates at the start of the period. On the other hand, nonresidents started to re-invest in the GDBS market, following the rate hikes in
March.
Chart 5.1.4.
Chart 5.1.5.
Net Portfolio Flows to Emerging Economies*
Net Portfolio Flows of Non-Residents*
(Adjusted for Index and Interest Rate, Million USD)
(Adjusted for Index and Interest Rate, Million USD)
Public Securities
Equities
30
25
10
20
8
15
6
10
Currency Swaps
GDBS
Equities
Total
4
5
2
0
-5
0
-10
-2
-15
-4
-20
0412
0112
1011
0711
0411
0412
0112
1011
0711
0411
0111
1010
0710
0410
* As of April 18, 2012.
Source: EPFR.
0111
-6
-25
* As of April 13, 2012. Currency swaps are the largest and the most
volatile FX-denominated off-balance sheet item. The volume of
currency swaps is calculated as the change in off-balance sheet FXdenominated position of banks.
Source: BRSA, CBRT.
Short-term capital investments, the majority of which is composed of
currency swaps by non-residents, increased in early-2012, reflecting also on the
off-balance sheet FX-denominated net position of domestic banks, which is a
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
major indicator on the volume of the currency swaps by non-residents. Flows to
currency swap market in a period of outflows from the GDBS market indicate
that non-residents switched to relatively short-term instruments given the ample
global liquidity amid monetary easing and the relatively high yields registered in
money markets. Overall, non-residents continued to invest in Turkey, when
currency swap transactions are included (Chart 5.1.5).
Monetary Policy Implementation
Owing to the upside risks on cost factors, the CBRT maintained its cautious
stance in the inter-reporting period, despite the favorable course of global risk
perceptions. The upper limit of the interest rate corridor was lowered by 100
basis points in February, in view of the decisions for monetary easing at a global
scale (Chart 5.1.6). Meanwhile, in order to prevent oil price hikes and other cost
factors to worsen inflation expectations, the CBRT delivered an additional
monetary tightening during March 23 and March 29, 2012. Accordingly, the
weighted average funding rate was raised by lowering the quantity of 1-week
repo funding (Chart 5.1.7). In the April meeting, stating that temporary cost
factors would not be allowed to worsen the inflation outlook, the MPC
underlined that additional monetary tightening might be more frequently
implemented in the period ahead.
Chart 5.1.6.
Chart 5.1.7.
CBRT Policy Rate and the Interest Rate Corridor
CBRT Funding and the Average Funding Rate
(Percent)
(Percent)
Interest Rate Corridor
14
Adoption of 1-week repo rate as
the policy rate
12
Outstanding Funding (Billion TL)
Average Funding Rate (right axis)
1-week Repo Rate
80
14
70
12
60
10
10
50
8
8
40
6
6
30
4
4
20
Source: CBRT.
0412
0312
0212
0112
1211
0
1111
0
1011
2
0911
0412
0212
1211
1011
0811
0611
0411
0211
1210
1010
0810
0610
0410
0210
0
10
0811
2
Source: CBRT.
With a view to facilitating the liquidity management of banks and
assisting them in envisioning their total funding costs, the CBRT continued to
announce the amount of funding on the days of the quantity auctions besides
Inflation Report 2012-II
73
Central Bank of the Republic of Turkey
the upper limit of the 1-month repo auction amount. Accordingly, in February,
funding quoted on the policy rate was kept between TL 3 billion and TL 7 billion,
while the upper limit for traditional 1-month repo auctions was raised from TL 5
billion to TL 6 billion. In the MPC meeting on March 27, the range for the funding
amount to be provided through 1-week repo auctions was changed as TL 1
billion to TL 6 billion provided and the upper limit for 1-month repo auction
amount was lowered to TL 5 billion. The total amount of funding provided by the
CBRT remained broadly unchanged in this period, ranging between TL 40-50
billion (Chart 5.1.8). Moreover, in order to provide a permanent and flexible
funding for banks, besides enhancing gold reserves, 20 percent of the required
reserves for TL liabilities were facilitated to be held as standard gold, as
opposed to the previously 10 percent.
Chart 5.1.8.
Market Liquidity
(Billion TL)
1-month Repo
1-week Repo (Traditional Auction)
1-week Repo (Quantity Auction)
Interbank
Primary Dealers
ISE
60
50
40
30
20
10
30-Mar-12
15-Mar-12
29-Feb-12
14-Feb-12
30-Jan-12
15-Jan-12
31-Dec-11
16-Dec-11
1-Dec-11
16-Nov-11
1-Nov-11
0
Source: CBRT.
Market Rates
In the first quarter of 2012, market rates edged down in Turkey in tandem
with the other emerging economies (Chart 5.1.9). Despite the downward course
of the risk premium, market rates declined only slightly owing to the ongoing
tight monetary stance of the CBRT (Chart 5.1.10).
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 5.1.9.
Chart 5.1.10.
Changes in 2-year Market Rates in Q1*
Yields on GDBS
Benchmark Interest Rate (compounded, percent)
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
EMBI+Turkey (right axis)
12
450
400
11
350
10
300
9
250
* Between January 30 and April 20, 2012.
Source: Bloomberg, CBRT.
200
0412
0212
0312
0112
1211
1111
1011
0911
0811
0711
0611
0511
100
0411
150
6
0211
0311
7
0111
Romania
Brazil
Hungary
Turkey
South Africa
Peru
Mexico
Czech Rep.
India
Colombia
Poland
South Korea
China
Indonesia
Israel
Malaysia
Philippines
Thailand
Chile
8
Source: ISE, Bloomberg.
Inflation expectations, a key determinant of market rates, increased
slightly in the inter-reporting period (Chart 5.1.11). On the other hand, short-term
inflation compensations soared markedly since January, amid the increase in
short-term inflation expectations (Chart 5.1.12). Meanwhile, on the back of the
ongoing tight monetary policy stance by the CBRT, inflation compensation
declined notably in the medium to long-term.
Chart 5.1.11.
Chart 5.1.12.
Inflation Expectations*
Forward Inflation Compensation*
April 2012
7.75
January 30, 2012
January 2012
7.61
7
6.5
7.25 7.22
6.96
6.75
April 20, 2012
6
5.5
6.91
6.40
6.25
5
4.5
6.26
4
5.75
3.5
3
0614
0514
0314
0114
1113
0913
0713
0513
0313
0113
1112
5.25
* 12 and 24-month ahead inflation expectations from the CBRT’s
Survey of Expectations, second survey period results.
Source: CBRT.
0.5
1
1.5
2
2.5
3
3.5
4
* Implied forward inflation compensation of the nominal and CPI-indexed
bonds traded at the ISE. Forward inflation compensation is adjusted for
inflation compensation up to the relevant maturity, thus reflecting the annual
inflation expectation after the expiration of the maturity.
Source: CBRT.
In the first quarter of 2012, yield curve declined across all maturities,
particularly in the long-term, in line with the heightening global risk appetite
(Chart 5.1.13). Also in tandem with the CBRT’s additional tightening at the end
of March, the interest rate spread turned negative (Chart 5.1.14). The
downward slope of the yield curve indicates a tight monetary policy stance.
Inflation Report 2012-II
75
Central Bank of the Republic of Turkey
Chart 5.1.13.
Chart 5.1.14.
Yield Curve*
Interest Rate Spread*
January 26, 2012
April 20, 2012
4
10
3.5
3
Yield (percent)
2.5
2
9.5
1.5
1
0.5
9
0
-0.5
-1
8.5
* Calculated from the compounded returns on bonds quoted at the
ISE Bonds and Bills Market by using ENS method.
Source: ISE, CBRT.
0412
0212
1211
1011
0811
0611
4
0411
3.5
0211
3
1210
2.5
Maturity (year)
1010
2
0810
1.5
0610
1
0410
0.5
0210
-1.5
* Spread between 4-year and 6-month yields derived from the ENS yield
curve, 5-day moving average.
Source: ISE, CBRT.
The flat course of market rates also reflected on the real rates in the first
quarter of the year (Chart 5.1.15). Real interest rates have hovered above other
emerging economies in this period (Chart 5.1.16).
Chart 5.1.15.
Chart 5.1.16.
2-Year Real Interest Rates for Turkey*
2-Year Real Interest Rates*
(Percent)
(Percent)
5.0
5
4.5
4
4.0
3
3.5
2
3.0
1
2.5
0
2.0
-1
1.0
-2
0.5
0412
0212
1211
1011
0811
0611
0411
0211
1210
1010
0810
0610
0410
0210
0.0
* Calculated as the 2-year discounted bond returns derived from the
yield curve, minus the 24-month ahead inflation expectations from
the CBRT's Survey of Expectations.
Source: ISE, CBRT.
Hungary
Brazil
Turkey
Colombia
Romania
Chile
Poland
India
Peru
Mexico
Malaysia
Israel
South Korea
Thailand
South Africa
Indonesia
Philippines
China
Czech Rep.
1.5
* As of April 20, 2012. Calculated as the 2-year government bond returns of
countries minus the 2-year ahead inflation expectations from the
Consensus Forecasts.
Source: Bloomberg, Consensus Forecasts, CBRT.
Exchange Rate and Reserves
The Turkish lira depreciated slightly in the first quarter, similar to currencies
of other emerging economies. The Turkish lira diverged from other emerging
economies in March, amid soaring oil prices and the lower-than-envisioned
correction in the current account deficit (Chart 5.1.17). However, on account of
the additional tightening delivered by the CBRT as well as the interruption of the
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
acceleration in oil prices, the Turkish lira appreciated in April. Amid the lowerthan-expected current account deficit in April, the Turkish lira appreciated
further.
Chart 5.1.17.
Chart 5.1.18.
TL and Emerging Market Currencies*
CBRT Reserves and FX Sales*
(11.01.2010=1)
(Billion USD)
Turkey
Emerging Economies
Gold Reserves
125
1.4
Gross FX Reserves
Cumulative FX Sales since August 2011
1.34
100
1.28
75
1.22
1.16
50
1.1
25
0412
0312
0212
0112
0811
* Emerging economies include Brazil, Chile, Czech Republic,
Hungary, Mexico, Poland, South Africa, Indonesia, South Korea,
Colombia and Turkey. Increases denote depreciation of the
currency.
Source: Bloomberg, CBRT.
1211
-25
1111
0.92
1011
0
1110
1210
0111
0211
0311
0411
0511
0611
0711
0811
0911
1011
1111
1211
0112
0212
0312
0412
0.98
0911
1.04
* CBRT reserves include gross FX reserves, overdrafts and gold reserves. FX
sales include auctions and direct interventions.
Source: CBRT.
The suspension of FX auctions reversed the downward course of the
CBRT’s FX reserves, after the January meeting of the MPC (Chart 5.1.18).
Additionally, following the required reserves decision taken at the MPC meeting
in March, gold reserves as well as FX reserves have increased (Box 5. 1). Due to
the CBRT’s tight monetary policy stance and the favorable course of the global
risk appetite, implied volatility of the Turkish lira remained low both in short and
in long-term, compared to the currencies of other emerging economies
(Charts 5.1.19 and 5.1.20).
Chart 5.1.19.
Chart 5.1.20.
Implied Volatility of Exchange Rates*
Implied Volatility of Exchange Rates*
(1-Month Ahead)
(12-Month Ahead)
30
30
Emerging
Economies
Emerging Economies
25
25
Turkey
0412
0112
1011
0711
0411
0111
5
0412
5
0112
10
1011
10
0711
15
0411
15
0111
20
1010
20
1010
Turkey
* Emerging economies include Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea and Colombia.
Source: Bloomberg, CBRT.
Inflation Report 2012-II
77
Central Bank of the Republic of Turkey
Monetary Indicators
Domestic and external economic climate continued to weigh on
monetary indicators amid the ongoing volatility in the financial markets.
Accordingly, the annual growth of M3, the broad measure of money supply,
continued to decline. In fact, balance sheet decomposition of M3 points that
the surge in Claims on Private Sector, which mostly consist of bank loans
extended to non-financial private individuals and institutions, has recently
paused. Meanwhile, Claims on Public Sector continued to provide negative
contribution to M3 growth. The fall in Net External Assets is mainly attributed to
the interruption of the decline in commercial banks' FX-denominated assets.
Lastly, the negative contribution of the item Other, i.e. the monetary sector's
non-deposit resources, to the M3 growth remained flat (Chart 5.1.21).
Chart 5.1.21.
Balance Sheet Decomposition of M3
(Contributions to Annual M3 Growth)
4. Other
3. Claims on Private Sector
2. Claims on Public Sector
1. Net External Assets
1+2+3+4= M3 (Annual Growth in Percent)
40
30
20
10
0
-10
0212
1111
0811
0511
0211
1110
0810
0510
0210
1109
0809
0509
0209
1108
0808
0508
0208
1107
0807
0507
-20
Source: CBRT.
Owing to the slowdown in economic activity, the rate of increase in the
seasonally adjusted money in circulation continued to decline in the first quarter
of the year (Chart 5.1.22). The adopted measures in addition to the slowdown in
the economic activity, as well as soaring interest rates increased the
opportunity cost of holding cash, thus resulting in a deceleration in the growth
of the money in circulation.
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 5.1.22.
Currency in Circulation and Current Consumption Spending*
(Seasonally Adjusted)
Current Consumption Spending (Annual Percent Change)
Currency in Circulation (Annual Percent Change)
Currency in Circulation (billion TL, right axis)
30
60
25
55
50
20
45
15
40
10
35
5
30
0
25
3
4
1
2
3
4
1
2009
2
3
4
1
2010
2
3
4
2011
1
2012
* Consumption spending includes private and public consumption excluding furniture,
household appliances, transport and communication services at current prices.
Source: TurkStat, CBRT.
5.2. Financial Intermediation and Loans
On account of the CBRT’s tight monetary policy, the slowdown in the
economic activity and the surge in margins, growth of loans extended to the
real sector by domestic banks still remain low, notwithstanding the edging up in
the first quarter (Chart 5.2.1 and Box 5.2). Accordingly, real sector loans posted
a year-on-year increase by 21.7 percent in the first quarter, growing by 19.1
percent in annualized terms (Chart 5.2.1). Meanwhile, external borrowing by
firms has increased in the first two months of the year (Chart 5.2.2).
Chart 5.2.1.
Chart 5.2.2.
Growth Rate of Real Sector Loans
External Borrowing of Firms
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
(Billion USD)
60
70
50
65
40
60
30
55
20
50
10
45
0
40
-10
35
-20
30
Source: BRSA.
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
-30
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011 2012
Source: CBRT.
Despite the limited quarter-on-quarter increase in real sector loans
extended by domestic banks, growth rate of total loans remained low amid the
slowdown in consumer loans (Chart 5.2.3). Annualized data for the first quarter
Inflation Report 2012-II
79
Central Bank of the Republic of Turkey
suggest that the growth rate of consumer loans went down to 8.3 percent.
Although a substantial part of this decline was driven by seasonal effects,
growth of loans declined notably, compared to the same period of the
preceding years (Chart 5.2.4).
Chart 5.2.3.
Chart 5.2.4.
Growth Rates of Business and Consumer Loans*
Consumer Loan Growth
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
Business Loans (including foreign branches)
2007-2011 Average
Consumer Loans
60
2012
45
40
50
35
40
30
25
30
20
20
15
10
10
5
* Including automobile loans extended by consumer financing firms.
Source: CBRT.
Dec
Oct
Nov
Sep
Jul
Aug
Jun
Apr
May
Mar
Jan
0
Feb
0312
0112
1111
0911
0711
0511
0311
0111
1110
0910
0710
0510
0310
0110
0
Source: CBRT.
Amid the monetary tightening delivered as of October 2011, growth rates of
all types of consumer loans decelerated significantly. Despite the limited recovery in
the first quarter of the year, growth rates of consumer loans still exhibit a fairly weak
outlook compared to the pre-tightening period (Chart 5.2.5). Growth rates of
housing and personal loans edged up in March, albeit remaining low. The CBRT’s
Business Tendency Survey of the last quarter of 2011 indicates that the absence of a
tightening in housing loan standards points that the housing loans slowed down
mainly on the back of soaring interest rates amid the tight monetary policy stance.
Meanwhile, the deceleration in personal loans is attributed to supply-side factors
besides the tight monetary policy. In fact, personal loan rates increased more
sharply than other loan rates (Chart 5.2.6). The Business Tendency Survey also
indicates increased concerns of banks over credit risk, thereby causing tightening in
standards for loans with strong cyclicality in credit risk. This is also confirmed by the
higher increase in personal loan rates than other loan rates amid the additional
monetary tightening delivered in late March. In the first quarter of the year,
automobile loans, which constitute less than 10 percent of the consumer loans,
decreased sharply due to seasonal effects. Overall, all these developments signify
that money and credit markets maintain their tight stance.
80
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 5.2.5.
Chart 5.2.6.
Weekly Growth Rates of Consumer Loans*
Consumer Loan Rates
(13-Week Average, Annualized, Percent)
(Flow, Annualized, Percent)
Housing
Automobile
Automobile
Housing
Personal
120
Personal
22
Narrowing of the Interest
Rate Corridor
100
80
Widening of the
Interest Rate
Corridor
17
BRSA Measures
60
40
12
20
0
* Including automobile loans extended by consumer financing firms.
Source: CBRT.
0412
0312
0212
0112
1211
1111
1011
0911
0811
0711
0611
0511
0411
0311
0211
0312
0112
1111
0911
0711
0511
0311
0111
1110
0910
0710
0510
0310
0110
0111
7
-20
Source: CBRT.
Unlike consumer loans, the growth rate of business loans edged up
notably in the first quarter. However, the growth rate of business loans, in both TL
and FX, lagged behind the average of the preceding years (Charts 5.2.7 and
5.2.8). In particular, growth of FX-denominated loans has remarkably converged
to the growth rate of TL-denominated business loans. In a period with an
absence of a strong indicator on accelerating investments, the rise in FX loans,
which are mainly used for the financing of investment spending, is viewed to be
fuelled by supply-side factors. In fact, soaring FX-denominated deposits
generating in-balance sheet FX short position in the first quarter is a prominent
factor, which is likely to drive banks to extend FX loans.
Chart 5.2.7.
Chart 5.2.8.
Business Loan Growth
Growth Rates of TL and FX Business Loans*
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
(Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
2007- 2011 Average
TL Business Loans
FX Business Loans (including foreign branches)
2012
40
70
35
60
30
50
25
40
20
30
15
20
10
10
5
0
0312
1211
0911
0611
0311
1210
0910
0610
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Source: BRSA.
0310
-10
0
Source: CBRT.
An analysis of business loans by scale reveals that growth rates of loans
extended to large-scale enterprises notably exceeded the growth of loans to
Inflation Report 2012-II
81
Central Bank of the Republic of Turkey
SMEs in the first two months of the year (Chart 5.2.9), confirming the heightening
concerns of banks over the credit risk. In fact, the previous quarter’s Business
Tendency Survey results suggest that banks have tightened their lending
conditions in tandem with their recent concern over bad loans. This is also
confirmed by the accelerating growth of past-due loans (Chart 5.2.10).
However, the expectation that the slowdown in economic activity in the first
quarter would be temporary stands out as a factor to ease tightening in credit
supply.
Chart 5.2.9.
Chart 5.2.10.
Business Loan Growth Rates by Scale*
Weekly Growth of Past-Due Loans
(Nominal, Adjusted for Exchange Rate, 13-Week Average,
Annualized, Percent)
(13-Week Average, Percent)
SME
Large-Scale Enterprises
100
2
80
1.5
60
1
40
0.5
20
Source: CBRT.
0911
1211
0312
0611
0910
1210
0311
0610
0909
1209
0310
0609
0908
1208
0309
0308
0112
1011
0711
0411
0111
1010
0710
0410
0110
1009
0709
0409
-1
0109
-40
1008
-0.5
0708
-20
0608
0
0
Source: CBRT.
The accelerating growth of business loans in the first quarter is also
attributed to the slightly reduced average funding rate by the CBRT
(Chart 5.2.11). The decline in funding cost was simultaneously reflected on loan
rates and loan-deposit rate spread as well (Chart 5.2.12).
Chart 5.2.11.
Chart 5.2.12.
TL Business Loan Rate and the Average Funding
Rate (Flow, 4-Week Average, Percent)
TL Business Loan Rate
(Flow, 4-Week Average, Percent)
(
TL Business Loan Rate
Average Funding Rate (right axis)
Business Loan Rate (right axis)
6
14
10
5
13
9
4
12
12
8
3
11
11
7
2
10
10
6
1
9
9
5
0
8
16
15
14
0312
0212
0112
1211
1111
13
1011
0911
0811
0611
0511
0411
0211
0311
0711
MPC
Meeting
on
October
20, 2011
BRSA
Measures
0111
0312
11
0212
15
0112
7
1211
12
1111
16
1011
8
0911
13
0811
17
Source: CBRT.
82
Business Loan Rate - Deposit Rate
Source: CBRT.
Inflation Report 2012-II
Central Bank of the Republic of Turkey
The recent monetary policy measures taken by the CBRT have been
influential on deposit rates. Following the CBRT’s suspension of the additional
tightening in January, TL deposit rates edged down (Chart 5.1.13). Owing to the
ongoing tight monetary policy stance as well as the competitiveness in the
deposit market, deposit rates declined less heavily than the CBRT’s weighted
average funding rate. In particular, banks, which are challenged to meet total
liquidity adequacy ratios, have recently competed drastically to attract more
deposits, thereby preventing deposit rates to decline. Following the CBRT’S
recourse to additional tightening, deposit rates have recently edged up
(Chart 5.1.14).
Chart 5.2.13.
Chart 5.2.14.
Yield Curve on TL Deposits
TL Deposit Rate and the Average Funding Rate
TL Deposit Rate
December 30, 2011
March 16, 2012
March 30, 2012
12.50
Average Funding Rate (right axis)
11
13
10.5
12
10
11
9.5
10
12.00
11.50
11.00
10.50
9
9
8.5
8
8
7
7.5
6
7
5
10.00
12-month
Source: CBRT.
0312
6-month
0212
3-month
0112
1-month
1211
8.00
1111
0811
8.50
1011
9.00
0911
9.50
Source: CBRT.
FX-denominated business loan rates soared slightly on a quarterly basis
(Chart 5.2.15). Owing to the decline in FX deposit rates, the spread on FXdenominated loans and deposit rates widened in this period.
Chart 5.2.15.
FX Business Loan Rates
(Flow, 4-Week Average, Percent)
FX Busines Loan Rate - FX Deposit Rate
FX Business Loan Rate (right axis)
4
8
MPC Meeting on
October 20, 2011
0312
4
0112
0
1111
5
0911
1
0711
6
0511
2
0311
7
0111
3
Source: BRSA.
Inflation Report 2012-II
83
Central Bank of the Republic of Turkey
In sum, the monetary tightening in the last quarter of 2011 decelerated
loan growth. In particular, consumer loans, which are expected to be more
sensitive to interest rates, have notably lost pace. On the other hand,
heightened concerns of banks over credit risk have weighed on the credit
supply as of the last quarter of 2011. However, the relatively favorable
economic outlook in the first quarter may alleviate these concerns. Hence,
assuming that external borrowing will not pose a significant constraint, credit
developments in the period ahead are expected to be largely shaped by
demand-side factors.
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
Box
5.1
Amid
The Effects of the CBRT’s Monetary Policy Decisions on Reserves
mounting concerns over sovereign debt problems in some European
countries, the CBRT has adopted extensive measures as of the second half of 2011,
in order to contain the possible adverse effects on domestic markets. Accordingly,
external markets were closely monitored and FX liquidity was provided with
appropriate means and methods, when deemed necessary. This Box analyzes the
effects of the adopted monetary policy decisions since the second half of 2011, on
CBRT’s FX and gold reserves.
With a view to meeting the need for FX liquidity amid worsening risk perceptions,
the CBRT has conducted regular FX sale auctions as of August 5, 2011. In addition,
the CBRT also provided FX liquidity through direct sale interventions, in the event
that unhealthy price formations are observed in the exchange rate. Amid
favorable global liquidity conditions at the onset of 2012, the CBRT has suspended
regular FX sale auctions as of January 25, 2012. The FX liquidity provided through
auctions and direct interventions amounted to USD 16 billion, pulling FX reserves
down (Chart 1 and Table 1).
Chart 1. CBRT Reserves and FX Sales*
(Billion USD)
Gold Reserves
Gross FX Reserves
125
Cumulative FX Sales since August 2011
100
75
50
25
0
0312
0212
0112
1211
1111
1011
0911
0811
-25
* CBRT reserves include gross FX reserves, overdrafts and gold reserves. FX sales include
auctions and direct interventions.
Source: CBRT.
In order to provide FX liquidity to the market, the CBRT also opted for reductions in
FX required reserve ratios. Accordingly, FX required reserve ratios were lowered by
0.5 points across all maturities on August 5, thereby providing FX liquidity of USD 930
billion to the market. Moreover, in order to provide additional FX liquidity to the
market and to stimulate the extension of the maturity of the banking sector FX
liabilities, FX required reserve ratios were lowered further on October 5, providing
FX liquidity of USD 1.3 billion to the market.
Inflation Report 2012-II
85
Central Bank of the Republic of Turkey
In
order to curb the adverse effects of the FX sale auctions and direct sale
interventions on reserves, on September 12, the CBRT facilitated to hold up to 10
percent of the TL-denominated required reserves in USD and/or in euro, thus
providing a permanent and relatively low-cost funding to meet the TL liquidity
deficit. Thus, 10 percent of the TL required reserves, amounting to TL 6.8 billion, was
enabled to be kept in USD, corresponding to USD 3.9 billion, out of which, USD 2.9
billion was facilitated as of September 30, 2011. This facility was raised to 20
percent and 40 percent, respectively on October 5 and October 27, 2011. Finally,
USD 11.1 billion was facilitated as of March 30, 2012 (Table 1).
Chart 2. Export Rediscount Credits
Another
reserves
tool
is
for
through
rediscount
credits.
credits
granted
are
affecting
FX
(Billion USD)
in
3
Rediscount
2.5
changes
in
TL,
but
2
collected in FX, thus resulting in an
1.5
increase in FX reserves. Hence, the
1
CBRT, with a view to enhancing the
0.5
FX reserves, facilitated the use of
September 12, 2011. Accordingly,
0312
0212
0112
1211
1111
1011
0911
0811
0711
0611
0511
0
0411
on
0311
credits
0211
rediscount
0111
export
Source: CBRT.
the closure period for rediscount
credit commitments was extended from 4 months to 6 months, with credit limits
being raised from USD 2.5 billion to USD 3 billion. The credit limit was further raised
to USD 4.5 billion and the closure period for commitments was extended to 12
months. Following these arrangements, rediscount credits increased by USD 1.7
billion and reached to USD 2.6 billion as of March 30, 2012 (Chart 2 and Table 1).
In order to enhance gold reserves and provide flexibility to banks in their liquidity
management, the CBRT facilitated to hold up to 10 percent of the TL required
reserves as standard gold on November 1, 2011, corresponding to 55 tons (USD 3.1
billion), out of which, 87 percent has been facilitated as of March 30, 2012. This
facility was raised to 20 percent on March 27, to be effective as of April 13, thus
leading to an increase in gold reserves (Chart 1 and Table 1).
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Inflation Report 2012-II
Central Bank of the Republic of Turkey
In order to enhance gold reserves, on September 12, the CBRT facilitated to hold
up to 100 percent and 10 percent of the required reserves to be kept as standard
gold for precious metal deposit accounts and for FX liabilities other than precious
metal deposit accounts, respectively. With the extension of required reserves
regulation to cover precious metal deposit accounts, the CBRT reserves increased
by USD 685 million. Moreover, banks have exploited 66 percent of the facility to
keep up to 10 percent of the FX liabilities other than precious metal deposit
accounts as standard gold (Table 1). However, this facility was lowered to 0
percent on March 27, to be effective as April 13, 2012. Extension of required
reserves regulation to cover precious metal deposit accounts caused CBRT gold
reserves to increase, while facilitation of FX required reserves to be held as
standard gold affected the composition of reserves, without affecting the
quantity.
Table 1. Effects of Policy Measures on Reserves*,**,***
(Changes since Jun. 30, 2011, Million USD)
Adopted Measures
FX Sale Auctions and Direct Sale Interventions
Facilitation of TL Required Reserves to be kept
as FX
Facilitation of TL Required Reserves to be kept
as standard gold
Facilitation of FX Required Reserves to be kept
as standard gold
Sept. 30, 2011
Gold
FX
Reserves
Reserves
0
-3030
Dec. 30, 2011
Gold
FX
Reserves
Reserves
0
-13450
Mar. 30, 2012
Gold
FX
Reserves
Reserves
0
-16056
0
2915
0
10221
0
11057
-
-
2291
0
2711
0
-
-
1720
-1720
2284
-2284
Does not include the additional FX liquidity provided through FX required reserve ratio reductions.
**
Does not include the additional gold reserves due to coverage of precious metal deposit accounts under reserve requirement.
***
Does not include the effect of rediscount credits on reserves as the maturity of these credits is 4 months, and hence, the effects can only be
observed with a 4-month lag.
Source: CBRT.
*
In
sum, the CBRT’s FX sale auctions and direct sale interventions since August
2011, as well as reductions in FX required reserve ratios caused FX reserves to
decline. On the other hand, the arrangements on reserve requirements and
rediscount credits largely compensated for this decline. Accordingly, the CBRT’s
reserves fell merely to USD 91.4 billion on March 30, 2012 from USD 97.6 billion on
August 5, since the launch of FX sale auctions.
Inflation Report 2012-II
87
Central Bank of the Republic of Turkey
Box
5.2
Consumer Loan Margins and Credit Supply
Assessing
credit conditions is crucial for evaluating financial and monetary
conditions as well as regarding financial stability. This Box analyzes consumer loan
margins, which may be considered to be indicative of the conditions in credit
supply.
Calculation of margins is based on Button et al. (2010). Accordingly, the cost of
funding and credit risk premium is subtracted from loan rates, which also include
other non-interest fees and commissions charged on the newly extended
consumer loans.1 The increase in margins when calculated as such shows that the
additional cost brought about by changing economic climate is passed over to
consumers through increased costs. Hence, margins can be considered to be an
indicator for credit supply. Studies based on banking sector surveys also reveal that
loans are initially adjusted through changes in loan rates. 2 However, for assessing
changes in margins, operational costs and competitiveness should also be taken
into account. Assuming that operational costs and competitiveness remain
broadly unchanged in the short term, loan margins are viewed to be a better
indicator of the credit supply conditions in the short term.
The derived margin series for the relevant loan categories are depicted in Chart 1.
Accordingly, margins soared sharply immediately after the 2008 global crisis,
implying that credit tightness experienced during that period was mainly owed to
supply-side factors. As the adverse effects of the crisis on the Turkish economy
were alleviated, margins declined, indicating that supply- side factors were largely
influential on the rapid credit expansion experienced during the post-crisis period.
Meanwhile, credit growth slowed down notably in the second half of 2011. The
derived margin series imply that the additional cost brought about by the adopted
measures of the BRSA and the CBRT was more than proportionately passed over to
loan rates, thus indicating stronger supply-side factors weighing on credit growth.
1
2
For further details on the calculation of the funding cost and credit risk premium, see Karaşahin and Özel (2012).
Alper et al. (2011).
88
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Chart 1. Consumer Loan Margins
(Percent, 4-Week Average)
Housing
Automobile
Personal
18
16
14
12
10
8
6
4
2
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0107
0
Source: CBRT.
Banks’ Loans Tendency Survey, quarterly conducted by the CBRT for monitoring
and assessing credit supply and demand conditions, is another indicator for credit
supply conditions. For a quantitative analysis of the survey, the net percent
change in survey responds are computed, with positive values of the net percent
change indicating a loosening in the credit conditions. The reverted net percent
change series are displayed in Chart 2, where positive values thus indicate
tightness in credit conditions.
Chart 2. Margins and Loan Standards
(Percent)
Automobile Loan Margin (right axis)
Housing Loan Margin (right axis)
Automobile Loan Standards
Housing Loan Standards
-100
10
-80
9
-100
14
-80
12
7
-60
10
-40
6
-40
8
-20
5
-20
6
0112
0711
0111
0710
0
0110
2
40
0709
4
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0
0107
1
60
0
20
0107
2
40
0109
20
0708
3
0108
4
0
0707
8
-60
Personal Loan Margin (right axis)
Personal Loan Standards
-100
20
-80
-60
15
-40
-20
10
0
20
5
40
Inflation Report 2012-II
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0
0107
60
89
Central Bank of the Republic of Turkey
Changes in margins should not always be interpreted as changing credit supply
conditions. Measurement biases in the calculation of funding cost and credit risk
premium may complicate the attribution of minor changes in margins to changes
in credit supply conditions. Yet, these biases are relatively negligible for sizeable
changes in margins. Hence, our analysis focuses on periods with sharp changes in
margins. Meanwhile, banks can restrict credit supply also through credit rationing,
thus without resorting to loan rate adjustment. Hence, a thorough understanding
of the changes in credit supply requires not only analyzing margins, but also the
volume of credits.
In sum, loan margins enable relatively closer and timely monitoring of the credit
supply developments than Banks’ Loans Tendency Survey. Assessing the recent
credit supply conditions against this background, the slowdown in the credit
growth may well be attributed to the recent surge in loan margins after June
2011.
REFERENCES
Alper K., H. Atasoy, R. Karaşahin and D. Mutluer-Kurul, 2011, Arzın Merkezine
Seyahat: Bankacılarla Yapılan Görüşmelerden Elde Edilen Bilgilerle Türk
Bankacılık Sektörünün Davranışı (in Turkish), CBRT Working Paper No. 11/24.
Button, R., S. Pezzini and N. Rossiter, 2010, Understanding the price of new lending
to households, Bank of England Quarterly Bulletin 50(3): 172-182.
Karaşahin, R. and Ö. Özel, 2012, Tüketici Kredilerinde Oluşan Marjlar ve Kredi Arzı
(in Turkish), CBRT Economic Notes No. 12/10.
90
Inflation Report 2012-II
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6. Public Finance
Soaring tax revenues and falling interest expenditures amid higher-thananticipated economic growth favorably affected the fiscal balances in 2011,
thus causing a year-on-year decline in central government budget deficit and
public debt stock to GDP (Chart 6.1). The additional revenue collected within
the Law No. 6111 on the “Restructuring of Public Claims”, the applications of
which had expired by May 31, 2011 besides the relative slowdown of the growth
of primary expenditures also contributed to the improvement in budget
performance.
Chart 6.1.
Central Government Budget Deficit and EU-Defined Public Debt Stock
(Percent of GDP)
3
20
2014*
2013*
2011
2012*
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
2014*
2013*
2011
2012*
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
32.0
40
1.0
6
1.5
60
1.4
9
37.0
80
35.0
Public Debt Stock
Maastricht Criterion: 60%
Budget Deficit
12
* MTP targets.
Source: Ministry of Finance.
Increases in indirect taxes, VAT on imports in particular, which are mainly
fuelled by the vigorous private consumption demand, in addition to revenues
collected under the tax amnesty were particularly effective on the favorable
outlook of the budget performance, pointing that the improvement in fiscal
balances was mainly driven by cyclical factors and regulations. The additional
revenues collected under the law on the restructuring of public claims will
continue into 2012, providing further support to budget revenues. Furthermore,
SCT rate hikes to certain products within fiscal measures effective as of October
will also favorably affect the budget revenues in 2012. However, possible
declines in tax revenues amid a potential slowdown in the economic activity as
well as upside risks to public expenditures, personnel expenditures in particular,
may interrupt the ongoing improvement in the budget performance in 2012.
Moreover, stipulated tax cuts and other government incentives within the new
Inflation Report 2012-II
91
Central Bank of the Republic of Turkey
incentive system, which was publicly announced on April 5, will favorably affect
public revenues by enhancing investment and employment in the medium to
long term, yet may lead to lower public savings in the short term (Box 6.1). Thus,
it should be emphasized that in order to ensure sustainability of the favorable
fiscal outlook as well as the fiscal discipline, reinforcement of the fiscal
framework through institutional and structural improvements envisaged in the
MTP remains critical.
6.1. Budget Developments
Central government budget posted a deficit of TL 6.4 billion, while primary
balance registered a surplus of TL 10.9 billion in the first quarter of 2012
(Table 6.1.1). The increase in interest expenditures by 24 percent was mainly
influential on the year-on-year deterioration in the budget performance. On the
other hand, the quarterly increase in the interest expenditures is related to the
maturity structure of the debt stock, and is anticipated to slow down in the
following months. Moreover, the relatively slower growth of tax revenues signal
a deceleration in the economic activity.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
Central Government Budget Expenditures
Interest Expenditures
Primary Expenditures
Central Government Budget Revenues
I. Tax Revenues
II. Non-Tax Revenues
Budget Balance
Primary Balance
JanuaryMarch 2011
JanuaryMarch 2012
Rate of Increase
(Percent)
Actual/Target
(Percent)
72.9
14.0
58.9
68.7
57.5
8.7
-4.1
83.8
17.3
66.5
77.4
64.5
9.6
-6.4
15.1
24.0
13.0
12.6
12.2
9.9
55.9
23.9
34.5
22.1
23.5
23.2
21.7
30.5
9.8
10.9
10.6
37.4
Source: Ministry of Finance.
Having displayed a year-on-year improvement in 2011 on the back of the
favorable budget outturn, the central government budget balance to GDP has
deteriorated moderately in the first quarter of 2012, while continuing to remain
low. The slightly worsening central government primary balance to GDP in the
first quarter of 2011 amid rapidly soaring primary expenditures, remained
unchanged in the first quarter of 2012 from the year-end (Chart 6.1.1). Central
government budget revenues with a modest year-on-year decline in 2011,
soared mildly in the first quarter of 2012, while central government primary
expenditures to GDP remained unchanged since end-2011 (Chart 6.1.2).
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Chart 6.1.1.
Chart 6.1.2.
Central Government Budget Balance
Central Government Budget Revenues and
Primary Expenditures
(Annualized, Percent of GDP)
(Annualized, Percent of GDP)
Budget Balance
8
Primary Balance
Budget Revenues
24
Primary Expenditures
23
6
22
4
1.9
2
21
20
0
19
18
-2
-1.5
-4
17
16
-6
15
-8
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011 2012
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011 2012
* Estimate.
Source: Ministry of Finance.
Central government primary expenditures posted a year-on-year growth
by 13 percent in the first quarter of 2012. Current transfers and personnel
expenditures, major components of the primary expenditures, were up 9.3
percent and 15.3 percent, respectively. Meanwhile, expenditures on goods and
services declined by 1.2 percent, mainly on the back of the dramatic fall in
health expenditures due to coverage of green card holders under the general
health insurance plan. Furthermore, expenditures within the general health
insurance plan is a component of the current transfers, as opposed to being a
component of the purchases of goods and services. The rapid surge in
personnel expenditures in the January-March 2012 period was mainly owed to
soaring salaries and severance pay. On the other hand, the low rate of increase
in health, pension and social benefits, the major component of current transfers,
restricted the rise in current transfers. Agricultural support declined temporarily
by 7.2 percent (Table 6.1.2).
Table 6.1.2.
Central Government Primary Expenditures
(Billion TL)
Primary Expenditures
1. Personnel Expenditures
2. Government Premiums to SSI
3. Purchase of Goods and Services
a) Defense and Security
b) Health Expenditures
4. Current Transfers
a) Duty Losses
b) Health, Pension and Social Benefits
c) Agricultural Support
d) Shares Reserved from Revenues
5. Capital Expenditures
6. Capital Transfers
JanuaryMarch 2011
58,.9
18.8
3.3
4.8
1.2
1.1
29.6
0.3
15.8
2.8
7.6
1.5
0.3
JanuaryMarch 2012
66.5
21.6
3.7
4.7
1.2
0.3
32.3
0.4
16.2
2.6
9.0
1.7
0.2
Rate of
Increase
(Percent)
13.0
15.3
13.0
-1.2
-3.3
-72.7
9.3
58.0
2.4
-7.2
19.0
13.8
-23.5
Actual/Target
(Percent)
22.1
26.5
26.2
16.3
11.3
32.8
24.8
9.5
23.5
36.3
26.6
6.1
4.8
Source: Ministry of Finance.
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Central government general budget revenues posted a year-on-year
growth by 11.9 percent in the January-March 2012 period. Meanwhile, tax
revenues and non-tax revenues increased by 12.2 percent and 9.9 percent,
respectively (Table 6.1.3). The increase in income tax revenues by 24.7 percent
slightly contained the slowdown in the growth of tax revenues. Income tax
mainly comprises withholding tax on wages, salaries, interest and capital
earnings. Therefore, the ongoing increase in registered employment is
considered to be influential on soaring income tax revenues. Meanwhile,
domestic VAT revenues increased mildly by 9.2 percent, while SCT revenues
increased by a mere 4.5 percent. The slowdown in the growth of SCT revenues
was mainly owed to the year-on-year decline in SCT collection on oil and
natural gas products, as well motor vehicles by 0.4 percent and 11 percent,
respectively. In the meantime, VAT revenues on imports registered a growth by
5.9 percent, remaining well below the growth rate by 34.5 percent in 2011.
Table 6.1.3.
Central Government General Budget Revenues
(Billion TL)
General Budget Revenues
I-Tax Revenues
Income Tax
Corporate Tax
Domestic VAT
SCT
VAT on Imports
II-Non-Tax Revenues
Enterprises and Property Revenues
Interests, Shares and Fines
Capital Revenues
JanuaryMarch 2011
JanuaryMarch 2012
Rate of Increase
(Percent)
Actual/Target
(Percent)
66.2
57.5
10.4
6.6
7.3
13.3
10.3
8.7
2.6
4.3
1.3
74.0
64.5
13.0
7.4
8.0
13.9
10.9
9.6
2.9
4.8
0.6
11.9
12.2
24.7
12.4
9.2
4.5
5.9
9.9
9.1
12.5
-51.6
23.0
23.2
24.1
27.1
23.9
19.7
20.2
21.7
31.1
21.8
5.5
Source: Ministry of Finance.
The annual rate of increase in real tax revenues, which has decelerated
since the third quarter of 2011, continued to slow down further in the first quarter
of 2012, hitting the recent-low since the last quarter of 2009. The slowdown in
the economic activity since the third quarter of 2011 was especially influential
on the declining growth of real tax revenues (Chart 6.1.3). Consumption-based
tax revenues are the primary tax revenue items which were adversely affected
by the slowdown in the economic activity. Hence, SCT revenues, a major
component of the tax revenues, registered a year-on-year decline by 5.4
percent in real terms, in the first quarter of 2012. Meanwhile, during the same
period, domestic VAT revenues and VAT revenues on imports posted a year-onyear decline by 1.2 percent and 4.1 percent, respectively, in real terms
(Chart 6.1.4).
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Chart 6.1.3.
Chart 6.1.4.
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
(Annual Percent Change)
25
60
20
50
Real Domestic VAT Revenues
Real SCT Revenues
Real VAT Revenues on Imports
40
15
30
10
20
5
10
1.6
0
0
-10
-5
-20
-10
-30
-15
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
-40
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2011 2012
2007
2008
2009
2010
2011 2012
Source: Ministry of Finance.
6.2. Developments in the Debt Stock
Public debt stock indicators improved further in the first quarter of 2012.
The real cost of borrowing decreased, the maturity of the debt stock was
extended and the share of interest and exchange-rate-sensitive securities in the
debt stock declined.
Chart 6.2.1.
Chart 6.2.2.
Public Debt Stock Indicators
Composition of the Central Government Debt
Stock
(Percent)
Total Public Net Debt Stock (percent of GDP)
FX-Denominated/FX-Indexed
Floating-Rate
Fixed-Rate
80
600
100
500
80
29.6
519.9
70
27.8
EU-Defined General Government Nominal Debt Stock
(percent of GDP)
Central Government Total Debt Stock (billion TL, right axis)
40
200
20
100
10
0
0
2003
2005
2007
2009
2011
34.1
30
34.0
60
300
22.4
40
400
38.1
50
36.4
39.4
60
20
0
2001
2003
2005
2007
2009
2011
* Floating-Rate debt stock includes discounted securities with a maturity less than 1 year and GDBS with floating rates.
** FX-Denominated/FX-Indexed debt stock includes external debt stock and FX-denominated and FX-indexed domestic debt stock.
Source: Treasury, CBRT.
The ratio of total public net debt stock and EU-defined general
government nominal debt stock to GDP posted a year-on-year decline by 6.5
points and 3 points, to 22.4 percent and 39.4 percent, respectively, by end-2011
Inflation Report 2012-II
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(Chart 6.2.1). Meanwhile, as of March 2012, central government debt stock
remained unchanged from end-2011 (Chart 6.2.1).
Chart 6.2.3.
Chart 6.2.4.
Average Maturity of Domestic Cash Borrowing
and Term-to-Maturity of the Domestic Debt Stock
Borrowing By Bond Issues
(Month)
70
60.8
35
7
30
6
25
5
20
4
15
3
60
50
34.2
30
10
2011
2010
2009
2008
2007
2006
2005
2011
2012/3
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2004
0
2003
1
0
0
Term-to-Maturity of the Domestic Debt Stock
2
5
2002
10
10.5
2001
20
2012/3
40
External Borrowing (billion USD, right axis)
Average Maturity of the External Borrowing (year)
Maximum Maturity of the External Borrowing (year)
Average Maturity of the Domestic Cash Borrowing
Source: Treasury, CBRT.
As of March 2012, the Treasury has continued on its borrowing strategy to
alleviate the sensitivity of the debt stock to liquidity, interest rate and exchange
rate. Accordingly, the share of fixed-rate securities increased in the total debt
stock (Chart 6.2.2). The ratio of public deposits to average monthly debt service
reached 154.6 percent. Term-to-maturity of the domestic debt stock hit 34.2
months amid the year-on-year increase in the average maturity of the domestic
cash borrowing (Chart 6.2.3). External borrowing by bond issues amounted to
USD 3.6 billion, with a year-on-year decline in the average maturity to 10.5 years
(Chart 6.2.4).
Chart 6.2.5.
Chart 6.2.6.
Total Domestic Debt Rollover Ratio
Average Maturity of Borrowing and Interest Rates at
Discount Auctions
(Percent)
800
110
Maturity (day)
Average Compounded Interest Rate (right axis)
Real Interest Rate (right axis)
700
60
600
100
50
500
89.0
90
84.5
80
40
400
30
300
89.3
20
200
10
100
2003
2005
2007
2009
2011
0
1202
0603
1203
0604
1204
0605
1205
0606
1206
0607
1207
0608
1208
0609
1209
0610
1210
0611
1211
0
70
70
Source: Treasury, CBRT.
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According to the Treasury’s announced strategy on domestic borrowing
for April-June 2012, domestic debt rollover ratio, which is envisaged to fall to
78.8 percent by end-June, stood at 89 percent in February 2012 (Chart 6.2.5).
Having fallen sharply from the onset of 2009 till the beginning of 2011, the
average real interest rates at discount auctions have recently displayed a mild
increase, albeit remaining currently low (Chart 6.2.6).
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Box
6.1
Main Features of the New Incentive System
Fiscal policy is an instrument that can affect the economy both from the demand
side as well as from the supply side. Fiscal policy is significant in the short term for
improving macroeconomic stability from the demand side through taxes and
expenditure policies, while in the long term, fiscal policy may affect supply side by
enhancing economic growth and potential output. To give an example, a
reduction in direct taxes such as income and corporate tax may affect factors of
production like labor and capital, and thus, contribute to growth and employment
in the long term without causing any inflationary pressures. Hence, the new
incentive system, the general features of which were publicly announced on April
5, is estimated to have broad effects on the economy by supporting economic
growth through supply-side economic policies. This Box summarizes the main
features of the incentive package as well as its range of application.1
The new incentive system is the fourth incentive system in Turkey launched over
the last decade. The new system preserves the main features of the previously
enacted incentive system, the provision of government incentive for investments,
which was published on Official Gazette on July 16, 2009. However, the new
system brings about major changes and novelties in certain aspects. In fact, in the
previous incentive system, Turkish provinces were categorized under 4 regions with
respect to their socioeconomic development, while the new system divides Turkey
into 6 regions, with higher incentives granted to socioeconomically inferior regions.
Narrowing
the current account deficit by expanding the production of
intermediate goods and products with high import dependency, providing higher
investment incentives to least-developed regions, removing differences across
regions with respect to their level of development, enhancing the effectiveness of
incentives, contributing to clustering activities and supporting high and mediumhigh technology investments are determined as the main objectives of the new
incentive system. The new incentive system comprises general and regional
investment incentive schemes besides large scale and strategic investment
incentives. Stipulated measures for the attainment of goals vary by schemes
(Table
1). Measures of incentives include VAT exemption, customs duty
exemption, tax reduction, social security premium support to employer’s share,
1
For further details, see Ministry of Economy (2012) and Prime Ministry of Turkey (2012).
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interest support, land allocation and VAT refund. The use of each incentive
depends on the region as well as the size of the investment. Furthermore, with the
objective to ensure a net wage increase, to reduce cost of labor and to create
new employment opportunities, investments in region 6 are eligible for additional
incentives of income tax withholding allowance and social security premium
support to employee’s share.
Table 1. The New Incentive System
General Investment
Incentive Scheme
Regional Investment
Incentive Scheme
Large Scale Investment
Incentive Scheme
Strategic Investment
Incentive Scheme
VAT Exemption
VAT Exemption
VAT Exemption
VAT Exemption
Customs Duty
Exemption
Customs Duty
Exemption
Customs Duty Exemption
Customs Duty
Exemption
Tax Reduction
Tax Reduction
Tax Reduction
Social Security Premium
Social Security Premium
Social Security
Support (Employer’s
Share)
Support (Employer’s
Share)
Premium Support
(Employer’s Share)
Land Allocation
Land Allocation
Land Allocation
Interest Support
Interest Support
VAT Refund
* Investments in region 6 are eligible for income tax withholding allowance and social security premium
support to employee’s share.
Source: Ministry of Economy (2012).
Unlike
prior incentive packages, the new incentive system provided improved
privileges to investments in industrial zones. Another new feature of the system is
the facilitation of tax reduction both during the operation as well as the investment
period. Furthermore, for investing firms in regions other than region 1, a certain
portion of the tax reduction is applied to total earnings accrued through all
activities during the investment period. The new system enables increased tax
allowance in less-developed regions, thus providing significant funding to investing
firms. Moreover, in order to enhance financing opportunities, interest support is
maintained in the new incentive system as another measure of incentive.
Another important feature of the new
incentive system is the special emphasis
placed on the strategic investments for the production of intermediate goods and
products, more than 50 percent of which are provided by imports. In addition, the
announced package is expected to contribute significantly to the narrowing of
the
current
account
deficit
and
the
improvement
of
the
international
competitiveness, by supporting high-technology investments as well as investments
with high value added.
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In sum, the new incentive system is expected to support economic growth through
expansionary fiscal policies, including tax reduction and other government
incentives,
and
therefore,
enhance
investment
and
employment,
and
consequently, lessen regional socioeconomic divergences. The adopted measures
of incentives are stipulated to reduce public savings in the short term, while
favorably affecting the fiscal outlook by creating higher public revenues in
tandem with the expanding output, investment and employment in the medium
to long term.
REFERENCES
Ministry of Economy, 2012, New Investment Incentives Program, Presentation
dated April 15, 2012.
Prime Ministry of Turkey, 2012, Yeni Teşvik Sistemi (in Turkish), Press Release dated
April 05, 2012.
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7. Medium-Term Forecasts
This chapter summarizes the underlying forecast assumptions and presents
the medium-term inflation and output gap forecasts as well as the monetary
policy outlook over the upcoming three-year horizon.
7.1. Current State, Short-Term Outlook and Assumptions
Monetary Conditions
In the inter-reporting period, the CBRT maintained its cautious stance in
tandem with the monetary tightening delivered since October 2011, and
continued to effectively utilize the interest rate corridor between O/N lending
and borrowing rates. Accordingly, with a view to hinder the possible adverse
effects of the recent surge in energy prices and other cost factors on the
medium-term inflation outlook, an additional tightening was delivered by March
23 and April 12, 2012. Consequently, the quantity of 1-week repo funding was
lowered and the weighted average funding rate was raised (Chart 5.1.7).
Furthermore, at its meeting on April 18, the MPC underlined that additional
tightening would be implemented more frequently in the upcoming period, in
order to prevent deterioration in the inflation outlook.
Amid growing global risk appetite in the first quarter, market rates edged
down similar to other emerging economies. Meanwhile, owing to the adopted
monetary tightening, short-term rates declined only slightly (Chart 5.1.9). Thus,
market rates declined across all maturities, in particularly in the long-term
(Chart 7.1.1). On account of the additional tightening delivered in March and
April, the interest rate spread turned negative, and the yield curve followed a
downward course. Therefore, monetary policy continued to assume a tight
stance in the inter-reporting period.
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Central Bank of the Republic of Turkey
Chart 7.1.1.
Yield Curve*
January 26, 2012
Yield (percent)
10
April 20, 2012
9.5
9
8.5
0.5
1
1.5
2
2.5
Maturity (year)
3
3.5
4
* Calculated from the compounded returns on bonds quoted in ISE Bonds and Bills Market by
using ENS method.
Source: ISE, CBRT.
Inflation
In the first quarter of 2012, major factors influencing inflation remained in
line with the January Inflation Report forecasts. CPI inflation posted a year-onyear increase by 10.43 percent, close to the previous projections (Chart 1.2.1).
Annual inflation in core goods slowed down in the first quarter, while prices of
services assumed a mild course. The pass-through from the higher-thanenvisioned increase in energy prices was limited, on the back of the recently
favorable course of unprocessed food prices.
Food prices weighed less heavily on the CPI inflation amid the betterthan-anticipated course of unprocessed food prices in the first quarter of 2012.
However, in view of the high volatility in unprocessed food prices as well as the
course of agricultural commodity prices, the year-end forecast for food inflation
remained unchanged (Table 7.1.1).
Table 7.1.1.
Revisions to 2012 Assumptions
Output Gap
January 2012
April 2012
2011Q4
-0.25
-0.35
2012Q1
-0.59
-1.20
2012-2014
7.5
7.5
Food Price Inflation
(Year-end Percent Change)
Import Prices
(Average Annual Percent Change, USD)
2012
-0.3
-0.7
2013
-0.7
-0.7
Oil Prices
(Average Annual, USD)
2012
110
120
2013
105
115
Export-Weighted Global Production Index
(Average Annual Percent Change)
2012
1.39
1.38
2013
-
2.44
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Demand Conditions
National accounts data for the last quarter of 2011 remained broadly in
line with the outlook presented in January Inflation Report. The domestic
demand followed a flat course, while net external demand was the main driver
of growth. Accordingly, domestic and external demand were balanced further
(Box 7.1).
First-quarter data as well as indicators on private consumption and
investment demand suggest a slowdown in the final domestic demand.
Furthermore, data releases on the industrial production for early-2012 indicated
a weaker-than-envisioned course for economic activity. Hence, output gap
forecasts for the first quarter of 2012 were slightly revised downwards (Table
7.1.1).
First-quarter data on external demand signal further increase in exports,
which have started to recover as of the second half of 2011. Export-weighted
global production index remained broadly unchanged in the inter-reporting
period, while exchange rate continued to give support to exports (Chart 7.1.2).
Chart 7.1.2.
Export-Weighted Global Economic Activity Index*
(2009Q1=100)
January 2012
111
April 2012
109
107
105
103
101
99
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2009
2010
2011
2012
2013
* For methodology, see Inflation Report 2010-II, Box 2.1 “Foreign Demand Index for
Turkey”.
Source: Bloomberg, Consensus Forecasts, CBRT.
Import Prices
Oil prices soared significantly amid the heightened uncertainty due to
growing geopolitical risks in the first quarter of 2012. Accordingly, oil price
assumption, which was USD 110 per barrel in the previous Report, was increased
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Central Bank of the Republic of Turkey
to USD 120 per barrel for 2012, and USD 115 per barrel for 2013 (Table 7.1.1 and
Chart 7.1.4).
Meanwhile, the better-than-anticipated course of non-energy import
prices in the first quarter partly compensated for the adverse effects of soaring
oil prices on inflation (Box 4.3). Current projections based on futures prices
assume that import prices in USD will go down by a year-on-year 0.7 percent in
2012. Therefore, the import price assumptions for 2012 remained broadly
unchanged in the inter-reporting period (Chart 7.1.3).
Chart 7.1.3.
Revisions to Oil and Import Price Assumptions
Import Prices (2003=100)
Oil Prices (USD/bbl)
January 2012
April 2012
January 2012
135
April 2012
190
125
180
115
105
170
95
160
85
75
150
65
140
* Shaded region indicates the forecast period.
Source: Bloomberg, CBRT.
1213
0613
1212
0612
1211
0611
1210
0610
130
1209
1213
0613
1212
0612
1211
0611
1210
0610
1209
0609
45
0609
55
* Shaded region indicates the forecast period.
Source: TurkStat, CBRT.
Fiscal Policy and Tax Adjustments
Regarding the fiscal outlook, the medium-term inflation forecasts take the
revised projections of the MTP as given. The stipulated tax cuts and government
incentives within the new incentive system, which was publicly announced on
April 5, are considered to have no adverse effects on the fiscal balance.
Tobacco prices are assumed to remain constant throughout 2012 amid tax
adjustments to tobacco products in October 2011, while increasing in January
2013 as implied by the tax adjustments in October 2011. Furthermore, other tax
adjustments and administered prices are assumed to be consistent with the
inflation targets and automatic pricing mechanisms.
7.2. Medium-Term Outlook
Forecasts are based on the assumption that additional tightening will be
delivered more frequently in the upcoming period, and consequently,
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annualized loan growth rate will hover around 14 percent. Accordingly, inflation
is expected to be, with 70 percent probability, between 5.3 and 7.7 percent
with a mid-point of 6.5 percent at the end of 2012, and between 3.4 and 7.0
percent with a mid-point of 5.2 percent at the end of 2013. Inflation is expected
to stabilize around 5 percent in the medium term (Chart 7.2.1).
Chart 7.2.1.
Inflation and Output Gap Forecasts
Forecast Range*
Year-End Inflation Targets
Uncertainty Band
Output Gap
12
10
Control
Horizon
8
Percent
6
4
2
0
-2
0315
1214
0914
0614
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
-4
* Shaded region indicates the 70 percent confidence interval for the forecast.
Revised projections signal a notable fall in inflation in the last quarter.
Amid soaring energy prices, inflation is envisioned to remain high in the short
term with secondary effects remaining limited on the back of mild demand
conditions. In the last quarter of 2012, inflation is expected to fall sharply to 6.5
percent by year-end, as the base effects owing to tax adjustments in
administered prices fade away in the last quarter.
Major factors affecting inflation moved largely in tandem with the
January Inflation Report projections. However, the short-term inflation is
envisioned to surpass the previous projections amid soaring energy prices in
April (Chart 7.2.2). At its meeting on April 18, the MPC underlined that
temporarily rising inflation would not be allowed to deteriorate inflation outlook
and additional tightening would be delivered more frequently in the upcoming
period. In view of the CBRT’s aggressive policy reaction, inflation assumption for
end-2012 is kept unchanged in the inter-reporting period.
Output gap forecasts based on the above assumptions are given in
Chart 7.2.1. Given the latest data releases, output gap forecasts for the first
quarter of 2012 have been slightly revised downwards. Also considering the
tighter monetary policy stance, forecasts are based on the outlook assuming
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Central Bank of the Republic of Turkey
that aggregate demand conditions will provide higher support to disinflation
throughout 2012 (Chart 7.2.3).
Comparison of January 2012 and April 2012 Inflation Report Forecasts
Chart 7.2.2.
Chart 7.2.3.
Inflation Forecast
Output Gap Forecast
11
10
0.5
April 2012
Actual
0.0
9
8
-0.5
7
-1.0
6
January 2012
April 2012
5
-1.5
January 2012
4
3
-2.0
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2010
2011
2012
2013
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2014
2010
Source: TurkStat, CBRT.
2011
2012
2013
2014
Source: CBRT.
Unpredictable fluctuations in the prices of items that are beyond the
control of the monetary policy, such as unprocessed food, tobacco and
alcoholic beverages, are among major factors causing deviations in inflation
forecasts. Hence, inflation forecasts excluding unprocessed food, tobacco and
alcoholic beverages are publicly announced. Forecasts are based on the
assumption that year-end unprocessed food inflation will be 8.5 percent and
the prices of tobacco and alcoholic beverages will remain constant throughout
the year. Hence, inflation forecasts excluding unprocessed food, tobacco and
alcoholic beverages are presented in Chart 7.2.4. The inflation indicator, as
measured above, is expected to fall gradually by the third quarter of 2012, and
stabilize around 5 percent in the medium term.
Chart 7.2.4.
Inflation Forecast Excluding Unprocessed Food, Tobacco and
Alcoholic Beverages
Forecast Range*
Output Gap
12
10
Percent
8
6
4
2
0
-2
0315
1214
0914
0614
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
-4
* Shaded region indicates the 70 percent confidence interval for the forecast.
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It should be emphasized that any new data or information regarding the
inflation outlook may lead to a change in the monetary policy stance.
Therefore, assumptions regarding the monetary policy outlook underlying the
inflation forecast should not be perceived as a commitment on behalf of the
CBRT.
Comparison of the CBRT’s Forecasts with Inflation Expectations
It is critical that economic agents, being aware of the temporary factors,
should focus on the underlying medium-term inflation, and therefore, take the
inflation target as a benchmark in their pricing plans and contracts. In this
respect, to serve as a reference guide, CBRT’s current inflation forecasts should
be compared to inflation expectations of other economic agents. Accordingly,
year-end inflation expectations as well as 12-month and 24-month ahead
inflation expectations of the Survey of Expectations’ respondents are slightly
above our baseline scenario forecasts (Table 7.2.1).
Table 7.2.1.
CBRT Inflation Forecasts and Expectations
*
CBRT Forecast
CBRT Survey of Expectations*
Inflation Target**
2012 Year-end
6.46
7.61
5.0
12-Month Ahead
6.14
6.96
5.0
24-Month Ahead
4.95
6.40
5.0
April 2012, second survey period results.
** Calculated by linear interpolation of year-end inflation targets for 2012- 2014.
Source: CBRT.
7.3. Risks and Monetary Policy
The high course of inflation and the recent deterioration in the short-term
inflation expectations pose risk on the pricing behavior. Due to sharp price
increases in the third quarter of 2011, inflation is envisioned to remain
remarkably above the target until the last quarter of 2012, requiring a close
monitoring of the pricing behavior. Although the delivered monetary tightening
of the CBRT since October, besides mild domestic demand conditions have
alleviated upside risks on inflation by containing secondary effects, inflation
expectations will be cautiously and carefully monitored in the upcoming period,
and necessary measures will be taken to keep medium-term inflation outlook
consistent with the target.
Ongoing uncertainties regarding global economy require further flexibility
in monetary policy against volatility in capital flows. Notwithstanding the
Inflation Report 2012-II
107
Central Bank of the Republic of Turkey
alleviating concerns regarding the Euro Area sovereign debt problem in the first
quarter of 2011, the unfavorable course of growth as well as the currently
elevated borrowing costs across the region keep debt sustainability debates
alive. Moreover, ongoing deleveraging in the Euro Area banking system feeds
into financial fragilities, increasing the probability of a renewed deterioration in
the risk appetite. On the other hand, the risk appetite may recover faster than
expected, should problems regarding the global economy are solved sooner
and more decisively than envisaged. Overall, the possibility that global capital
flows will continue to be volatile in the forthcoming period confirms the
appropriateness of the existing flexibility in the monetary policy framework.
Hence, the CBRT will continue to monitor global developments closely, and
take the required measures promptly.
Another risk factor in the forthcoming period is the uncertainty regarding
oil prices. Although the weak course of the global economy largely contains the
upside risks to commodity prices, ongoing supply-side problems pose upside risk
to energy prices in the short term. Should such a risk materialize, the CBRT will
not react to temporary price movements, yet will not tolerate any deterioration
in expectations.
Unprocessed food prices pose downside risk to inflation outlook over 2012.
The probability for a downward correction in unprocessed food prices after
hitting the recent-high in end-2011, besides the favorable precipitation during
the recent months, increase the likelihood of a better-than-envisioned course
for unprocessed food prices throughout the year. Inflation may reach the target
faster than projected in the baseline scenario, should the food prices follow a
more favorable course than expected.
The CBRT monitors fiscal policy developments closely while formulating its
monetary policy. The baseline scenario forecasts of the Report are based on
the MTP framework, therefore assuming that fiscal discipline will be maintained.
A revision in the monetary policy stance may be considered, should the fiscal
stance deviate significantly from this framework, and consequently have an
adverse effect on the medium-term inflation outlook.
Strengthening the structural reform agenda that would ensure the
sustainability of the fiscal discipline and reduce the saving deficit will contribute
to the relative improvement of Turkey’s sovereign risk, thereby supporting price
stability and the financial stability. Making progress in this direction will also
108
Inflation Report 2012-II
Central Bank of the Republic of Turkey
provide room for monetary policy maneuver and support social welfare by
keeping interest rates of long-term government securities permanently at low
levels. In this respect, taking necessary steps towards implementation of the
structural reforms envisaged by the MTP is of utmost importance.
Inflation Report 2012-II
109
Central Bank of the Republic of Turkey
Box
Differentiating the Domestic and External Demand in Estimating the
7.1
Output Gap
Output
gap, the difference between current output and the non-inflationary
potential output, is one of the frequently used indicators by central banks, also
including the CBRT, to assess demand-side pressures on inflation. Designing
monetary policy in the post-crisis period to include financial stability besides price
stability created the need for alternative views and methods in implementing
policy and performing the background analyses. In particular, domestic-demanddriven strong recovery in the Turkish economy caused mounting concerns over
sustainability of the current account deficit, which is considered to jeopardize
macroeconomic and financial stability in the medium term, thus requiring a
special emphasis on demand components for designing the monetary policy.
Accordingly, an extensive analysis focusing not only on output gap, but also on its
main components is crucial for assessing the overheating of the economy in
consideration of the inflation outlook. This Box, by utilizing a Bayesian methodology
within a semi-structural model, provides a framework for estimating output gap as
well as its main components for the Turkish economy.
Model and the Methodology
The
analysis is built on a New-Keynesian small open economy model, which
closely resembles Öğünç and Sarıkaya (2011) in specification and estimation, but
differs from the above study by explicitly including behavioral equations for the
domestic and the external demand. The equations of the model can be
expressed as follows:
1
̃
(1)
∗
!
1
%
'
110
('
1
!
(2)
"
%
( '
#
$
(3)
%&
)
(4)
*+̃
,
(5)
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Equation
(1) expresses domestic demand gap, d./ , as a function of its lagged
value, its expected value for one-period ahead and the real interest rate, r/ ,.
Equation (2) summarizes the behavior of the export demand gap,x/ , as a
function of foreign output gap, y/∗ , and real exchange rate, q/ . Equation (3)
shows that import demand gap, m/ , depends on the domestic demand gap and
the export demand gap besides the real exchange rate. Equation (4) is the
identity expressing output gap in terms of its main components, which are
domestic demand gap, export demand gap and the import demand gap.
Finally, equation (5) summarizes the behavior of inflation using a New-Keynesian
Phillips curve, by also including real import prices,s/ ,in addition to output gap as
the main marginal cost item.
Model parameters for 2002Q1-2011Q4 are estimated using Bayesian techniques,
and by including GDP, imports, exports, inflation rate, interest rates, foreign output
gap, real effective exchange rate and real import prices in the estimation.1
Results
The central estimate for the output gap and the uncertainty band computed by
the distribution of the parameter estimates are presented in Chart 1.2 The
estimation results display that output was well below its potential in the beginning
of 2009, while output headed towards a strong recovery in the subsequent postcrisis period. The central estimates imply that output gap was non-inflationary in
the aftermath of the crisis, thus indicating the absence of an overheating in the
economy.
Chart 1. Output Gap
(Percent Deviation from the Potential Output)
10
5
0
-5
-10
Uncertanity Band
Central Estimates
-15
I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1
All series, except real interest rates, real exchange rates and real import prices, are seasonally adjusted. For a detailed
discussion about the model, data set and the estimation results, see Alp, Öğünç and Sarıkaya (2012).
The central estimate for the output gap is computed by using average values obtained from the estimated posterior
distribution of the parameters.
2
Inflation Report 2012-II
111
Central Bank of the Republic of Turkey
Estimates of the output gap components are shown in Chart 2. The results imply
that the post-crisis recovery is mainly driven by domestic demand, while exports
hovered below its potential for a prolonged period. Meanwhile, real appreciation
of the Turkish lira amid strong recovery of the domestic demand explains lingering
of imports above its potential. However, even the upper bound of the output gap
estimates do not point to an overheating as of the third quarter of 2010, with no
significant divergence between domestic demand and exports, and each
individual component hovering below their potential.
Chart 2. Output Gap Components
(Percent Deviation from the Potential)
Export Demand Gap
Import Demand Gap
Domestic Demand Gap
20
15
10
5
0
-5
-10
-15
-20
-25
-30
I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV
2002
On
2003
2004
2005
2006
2007
2008
2009
2010
2011
the other hand, this observation has changed significantly by the fourth
quarter of 2010. Accordingly, estimation results indicate that output was close to
its potential, domestic demand surpassed its potential in tandem with its ongoing
strong course, while exports remained below their potential owing to global
uncertainties and the weak external demand. In other words, the Turkish
economy showed no signs of overheating in this period and registered growth
despite the serious divergence between domestic and external demand. The
finding on the divergence of the demand components as well as the estimation
results indicate that high current account deficits, which were accompanied by
high growth rates in the past, may not necessarily signal overheating at other
times.
In sum, the estimation results are consistent with the economic outlook underlying
the monetary policy implementations as of the last quarter of 2010. Taking into
account of the fact that the deterioration of the growth composition may
jeopardize financial stability, the monetary policy aimed to drive the economy to
a stable growth path by effectively utilizing multiple tools. In fact, the adopted
policy measures lessened the divergence between domestic and external
demand, and the economy has settled into a relatively stable growth path as of
the second quarter of 2011.
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REFERENCES
Alp, H., F. Öğünç and Ç. Sarıkaya, 2012, Para Politikası ve Çıktı Açığının
Kompozisyonu (in Turkish), CBRT Economic Notes No. 12/07.
Öğünç, F. and Ç. Sarıkaya, 2011, Görünmez Ama Hissedilmez Değil: Türkiye'de
Çıktı Açığı (in Turkish), Central Bank Review 11(2): 15-28.
Inflation Report 2012-II
113
Central Bank of the Republic of Turkey
Box
7.2
Inflation Expectations and the Communication
In the last quarter of 2011, inflation soared rapidly amid the cumulative effects of
the import prices and the exchange rate, in addition to tax adjustments to
tobacco products and elevated increases to unprocessed food prices. Even
though these developments were largely temporary, the CBRT has adopted a
cautious stance in order to prevent medium-term expectations to be adversely
affected from past inflation, and to worsen inflation outlook. Accordingly, by
following an active communication policy, the CBRT has announced in detail the
underlying reasons for the surge in inflation through presentations, reports and
papers. Furthermore, closely monitoring the course of short-term inflation, the CBRT
has informed the public against sharp moves. More importantly, a strong monetary
tightening has been delivered as of October 2011, placing a special emphasis on
price stability in this period. This Box questions the effectiveness of the CBRT’s
strategy in controlling inflation expectations.
The Role of Past Inflation in Expectations Formation
Controlling
expectations is critical for preventing deterioration of the pricing
behavior amid the temporarily rising inflation. The significant and time-varying
weight given to past inflation in forming expectations is documented by Başkaya,
Kara and Mutluer (2008) for the Turkish economy. Analyzing the sensitivity of
inflation expectations to inflation realizations during the rapidly soaring inflation
period of the last quarter of 2011 will provide significant information about the
effectiveness of the communication policy, as well as the possible changes in the
pricing behavior.
12 and 24-month ahead inflation expectations remained stable, notwithstanding
the surge in inflation as of the last quarter of 2011 (Chart 1). The course of
expectations in this period when compared to previous periods of high inflation
rates indicates significant difference with respect to the formation of expectations.
In other words, inflation expectations deteriorated notably following the rapid
surge in inflation during 2006 and 2008, while medium-term expectations remained
quite stable subsequent to soaring of inflation by end-2011. The absence of
deterioration in expectations given the 4.3 percentage point increase in inflation
within 3 months brings about the question of whether the sensitivity of expectations
to inflation realizations has lessened. A finding on the lower sensitivity will support
the assertion that the CBRT’s communication policy as well as the monetary policy
are effective.
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Chart 1. Inflation Realizations, Expectations, Targets and Forecasts*
12-Month Ahead
24-Month Ahead
12-Month Ahead Inflation Expectation
12-Month Ahead Inflation Target
Past Inflation
24-Month Ahead Inflation Expectation
24-Month Ahead Inflation Target
Past Inflation
0
0
0
0412
2
0
1011
2
0411
2
1010
4
2
0410
4
0412
16
1009
4
0409
6
4
1008
6
0408
6
1007
8
6
0407
8
1006
8
0406
10
8
1011
10
0411
10
1010
12
10
0410
12
1009
12
0409
14
12
1008
14
0408
14
1007
14
0407
16
1006
16
0406
16
* Inflation expectations are the average of the first and the second survey period results of the CBRT’s Survey of Expectations. Monthly inflation target
series are computed by the linear interpolation of the year-end inflation targets. The year-end inflation target was kept constant despite the upward
revision in June 2008, while inflation targets for end 2009 and 2010 were revised from 4 percent to 7.5 percent and 6.5 percent, respectively.
Accordingly, 12-month ahead inflation targets for the June-December 2008 period was taken as 7.5 percent, whereas linearly interpolated values using
the revised inflation target figures were utilized for the subsequent period. For the 24-month ahead inflation targets, linearly interpolated values using the
revised inflation targets are used.
Source: TurkStat, CBRT.
Empirical Findings
This
section is based on findings by Başkaya, Gülşen and Kara (2012), which
replicates Başkaya, Kara and Mutluer (2008) by using revised data, and analyzes
the effects of the recent inflation realizations on expectations formation. The
model seeks to assess the dependence of inflation expectations on inflation
targets and other control variables, such as the change in exchange rates, risk
premium, industrial production index and the changes in oil prices
'8: ,
9
;
μ8
' =,
'
The dependent variable '8: ,
9
>
1
@
12, 24.
9 is the k-month ahead inflation expectation of the
CBRT’s Survey of Expectations respondent i at time t,
rate of the previous month, ' =,
Ɛ8
'
is the annual inflation
3
9 is the k-month ahead inflation target.
represents the weight assigned to past inflation in expectations formation.
Monitoring the course of this parameter over time may reveal significant
information regarding how the dependence of expectations on inflation
realizations changes over time. Accordingly, the above model is computed over
a rolling window of 18 months (Chart 2).
3
Monthly inflation targets are linearly interpolated by using year-end inflation targets.
Inflation Report 2012-II
115
Central Bank of the Republic of Turkey
The results indicate a notable decline in the sensitivity of both 12-month and 24month ahead inflation expectations to inflation realizations during 2011 (Chart 2).
Despite an edging up in the last quarter of 2011, the sensitivity is still low
compared to previous periods.
Chart 2. The Sensitivity of Inflation Expectations to Inflation Realizations (18-Month Rolling Window)
1110-0412
1110-0412
0610-1111
0110-0611
0809-0111
0309-0810
1008-0310
0508-1009
1207-0509
0707-1208
0207-0708
0906-0208
0
-0.1
0406-0907
0
-0.1
0610-1111
0.1
0110-0611
0.2
0.1
0809-0111
0.2
0309-0810
0.3
1008-0310
0.4
0.3
0508-1009
0.4
1207-0509
0.5
0707-1208
0.6
0.5
0207-0708
0.6
0906-0208
24-Month Ahead
0406-0907
12-Month Ahead
* Dotted lines show the 95 percent confidence interval.
Conclusion
In
sum, the conducted analyses demonstrate that inflation expectations are
relatively less sensitive to inflation realizations, notwithstanding the sharp increase
in inflation during 2011. This finding reveals that the CBRT was able to convince the
public about the temporary nature of the surge in inflation, and proves the
effectiveness of the CBRT’s communication policy with a focus on medium-term
inflation outlook. However, both the 12-month as well as the 24-month ahead
inflation expectations hovering above inflation target points to the need to make
significant progress towards achieving price stability.
REFERENCES
Başkaya, Y. S., E. Gülşen and H. Kara H., 2012, İletişim Politikası ve Enflasyon
Beklentileri (in Turkish), CBRT Economic Notes, forthcoming.
Başkaya, Y. S., H. Kara and D. Mutluer-Kurul, 2008, Inflation Expectations and
Monetary Policy in Turkey, CBRT Working Paper No. 2008/01.
116
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Charts
1. OVERVIEW
Chart 1.1.1.
Chart 1.1.2.
Chart 1.1.3.
Chart 1.1.4.
Chart 1.1.5.
Chart 1.1.6.
Chart 1.1.7.
Chart 1.1.8.
Chart 1.2.1.
Chart 1.2.2.
Chart 1.2.3.
Chart 1.2.4.
Chart 1.2.5.
Chart 1.3.1.
TL and Emerging Market Currencies
Consumer Loan Growth
Current Account Balance
Contribution of Net External Demand to Annual GDP Growth
CBRT Policy Rate and the Interest Rate Corridor
CBRT Funding and the Average Funding Rate
Yield Curve
Consumer Loan Rates
January 2012 Inflation Forecasts and Realizations
Prices of Core Goods and Services
Core Inflation Indicators SCA-H and SCA-I
GDP and the Final Domestic Demand
Revisions to Oil and Import Price Assumptions
Inflation and Output Gap Forecasts
2
2
2
2
3
3
4
4
5
5
5
6
7
8
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Chart 2.1.1.
Global Production
13
Chart 2.1.2.
Global Growth Rates
13
Chart 2.1.3.
Growth Rates in Selected Advanced Economies
13
Chart 2.1.4.
Growth Rates in Emerging Economies by Regions
13
Chart 2.1.5.
Real Estate Prices in the U.S.
14
Chart 2.1.6.
PMI Indices in the U.S.
14
Chart 2.1.7.
PMI Indices in the Euro Area
15
Chart 2.1.8.
Trade Balance
15
Chart 2.1.9.
Property Sales in China
15
Chart 2.1.10.
JP Morgan Global PMI Indices
16
Chart 2.1.11.
Global Production Indices
16
Chart 2.2.1.
S&P Goldman Sachs Commodity Prices Indices
17
Chart 2.2.2.
Crude oil (Brent) Prices
17
Chart 2.2.3.
OECD Crude Oil Inventories
18
Chart 2.2.4.
Oil Prices
18
Chart 2.3.1.
CPI Inflation in Advanced and Emerging Economies
19
Chart 2.3.2.
Core Inflation in Advanced and Emerging Economies
19
Chart 2.3.3.
Inflation Compensation in the U.S. and the Euro Area
20
Chart 2.4.1.
Global Risk Appetite
21
Chart 2.4.2.
Global Stock Markets
22
Chart 2.4.3.
Emerging Market Currencies
22
Chart 2.4.4.
3-month TED and OIS Spreads
23
Chart 2.4.5.
Euro/USD Currency Swap Rate
23
Chart 2.4.6.
ITraxx Europe Senior Financials Index
23
Chart 2.4.7.
Lending Survey in the Euro Area
24
Chart 2.4.8.
Lending Survey in the U.S.
24
Chart 2.4.9.
Outstanding Commercial Paper in the U.S.
25
Chart 2.4.10.
Asset-Backed Securities Market in the U.S.
25
Chart 2.5.1.
Portfolio Flows to Emerging Economies
26
Chart 2.6.1.
Policy Rate Changes in Advanced Economies from Jan. 2010 to Apr. 2012
27
Chart 2.6.2.
Policy Rates in Advanced Economies
27
Chart 2.6.3.
Expected Policy Rates in Advanced Economies
27
Chart 2.6.4.
Policy Rate Changes in Emerging Economies from Jan. 2010 to Apr. 2012
28
Chart 2.6.5.
Policy Rates in Inflation-Targeting Emerging Economies
28
Chart 2.6.6.
Expected Policy Rates in Emerging Economies
29
3. INFLATION DEVELOPMENTS
Chart 3.1.1.
CPI by Subcategories
34
Chart 3.1.2.
Contribution to Annual CPI Inflation
34
Inflation Report 2012-II
117
Central Bank of the Republic of Turkey
Chart 3.1.3.
Unprocessed Food Prices
34
Chart 3.1.4.
Fresh Fruit and Vegetable Prices and the CPI
34
Chart 3.1.5.
Food Prices
35
Chart 3.1.6.
Selected Processed Food Prices
35
Chart 3.1.7.
Energy Prices
36
Chart 3.1.8.
Energy and TL-Denominated Oil Prices
36
Chart 3.1.9.
Prices of Core Goods
37
Chart 3.1.10.
Prices of Core Goods
37
Chart 3.1.11.
Prices of Services by Subcategories
38
Chart 3.1.12.
Prices of Services by Subcategories
38
Chart 3.1.13.
Prices of Services
38
Chart 3.1.14.
Diffusion Index for Services Prices
38
Chart 3.1.15.
Core Inflation Indicators SCA-H and SCA-I
39
Chart 3.1.16.
Core Inflation Indicators SCA-H and SCA-I
39
Chart 3.1.17.
CPI and SCA-H Diffusion Indices
39
Chart 3.1.18.
Core Inflation Indicators SATRIM and FCORE
39
Chart 3.1.19.
Agricultural Prices
40
Chart 3.1.20.
Manufacturing Industry and PMI Output Prices
40
Chart 3.1.21.
Import Prices in USD and TL
41
Chart 3.2.1.
12- and 24-Month Ahead CPI Expectations
42
Chart 3.2.2.
Inflation Expectations Curve
42
Chart 3.2.3.
Distribution of 12-Month Ahead Inflation Expectations
42
Chart 3.2.4.
Distribution of 24-Month Ahead Inflation Expectations
42
4. SUPPLY AND DEMAND DEVELOPMENTS
Chart 4.1.1.
GDP and the Final Domestic Demand
45
Chart 4.1.2.
Production and Import Quantity Indices of Consumption Goods
45
Chart 4.1.3.
Domestic Sales of Automobiles and White Goods
45
Chart 4.1.4.
Consumer Confidence
46
Chart 4.1.5.
Weekly Consumer Loans
46
Chart 4.1.6.
Production and Import Quantity Indices of Capital Goods
46
Chart 4.1.7.
Domestic Sales of Commercial Vehicles
46
Chart 4.1.8.
Final Domestic Demand
47
Chart 4.1.9.
Production of Mineral Materials and Private Sector Construction Investment
47
Chart 4.1.10.
3-Month Ahead Expectations for Orders
47
Chart 4.1.11.
Leading Indicators Index
47
Chart 4.2.1.
Contribution of Net External Demand to Annual GDP Growth
48
Chart 4.2.2.
Exports and Imports of Goods and Services
48
Chart 4.2.3.
Export Quantity Index
49
Chart 4.2.4.
Global and Regional Imports
49
Chart 4.2.5.
TL and Emerging Market Currencies and the Real Exchange Rate
50
Chart 4.2.6.
Export and GDP-Weighted Global Production Indices
50
Chart 4.2.7.
Import Quantity Indices
51
Chart 4.2.8.
Import Quantity Indices by Subcategories
51
Chart 4.2.9.
Terms of Trade
52
Chart 4.2.10.
Current Account Balance
52
Chart 4.3.1.
Farm and Non-Farm Employment
52
Chart 4.3.2.
Unemployment and Labor Force Participation
52
Chart 4.3.3.
Employment in Services and Construction Sectors
54
Chart 4.3.4.
Employment, Value Added and Production of Mineral Materials in the
Construction Sector
54
Chart 4.3.5.
Industrial Employment and Production
54
Chart 4.3.6.
Manufacturing Industry Employment and PMI Employment
54
Chart 4.3.7.
Household Spending and Real Wage Payments
55
Chart 4.3.8.
Non-Farm Hourly Labor Cost
55
Chart 4.3.9.
Real Unit Wages
56
Chart 4.3.10.
Job Opportunities Index and Non-Farm Employment/Labor Force
56
Chart 4.3.11.
Non-Farm Value Added and Employment
56
118
Inflation Report 2012-II
Central Bank of the Republic of Turkey
5.
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
Chart 5.1.1.
Volatility Index
71
Chart 5.1.2.
EMBI
72
Chart 5.1.3.
Relative EMBI
72
Chart 5.1.4.
Net Portfolio Flows to Emerging Economies
72
Chart 5.1.5.
Net Portfolio Flows of Non-Residents
72
Chart 5.1.6.
CBRT Policy Rate and the Interest Rate Corridor
73
Chart 5.1.7.
CBRT Funding and the Average Funding Rate
73
Chart 5.1.8.
Market Liquidity
74
Chart 5.1.9.
Changes in 2-year Market Rates in Q1
75
Chart 5.1.10.
Yields on GDBS
75
Chart 5.1.11.
Inflation Expectations
75
Chart 5.1.12.
Forward Inflation Compensation
75
Chart 5.1.13.
Yield Curve
76
Chart 5.1.14.
Interest Rate Spread
76
Chart 5.1.15.
2-Year Real Interest Rates for Turkey
76
Chart 5.1.16.
2-Year Real Interest Rates
76
Chart 5.1.17.
TL and Emerging Market Currencies
77
Chart 5.1.18.
CBRT Reserves and FX Sales
77
Chart 5.1.19.
Implied Volatility of Exchange Rates
77
Chart 5.1.20.
Implied Volatility of Exchange Rates
77
Chart 5.1.21.
Balance Sheet Decomposition of M3 Growth
78
Chart 5.1.22.
Currency in Circulation and Current Consumption Spending
79
Chart 5.2.1
Growth Rate of Real Sector Loans
79
Chart 5.2.2
External Borrowing of Firms
79
Chart 5.2.3
Growth Rates of Business and Consumer Loans
80
Chart 5.2.4
Consumer Loan Growth
80
Chart 5.2.5
Weekly Growth Rates of Consumer Loans
81
Chart 5.2.6
Consumer Loan Rates
81
Chart 5.2.7
Business Loan Growth
81
Chart 5.2.8
Growth Rates of TL and FX Business Loans
81
Chart 5.2.9
Business Loan Growth Rates by Scale
82
Chart 5.2.10
Weekly Growth of Past-Due Loans
82
Chart 5.2.11
TL Business Loan Rate and the Average Funding Rate
82
Chart 5.2.12
TL Business Loan Rates
82
Chart 5.2.13
Yield Curve on TL Deposits
83
Chart 5.2.14
TL Deposit and the Average Funding Rate
83
Chart 5.2.15
FX Business Loan Rates
83
6.
PUBLIC FINANCE
Chart 6.1.
Chart 6.1.1.
Chart 6.1.2.
Chart 6.1.3.
Chart 6.1.4.
Chart 6.2.1.
Chart 6.2.2.
Chart 6.2.3.
Chart 6.2.4.
Chart 6.2.5.
Chart 6.2.6.
Central Government Budget Deficit and EU-Defined Public Debt Stock
Central Government Budget Balance
Central Government Budget Revenues and Primary Expenditure
Real Tax Revenues
Real VAT and SCT Revenues
Public Debt Stock Indicators
Composition of the Central Government Debt Stock
Average Maturity of Domestic Cash Borrowing and Term-to-Maturity of the
Domestic Debt Stock
Borrowing By Bond Issues
Total Domestic Debt Rollover Ratio
Average Maturity of Borrowing and Interest Rates at Discount Auctions
91
93
93
94
95
95
95
96
96
96
96
7. MEDIUM-TERM PROJECTIONS
Chart 7.1.1.
Chart 7.1.2.
Chart 7.1.3.
Chart 7.2.1.
Chart 7.2.2.
Chart 7.2.3.
Chart 7.2.4.
Yield Curve
Export-Weighted Global Economic Activity Index
Revisions to Oil and Import Price Assumptions
Inflation and Output Gap Forecasts
Inflation Forecast
Output Gap Forecast
Inflation Forecast Excluding Unprocessed Food, Tobacco and Alcoholic Beverages
Inflation Report 2012-II
102
103
104
105
106
106
106
119
Central Bank of the Republic of Turkey
Tables
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Table 2.1.1.
Employment Indicators in the U.S.
14
Table 2.1.2.
Growth Forecasts for end-2012
16
Table 2.2.1.
Production, Consumption and Inventory Forecasts for Agricultural Commodities
19
Table 2.3.1.
Inflation Forecasts for end-2012
20
Table 2.5.1.
Regional Breakdown of Portfolio Flows to Emerging Economies
26
3. INFLATION DEVELOPMENTS
Table 3.1.1.
Prices of Goods and Service
36
Table 3.1.2.
Prices of Core Goods
37
Table 3.1.3.
PPI and Subcategories
41
6. PUBLIC FINANCE
Table 6.1.1
Central Government Budget Aggregates
92
Table 6.1.2.
Central Government Primary Expenditures
93
Table 6.1.3.
Central Government General Budget Revenues
7. MEDIUM-TERM PROJECTIONS
Table 7.1.1.
Revisions to 2012 Assumptions
102
Table 7.2.1.
CBRT Inflation Forecasts and Expectations
107
120
Inflation Report 2012-II
Central Bank of the Republic of Turkey
Boxes in Previous Inflation Reports
2012-I
2.1. December 9 Decisions and the Euro Area Debt Crisis
2.2. Possible Impacts of Soaring Public Spending in the MENA Region on Crude oil Prices
4.1.A Real-Time Business Cycle Indicator for Turkey
4.2. Recent Developments in the Demand Composition
4.3. A Sectoral Look at the Import Coverage Ratio of Exports
4.4. A Comparison of the Recent Unemployment Rates to 2005-2007 Period by Sectoral
5.1.
5.2.
7.1.
7.2.
Employment Dynamics
The Liquidity Management in the Recent Period and Its Consequences
Changing Role of the Monetary Policy in the Aftermath of the Global Crisis
Sources of Revisions to end-2011 Forecasts
The Role of Base Effects on the CPI Inflation in 2012
2011-IV
2.1. Balance Sheet Recession: A Comparison between Japan and the U.S.
2.2. Debt Crisis and Sustainability of Public Debt in the Euro Area
2.3. Real Effective Exchange Rate Indicators for Turkey
3.1. Taxation of Tobacco Products and Its Effect on Prices
3.2.Updated Estimates of Exchange Rate and Import Price Pass-Through
3.3. Filtering Short-Term Fluctuations in Price Series
4.1.The Relation Between Business Cycles in Turkey and the Global Economy
4.2. Recent Developments in Investment
5.1. Use of Inflation Compensation in Monetary Policy Analyses
2011-III
2.1. Portfolio Flows to Emerging Economies
3.1. Findings on Price Rigidity Based on Micro Data
3.2. The Effect of Inflation Surprises on Expectations
4.1. Prices of Investment Goods and Investment Spending
4.2. Data on Wages and Earnings
4.3. What the Economic Clock Says About Current Economic Activity
4.4. Fixed Capital Growth Loss during the Recent Crises and Its Impact on the Potential GDP
5.1. Possible Effects of the Amendments to BRSA Regulations
5.2. Credit Rating Upgrade to “Investment Grade”
5.3. Monetary Analysis at the CBRT
2011-II
3.1. Additional Tariffs on Clothing Imports and Possible Impacts on CPI
4.1. Changing Trends in the Labor Market
5.1. Credit Expansion and the Current Account Deficit
5.2. Effects of Decisions on Required Reserves
7.1. Designing and Communicating the New Monetary Policy Approach by the CBRT
2011-I
2.1. The Sensitivity of the EU Periphery to the Debt Crisis
2.2. Causes of the Increase in the U.S. Long-Term Nominal Bond Returns Following the Second Round
of Quantitative Easing
3.1. Sources of Volatility in Unprocessed Food Prices
3.2. An Evaluation of Core Inflation Indicators
5.1. The Derivative Markets and the Recent Developments in the Foreign Exchange Markets
7.1. Financial Stability Under Inflation Targeting: The CBRT's Actions
7.2. The Role of Reserve Requirements in Monetary Policy
7.3. Sources of Revisions to Inflation Forecasts for 2010 Year-End
2010-IV
2.1. Capital Flows to Emerging Market Economies
3.1. Changes in Wheat Prices and Their Effects on Consumer Prices
4.1. Ramadan Effect on Economic Activity
4.2. Uncertainty and Economic Activity
5.1. The Financial Contagion Effect in Foreign Exchange and Capital Markets: Case of Turkey
7.1. Import Price Projections
Inflation Report 2012-II
121
Central Bank of the Republic of Turkey
2010-III
2.1. Determinants of the Monetary Stance in Emerging Economies During the Second Quarter of 2010
3.1. Underlying Inflation
4.1. Capacity Utilization Rates for Domestic and External Markets
4.2. Observations on Employment Conditions
4.3. A Comparison of Non-Farm Employment and Production During Two Crisis Episodes: 2000-2001 and 2008-2009
6.1. Developments in Budget Deficit and Public Debt Stock: An International Comparison
7.1. Monetary Policy Stance During September 2008 – July 2010
2010-II
2.1. Foreign Demand Index for Turkey
3.1. The Role of Meat Prices in Food Price Inflation Spike
4.1. Global Crisis, Foreign Demand Shocks and the Turkish Economy
5.1. The Impact of Monetary Policy Decisions on Market Returns
5.2. Post-Crisis Exit Strategy of Monetary Policy in Turkey
6.1. Fiscal Rule: General Framework and Planned Practice in Turkey
7.1. Communication Policy and Inflation Expectations Following Recent Inflation Developments
2010-I
1.1. A backward Glance on end-2009 Inflatİon Forecasts
3.1. Volatility of Unprocessed Food Inflation in Turkey: A Review of the Current Situation
3.2. Base Eeffects and Their Implications for the 2010 Inflation Outlook
5.1. The Impact of Central bank’s Purchases of Government Securities on Market Returns
5.2. Banks’ Loans Tendency Survey and Changes in Loans
5.3. The Financial Structure of a Firm and the Credit Transmission Mechanism
7.1. Inflation Expectations Before and After the Target Revision in 2008
2009-IV
2.1. Risk of Deflation in the US and the Euro Area
2.2. Capital Flows to Emerging Markets: IIF Forecasts for 2009-2010
3.1. The Course of Durable Goods Prices in 2009: The Impact of Tax Adjustments
4.1. Financial Stress and Economic Activity
5.1. Banks' Loans Tendency Survey and Changes in Loans
2009-III
2.1. Global Recessions and Economic Policies
3.1. The Impact of Temporary Tax Adjustments on Consumer Prices
4.1. Measuring Underlying Exports: Are Core Indicators Needed?
5.1. Mid-Crisis Impact of Country Risk on Policy Rates
6.1. The Fiscal Implications of the Global Crisis on Advanced and Emerging Economies
2009-II
1.1. Measures Taken by the Central Bank of the Republic of Turkey to Reduce the Impact of the
Global Crisis
1.2. The Front-Loaded Monetary Policy since November 2008 and Its Effects
2.1. Expectations About Global Economy
4.1. Monitoring the Trends in Employment: Do We Need Core Measures?
5.1. Changes in the Risk Premium for Emerging Markets and Policy Rate Decisions
5.2. Global Crisis and Financial Intermediation
2009-I
2.1. Expectations About Global Economy
7.1. Accountability Mechanisms in Inflation-Targeting Countries
2008-IV
3.1. Crop Production Forecasts and Price Developments
3.2. An Empirical Analysis of Oil Prices
4.1. Sources of Growth in the Turkish Economy
2008-III
2.1. Recent Developments in Global Inflation and Monetary Policy Measures
3.1. Medium-term Forecasts for Food Prices
4.1. Is There Any Increase in Economic Activity in the Fırst Quarter of 2008?
The Impact of Seasonal Variations and Working Days on National Accounts
5.1. Changes in Liquidity and Monetary Policy Reference Rate
122
Inflation Report 2012-II
Central Bank of the Republic of Turkey
2008-II
2.1. Recent Developments in Global Inflation
3.1. Recent Food Price Developments
4.1. Update of National Accounts Data
5.1. An Overview on Risk remium Volatility and Risk Appetie Elasticity in Emerging Economies
2008-I
2.1. A Brief Overview of the Appreciation of Yuan and Its Likely Results
2007-IV
5.1. Yield Curves and Monetary Policy Decisions
2007-III
3.1. Recent Price Developments in Agricultural Raw Materials
4.1. Structural Change in the Export Performance of Turkey After 2001
2007-II
3.1. Wages and Services Inflation
5.1. Information Contained in the Inflation-indexed Bonds about Inflation Expectations
2007-I
3.1. The Course of Durable Goods Prices fter May
3.2. Chinese Effect on Domestic Prices
6.1. Treasury’s 2007 Financing Program
2006-IV
2.1. Results from a Structural VAR Analysis of the Determinants of Capital Flows into Turkey
2.2. Commodity Markets
7.1. Inflation Targeting Regime, Accountability and IMF Conditionality
2006-III
3.1. Behavior of Price Level and Inflation in Case of Likely Shocks
4.1. Results of the Survey on Pricing Behaviour of Firms
4.2. Rise in International Energy Prices and Its Effects on Current Account Deficit
5.1. Debt Structures of Companies in Turkey
2006-II
2.1. International Gold Price Developments and Their Effects on the CPI
3.1. Relative Price Differentiation, Productivity and the Real Exchange Rate
6.1. Inflation Targeting Regime, Accountability and IMF Conditionality
2006-I
2.1. The use of Special CPI Aggregates in the Measurement of Core Inflation
2.2. The Exchange Rate Pass-through in Turkey: Has the Pass-through Changed with the New CPI Index?
3.1. Productivity Developments in the Manufacturing Industry
5.1. Commitments about Fiscal Policy
6.1. Inflation Targeting Strategy and Accountability
Inflation Report 2012-II
123
Central Bank of the Republic of Turkey
Abbreviations
AMA
Automotive Manufacturers Association
bbl
BoE
barrel
BoJ
BRSA
Bank of Japan
CBRT
CPI
Central Bank of the Republic of Turkey
ECB
EMBI
European Central Bank
EPFR
EU
Emerging Portfolio Fund Research
Fed
FHFA
Federal Reserve Bank
FX
GDBS
Foreign Exchange
GDP
IMF
Gross Domestic Product
ISE
MPC
Istanbul Stock Exchange
MSCI
MTP
Morgan Stanley Capital International
OECD
O/N
Organization for Economic Co-Operation and Development
OPEC
PMI
Organization of the Petroleum Exporting Countries
PPI
SCA
Producer Price Index
SCT
SME
Special Consumption Tax
S&P
SSI
Standard and Poor’s
TL
TurkStat
Turkish Lira
U.K.
U.S.
U.S.A.
United Kingdom
USD
VAT
United States Dollar
VIX
Volatility Index
124
Bank of England
Banking Regulation and Supervision Agency
Consumer Price Index
Emerging Markets Bond Index
European Union
Federal Housing Finance Agency
Government Domestic Borrowing Securities
International Monetary Fund
Monetary Policy Committee
Medium-Term Program
Overnight
Purchasing Managers Index
Special CPI Aggregate
Small and Medium-Sized Enterprises
Social Security Institution
Turkish Statistical Institute
United States
United States of America
Value Added Tax
Inflation Report 2012-II
Central Bank of the Republic of Turkey
2012 Calendar of MPC Meetings, Inflation Reports and
Financial Stability Reports
Monetary Policy Meeting
Inflation Report
(in Turkish)
January 24, 2012
31 January 2012
(Tuesday)
(Tuesday)
Financial Stability Report
(in Turkish)
February 21, 2012
(Tuesday)
27 Mart 2012
(Tuesday)
April 18, 2012
April 26, 2012
(Wednesday)
(Thursday)
29 Mayıs 2012
May 31, 2012
(Tuesday)
(Thursday)
21 Haziran 2012
(Thursday)
July 19, 2012
July 26, 2012
(Thursday)
(Thursday)
August 16, 2012
(Thursday)
September 18, 2012
(Tuesday)
October 18, 2012
October 24, 2012
(Thursday)
(Wednesday)
November 20, 2012
November 29, 2012
(Tuesday)
(Thursday)
December 18, 2012
(Tuesday)
Inflation Report 2012-II
125