Download I. Macroeconomic Outlook Central Bank of the Republic of Turkey

Central Bank of the Republic of Turkey
I. Macroeconomic Outlook
The global economy displayed a moderate growth
in 2014 while the discrepancies continue between recovery
trends of countries. Inflation in advanced economies hovers
below the target rates owing to the fall in commodity prices,
especially oil prices. In emerging markets, however, inflation
rates display an uptrend due to the depreciation in national
currencies. The discrepancies between growth and the
inflation outlook are reflected in national monetary policies of
advanced economies. Global markets remain highly sensitive
to data flows due to these developments coupled with low
predictability in global economy and elevated uncertainties.
Consequently, the volatility in risk perceptions and capital
flows persists. The global economic developments offer both
opportunities and challenges to emerging economies. The low
oil prices are positively affecting the inflation, current account
deficit and growth outlook of emerging economies that import
commodities. Meanwhile, subdued global economic activity
poses a downside risk to the growth prospects of the emerging
economies via the foreign trade channel. The significant
appreciation of the US dollar against all other currencies on
the global foreign exchange market stands out as a risk factor
for those emerging economies running a high level of FX
indebtedness.
In Turkey, economic activity remains moderate. Weak
export trend is the main factor decelerating growth. While
aggregate demand conditions are underpinning disinflation;
food prices and the lagged effects of exchange rate
developments curb improvement in the inflation outlook. While
portfolio flows to Turkey remain weak, there are fluctuations
in the risk premium and the value of the Turkish lira. The CBRT
sustains its cautious monetary policy stance and maintains a tight
monetary policy to curb the impact of the volatility in the global
markets on Turkey's inflation outlook and inflation expectations.
While the current account deficit is improving on the back
of the cautious monetary stance coupled with the sustained
macroprudential measures, the risk premia remains low thanks
to the fiscal discipline and the banking sector's strong position.
In the upcoming period, the course of economic activity and
Financial Stability Report- May 2015
3
Central Bank of the Republic of Turkey
the volatility in the markets will be the factors affecting financial
Chart I.1.1
Global and Advanced Economies’ Growth Rates1
stability. While the CBRT maintains its cautious monetary stance
(Percent, Annual)
Advanced Countries
on one hand, on the other it aims to mitigate macro-financial
Developing Countries
Developing Countries excluding China and India
10
8
risks by introducing measures supporting foreign exchange
liquidity, core liabilities and long-term borrowing.
6
4
2
I.1. International Developments
0
-2
-4
Global growth realized at moderate levels in 2014 and
-6
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
2012
2013
2014
has continued to diverge. The USA enjoys a stronger growth
(1) Weighted by each country's share in global GDP.
Source: Bloomberg, CBRT.
performance compared to other advanced economies.
Chart I.1.2
Manufacturing Industry PMI Indices
Despite signs of recovery, growth in the euro area is still subdued.
The growth pace of advanced economies, which comprises
EMEs
AEs
US
EU
58
56
the recovery trends in the economic activity of countries
75 percent of global growth, is slowing down (Chart I.1.1). The
04.15
02.15
12.14
10.14
08.14
06.14
04.14
the economic outlook in the euro area may improve whereas
02.14
industry PMI indices for advanced economies suggest that
46
12.13
48
10.13
likely continue throughout 2015. However, the manufacturing
08.13
50
06.13
slowdown in the growth pace of the emerging economies will
04.13
52
02.13
manufacturing industry PMI indices exhibit signals that the
12.12
54
recovery in the USA will likely lose some pace (Chart I.1.2).
Source: Bloomberg
Chart I.1.3
Inflation in Advanced and Emerging Economies and
Crude Oil Prices (Percent, Annual, USD)
economies diverge significantly. The decline in commodity
AEs
EMEs
Crude Oil- (RHA)
6
160
140
5
120
4
100
3
80
60
2
40
1
02.15
12.14
10.14
08.14
06.14
04.14
02.14
12.13
10.13
08.13
06.13
04.13
12.12
02.13
20
0
Inflation outlook in advanced economies and emerging
0
prices, particularly in oil prices, reduces inflationary pressures.
Moreover, inflation rates in advanced economies remain below
targets due to weak demand in countries like the euro area and
Japan. However, inflation rates in emerging economies, display
an uptrend due to the depreciation in national currencies
(Chart I.1.3).
The monetary policies of advanced economies diverge
Source: Bloomberg
due to the discrepancies in the growth and the inflation outlook.
Chart I.1.4
US and Germany Treasury Bond Yields
(Percent)
The ECB drove lending rates down to negative and expanded
US 10-Year
Germany 10-Year
US 2-Year (RHA)
Germany 2-Year (RHA)
the asset purchase program that it initiated in October 2014 by
-0.3
improvement in the US economy. Overall, these developments
0,0
-0.6
have led to the appreciation of US dollar against the euro
11.13
09.13
07.13
05.13
03.13
01.13
05.15
Fed is giving signals of a start of an interest rate hike with the
0,6
03.15
0
01.15
in inflation expectations (Chart I.1.4). On the other hand, the
1,2
11.14
0.3
09.14
falling rapidly on the back of monetary expansion and the fall
1,8
07.14
0.6
05.14
2,4
03.14
including public sector bonds. Interest rates in the euro area are
01.14
0.9
3,0
Source: Bloomberg
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Financial Stability Report- May 2015
Central Bank of the Republic of Turkey
(Chart I.1.5). Even though the change in the euro / US dollar
parity is welcomed as this will support recovery in the euro area,
Chart I.1.5
EUR/USD Parity and DXY Index
DXY Index
there is not a noteworthy improvement in credit supply yet. The
100
high NPL ratios in the balance sheets of the banks in the euro
95
1.4
90
1.3
85
1.2
strategy by the Fed regarding its monetary policy is of
80
1.1
crucial importance. The low inflation trend coupled with
75
1
the normalization process of the US monetary policy. These
uncertainties lead to a discrepancy between the expectations
04.15
01.15
10.14
07.14
04.14
01.14
10.13
Source: Bloomberg
Chart I.1.6
Expectations of the FOMC Members and the Market
(End-year, percent)
Market
of the Federal Open Market Committee members and those
of the market. Market participants are expecting a smoother
07.13
04.13
01.13
10.12
07.12
lower-than-expected US data is elevating uncertainties over
04.12
The implementation of an effective communication
01.12
area prevents effective operating of the credit market.
1.5
Euro-USD Parity (RHA)
Projection
FOMC Members
4.5
3.5
4.0
3.0
increase in the Federal funds rate than the FOMC members
3.5
(Chart I.1.6). An earlier and faster than expected rise in the rate
2.5
2.0
2.0
1.5
1.5
1.0
1.0
-4
-6
Financial Stability Report- May 2015
02.15
12.14
10.14
95
200
90
175
85
150
80
125
03.15
70
01.15
75
75
11.14
100
09.14
the current global low interest rate environment, extending
100
225
07.14
roll-over of especially short-term debts. In this framework, amid
JP Morgan EM Currency Index
07.13
emerging economies and accordingly, some concerns about
Selected Emerging Economies**
250
05.13
I.1.9). Appreciation of the US dollar increases the debt burden of
Emerging Economies*
03.13
has moved upwards compared to the pre-crisis period (Chart
08.14
Chart I.1.8
CDS Premiums for Emerging Economies and JP Morgan
Exchange Rate Index
01.13
exchange rate. FX borrowing in most of the emerging economies
06.14
Source: EPFR
The differences between monetary policies of advanced
economies increase the sensitivity of emerging markets to
04.14
-8
-10
05.14
as the capital flows toward emerging economies.
0
-2
02.14
will have a significant impact on the global risk appetite as well
Equities
03.14
of emerging and advanced economies and commodity prices
0.0
2
12.13
Expectations for the Federal funds rate, growth performances
40
4
01.14
economies is rising due to capital outflows (Chart I.1.7 and I.1.8).
30
Long term
2016
6
10.13
in the March meeting. The CDS premiums of emerging
Bonds
8
11.13
members revised their interest rate expectations downwards
10
09.13
of the emerging economies was partly offset when the FMOC
20
(Weekly, Billion USD)
08.13
in these countries. Nevertheless, the depreciation in currencies
2015
Chart I.1.7
Capital Flows to Emerging Economies
06.13
have depreciated and exchange rate volatility has increased
10
* Fed fund futures rates have been used for market expectations. Median of FOMC
Members' interest rate expectations have been used.
Source: CME Group, Fed
04.13
monetary policy. Moreover, currencies of emerging economies
0 2014
02.13
been fluctuating due to the uncertainties in the United States'
0.0
12.12
Capital movements in emerging economies have
0.5
0.5
04.15
might lead to fluctuations in the global financial system.
2.5
3.0
Source: Bloomberg
* Emerging economies include Brazil, Czech Republic, Indonesia, South Africa, Colombia,
Hungary, Mexico, Poland, Romania, Chile and Turkey.
**CDS premia of Brazil, Indonesia and South Africa have been used to calculate the
average of selected emerging economies.
5
Central Bank of the Republic of Turkey
foreign debt maturities and supporting prudent borrowing will
Final Domestic Demand
Net Exports
Change in Inventories
GDP growth
strengthen financial stability.
Chart I.1.9
FX Indebtedness of Households and the Corporate Sector
(Percent of GDP)
2014
developments
offer
both
upside risks in inflation in emerging economies that are importing
commodities. Moreover, this decline is expected to have a
12.14
09.14
06.14
03.14
12.13
positive impact on the current account deficit and the growth.
25
20
Recovery in the US economy and the signs of recovery in the
15
euro area due to measures taken will make a positive effect on
10
5
Chile
Poland
Turkey
Russia
S. Africa
Indonesia
Brazil
India
Argentina
Colombia
the growth outlook of emerging economies.
0
Source: IMF
I.2. Domestic Developments
Growth was slightly slower in 2014 compared to 2013.
Despite the weak external demand, net exports contributed
positively to growth (Chart I.2.1). Industrial production slightly
Chart I.2.1
Contribution to Growth From The Spending Side
accelerated in the first quarter of 2015. This acceleration was
(Percentage Point)
mainly driven by the robust vehicle production. While consumer
Final Domestic Demand
Net Exports
Change in Inventories
GDP growth
10
8
confidence and investment tendency implies moderate private
6
sector domestic demand, the leading indicators suggest that
4
external demand is relatively weak. The weak global economic
2
activity coupled with the geopolitical developments pulls
0
12.14
09.14
06.14
03.14
12.13
in the euro/dollar parity is also adversely affecting exports. Signs
09.13
-4
06.13
down growth by curbing exports growth. The excessive volatility
03.13
-2
12.12
Source: CBRT, TURKSTAT
of recovery in the euro area are expected to be one of the
factors supporting external demand in the upcoming period.
An analysis of the developments in economic activity with
respect to labor market reveals that the unemployment rate
climbed because the rise in employment in 2014 fell short of the
Chart I.2.2
Price Indices
growth in the labor supply. Recently, both industrial production
(Annual Percentage Change)
CPI
11
11
data and survey results point to a moderate recovery in the
10
labor market.
H Index
I Index
10
6
The cautious monetary and fiscal policies coupled with the
5
5
macroprudential measures are having a positive impact on
Source: CBRT, TURKSTAT
6
03.15
6
12.14
more limited than forecasted due to cost-side pressures.
09.14
7
06.14
7
03.14
Despite the decline in demand, the fall in inflation was
12.13
8
09.13
8
06.13
9
03.13
9
12.12
09.13
06.13
economic
decline in commodity prices, particularly in oil prices, reduces
40
30
global
opportunities and challenges for emerging economies. The
2007
35
The
core inflation indicators (Chart I.2.2). Moreover, the low level
of commodity prices underpins the improvement in inflation.
Financial Stability Report- May 2015
Central Bank of the Republic of Turkey
30
correction in food prices is expected to take place in the
25
near future as the adverse weather conditions seem to have
20
subsided and the Food Committee started to operate. But still,
15
food prices and exchange rate volatility continue to be the
10
fluctuations in the risk premium and the value of the Turkish
lira. Uncertainties over the normalization process of the Fed's
2014
25
15
10
5
0
5
-10
Dec
Oct
Nov
Sep
Jul
Aug
Apr
Jun
-5
(1) Calculated by weekly net portfolio flows. Includes data on repo, GDDS and securities
portfolio as well as banks' off-balance sheet FX position.
Source: BRSA, CBRT
Chart I.2.4
Exchange Rates and Turkey's 5-Year CDS Prices
monetary policy lead to fluctuations in financial markets. The
Turkish lira has depreciated against the US dollar and has
30
20
0
While portfolio flows to Turkey remain weak, there are
2013
2012
May
primary risk factor on inflation outlook.
2011
2015
Mar
curb further improvement in the inflation outlook. A significant
(Billion USD)
Jan
effects of exchange rate developments on domestic prices
Chart I.2.3
Cumulative Portfolio Flows1
Feb
Nevertheless, the high level of food inflation and the lagged
Euro/TL
3.2
displayed a more stable trend against the euro (Chart I.2.3 and
2.9
I.2.4). Meanwhile, the yield from government domestic debt
2.6
securities has increased significantly.
2.3
USD/TL
280
CDS (RHA)
250
220
190
160
2.0
introduced measured rate cuts in the first quarter of 2015
and maintained the yield curve almost flat by sustaining the
cautious monetary policy (Chart I.2.5). The cautious stance
04.15
03.15
12.14
09.14
06.14
03.14
12.13
09.13
100
Source: CBRT, Bloomberg
Chart I.2.5
CBRT Rates and BIST Interbank O/N Rates
(Percent)
5 Year-BIST Interest Differential
18
18
5-Year Market Rate
the monetary policy need to be maintained taking into
16
account the adverse impact of the global uncertainties and
12
12
10
10
8
8
6
6
4
4
some additional measures for the FX liquidity in response to the
2
2
0
0
elevated exchange rate volatility. While the export rediscount
-2
-2
-4
-4
reserves can be used as a supporting tool in times of excessive
volatility.
04.15
02.15
12.14
10.14
08.14
06.14
04.14
02.14
12.13
10.13
08.13
06.13
credits continue to contribute to the CBRT's FX reserves, these
14
BIST Interbank O/N Rates (5 days MA)
04.13
energy and food prices. In addition, the CBRT has introduced
14
02.13
exchange rate volatility on core inflation and the fluctuations in
16
CBRT Average Funding Rate (5 days MA)
12.12
in
06.13
stance by maintaining a tight liquidity policy. The CBRT
03.13
1.7
12.12
The CBRT has sustained its cautious monetary policy
130
Source: CBRT, BIST
Chart I.2.6
Current Account Deficit and Financing Items
(12-Month Cumulative, Billion USD)
80
decline in commodity prices are having favorable impacts
70
in terms of the current account deficit, inflation and growth
50
60
in Turkey (Chart I.2.6). The credit growth, which was kept at
40
reasonable levels by maintaining the cautious monetary policy
20
current account deficit is mostly made by long-term sources.
Financial Stability Report- May 2015
10
0
02.15
12.14
10.14
08.14
06.14
04.14
02.14
12.13
10.13
08.13
06.13
-10
04.13
recovery in the current account balance. The financing of the
30
12.12
stance and the macroprudential measures, contributed to the
Portfolio and Short-term
FDI and Long-term
Current Account Deficit
90
02.13
The current account balance has been improving. The
Source: CBRT
7
Central Bank of the Republic of Turkey
The fiscal discipline contributes to bringing down both
Chart I.2.7
Central Government Budget Balances
the risk premium and inflation. Even if the central government
(12-Month Cumulative, Percent of GDP)
Budget Balance
budget deficit slightly increased, it was still below the pre-
Primary Balance
2.5
2.0
defined target (Chart I.2.7). The downward tendency in public
1.5
debts continues. The fact that borrowing is mostly in fixed rate,
1.0
0.5
TL denominated and has long maturities contributes to financial
0.0
-0.5
stability (Chart I.2.8).
-1.0
-1.5
The course of the economic activity and level of volatility
12.14
09.14
06.14
03.14
12.13
09.13
06.13
03.13
-2.5
12.12
-2.0
in financial markets will be the key factors affecting financial
Source: Ministry of Finance
stability in the upcoming period. From the economic activity
stance, external demand remains weak while domestic
demand offers a moderate support to growth. Volatility in
Chart I.2.8
Composition of Central Government Debt Stock and
Average Days to Maturity¹ (Month)
financial markets might curb the contribution of the private
sector final demand to growth. Meanwhile the weak global
FX Denominated
Floating Rate
Fixed Rate
Average Maturity of Domestic Debt Stock (RHA)
Average Maturity of External Debt Stock (RHA)
100%
demand conditions are having negative impact on external
150
80%
100
60%
56.1
40%
50
(1) Data of days to maturity pertains to October 2013.
Source: Undersecretariat of Treasury
2015March
2014
2013
2012
2011
2010
2009
2008
2007
2006
20%
0%
demand. The recent signs of recovery in the euro area might be
promising for external demand. The global uncertainties, the risk
120.2
0
appetite and volatility in capital flows still persist. While the CBRT
maintains its cautious monetary stance on one hand, on the
other, it aims to mitigate the macro-financial risks by introducing
measures to support foreign exchange liquidity, core liabilities
and long-term borrowing. In the upcoming period, the macrofinancial risks will be closely monitored and additional measures
will be introduced if required.
8
Financial Stability Report- May 2015