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Central Bank of the Republic of Turkey
2. International Economic Developments
The global economic slowdown that started in the first quarter of 2014 continued in the
remainder of the year. Although this slowdown, which dominated the whole year, was driven by both
advanced and emerging economies, the divergences of growth performances persisted across
countries. Among advanced economies, the US economy continued to grow robustly whereas the EU
remained weak in spite of a slight recovery in the final quarter. The ongoing recession in Japan put
further downward pressure on global growth. On the emerging economies front, the slowdown
persisted across key economies in the fourth quarter, with Russia nearing the zero mark for annual
growth and most Eastern European economies tackling a sluggish economic activity amid weak EU
demand and developments in Russia. Leading indicators for the first quarter of 2015 signal a very
limited improvement for global economic activity.
Having fallen since mid-2014, commodity prices dropped further in the first quarter of 2015, by 5
percent quarter-on-quarter. This decline was largely attributed to tumbling oil prices driven by recordhigh supplies, and partly to lower agricultural prices amid an inventory and production rise. Thus,
inflation rates remained low across major advanced economies and those with weak economic
activity faced deflation. Among emerging economies, falling commodity prices exerted a downward
pressure on inflation but the depreciation of local currencies placed a strong upward pressure, driving
the emerging market inflation rate higher.
In view of low inflation rates and weak economic activity, the majority of advanced economies
still faces historically low interest rates and continues to use unconventional monetary policy tools to
maintain a loose monetary policy. However, diverging growth performances lead to different
monetary policy outlooks in the forthcoming period. In this sense, the Fed has already started to
normalize its policy by signaling its willingness to start rate hikes soon, while the ECB has employed more
aggressive monetary easing. Further, many European countries with strong economic ties with the EU
lowered their policy rates. Yet, due to the Fed’s possible rate hike, the central banks of some emerging
economies that witnessed capital outflows –mostly from stock markets– and currency depreciations
raised their policy rates in the first quarter. In addition to this divergence in global monetary policies, the
slowing economic activity across emerging economies adds to the downside risks for volatile capital
flows.
2.1. Global Growth
The slowdown in global economic growth in the first nine months of 2014 continued through the
fourth quarter (Chart 2.1.1). On the advanced economies side, despite the pick-up in the US and Euro
Area growth, Japan’s ongoing recession has been a key driver of global economic slowdown in the
final quarter of 2014. Across emerging economies, the worst quarter-on-quarter growth performance
was seen in the Eastern Europe, largely due to the accelerating slowdown in the Russian economy. In
this period, the growth in Asia and Latin America followed a more favorable track compared to the
previous quarter, yet Brazil’s contracting economy caused Latin American growth to remain sluggish
(Chart 2.1.2).
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Chart 2.1.1.
Chart 2.1.2.
Global Growth Rates*
Regional Growth Rates*
(Annual Percent Change)
(Annual Percent Change)
Emerging Economies
Advanced Economies
Global GDP
9
9
6
Latin America
Asia
Eastern Europe
12
12
9
9
6
6
3
3
0
0
-3
-3
-6
-6
6
3
3
0
0
-3
-3
-9
-6
12341234123412341234123412341234
2007 2008 2009 2010 2011 2012 2013 2014
-6
-9
23 4123 412 341 234 1234 123 412 34
2008
* Weighted by each country’s share in global GDP.
Source: Bloomberg, CBRT.
2009
2010
2011
2012
2013
2014
* Weighted by each country’s share in regional GDP.
Source: Bloomberg, CBRT.
Global PMI data for the first quarter of 2015 remained unchanged from the previous quarter
(Chart 2.1.3). The Euro Area manufacturing PMI recorded a notable increase in this period, which
creates an expectation that the favorable Euro Area growth will continue more vigorously in the first
quarter of 2015. The ongoing fall in unemployment during the first two months of the year and the
positive outlook suggested by the PMI for employment and new orders add to this expectation. The
first-quarter uptrend notwithstanding, the US manufacturing PMI was quite close to the quarter-ago
average on a quarterly basis, suggesting that the first-quarter US growth is likely to be comparable to
the fourth quarter. The Japanese manufacturing PMI, on the other hand, shows that the recession
continued into the first quarter (Chart 2.1.4). On the emerging economies front, the manufacturing
PMIs, particularly those of China and Russia, declined considerably in the first quarter. Thus, economic
growth is expected to slow further in emerging economies over the first quarter of 2015.
In sum, the global economic slowdown will probably persist in the first quarter of 2015 largely
due to the decelerating growth in emerging economies and the pace of global growth may dip even
below the previous quarter. Japan stands out as the leading country among advanced economies to
pull global growth down in this period, while China, Brazil and Russia on the emerging economies front
are also expected to decelerate global growth.
Chart 2.1.3.
Chart 2.1.4.
Markit Global PMI
Manufacturing Industry PMI
Euro Area
USA
Japan
Services
60
60
Manufacturing
55
60
60
55
55
50
50
45
45
40
40
55
0315
1114
0714
0314
1113
0713
0313
1112
0712
0312
1111
0711
0311
1110
0315
1114
0714
0314
1113
0713
0313
1112
0712
0312
1111
0711
0311
1110
0710
45
0310
45
0710
50
0310
50
Source: Markit.
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The end-2015 global growth forecasts were revised down by 0.3 points from the previous
reporting period in April’s Consensus Forecasts. Across advanced economies, growth forecasts were
revised upward for the UK, and especially for the Euro Area, and downwards for the US and Japan. On
the emerging economies side, compared to the previous report projections, growth forecasts for end2015 were revised upward for Asia-Pacific and downward for Eastern Europe, albeit slightly, and Latin
America, more notably (Table 2.1.1). In comparison with the January Inflation Report, growth forecasts
for end-2016 were revised slightly upward for advanced economies, while the most significant change
across emerging economies was the downward revision for Latin America. Accordingly, the exportweighted global production index, updated in line with April forecasts, points to a slower annual global
growth than stated in the January Inflation Report (Chart 2.1.5). Thus, Turkey’s weak external demand
outlook is likely to continue into 2015.
Table 2.1.1.
Growth Forecasts for end-2015 and end-2016 (Annual Percent Change)
January
World
Advanced Economies
USA
Euro Area
Germany
France
Italy
Spain
Greece
Japan
UK
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil
Eastern Europe
Russia
April
2015
3.0
2016
3.2
2015
2.7
2016
3.2
3.2
1.1
1.4
0.9
0.4
2.0
1.8
1.2
2.6
2.8
1.6
1.8
1.3
1.0
2.1
2.3
1.5
2.4
2.9
1.5
1.9
1.1
0.6
2.5
0.7
1.0
2.6
2.8
1.8
2.0
1.6
1.2
2.4
2.0
1.7
2.5
6.0
7.0
6.3
1.3
0.4
-0.2
-4.1
6.0
6.9
6.7
2.7
1.9
2.1
0.3
6.1
6.9
7.7
0.5
-1.1
-0.4
-4.0
6.1
6.8
8.0
2.1
1.2
2.0
0.2
Source: Consensus Forecasts.
Chart 2.1.5.
Export-Weighted Global Production Index*
(Annual Percent Change)
6
6
January 2015 Forecast at 1.95
4
4
2
2
0
0
April 2015 Forecast at 1.90
-2
-2
-4
-4
-6
-6
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 2015
* Weighted by each country’s share in Turkey’s exports.
Source: Bloomberg, CBRT.
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2.2. Commodity Prices and Global Inflation
The headline commodity price index posted a quarter-on-quarter decline by 5.1 percent in the
first quarter of 2015. In this period, the price index for precious metals was the only one rising, by 0.7
percent, while price indices for all other commodities fell due to excess supply and weak demand.
Prices of energy and industrial metals decreased by 4.1 and 5 percent, respectively, whereas the
agricultural price index plunged by 9 percent because of high supply and production (Chart 2.2.1).
Chart 2.2.1.
Chart 2.2.2.
S&P Goldman Sachs Commodity Prices
Crude Oil (Brent) Prices*
(January 2010=100)
(USD/bbl)
Headline
Industrial Metals
Agriculture
Energy
Precious Metals
Futures (23 January)
Futures (27 April)
80
80
60
60
60
60
40
40
40
40
120
0716
0116
0715
0115
0714
0114
0713
Spot
0113
0413
0113
0415
80
0115
80
1014
100
0714
100
0414
100
0114
100
1013
120
0713
120
120
* 27 April 27 and 23 January denote the arithmetical average of the prices quoted at futures contracts during 1-27 April and 1-23 January, respectively.
Source: Bloomberg.
Oil prices have been fluctuating since the crude oil price slump in the fourth quarter of 2014. The
ample supply hinted by the surprise jump in US crude oil inventories weighs on prices whereas
geopolitical risks pose an upside risk to them. As of the first half of April, oil prices were slightly higher
than in the previous reporting period, but amid the narrowing spread between futures and spot prices,
the December 2015 contracts for crude oil, which were traded at 64.5 USD at end-January, changed
barely in April (Chart 2.2.2). In addition, the Iran framework deal strengthened expectations of an oil
supply glut in the second half of 2015. This might compensate for the anticipated correction in the US
shale oil output, hinting at a longer-than-expected supply-driven downward pressure on oil prices.
Amid falling energy prices, the consumer price inflation dropped dramatically across advanced
economies in the first quarter, while core inflation remained virtually unchanged. On the other hand,
emerging economies were not affected similarly by decreasing energy prices as the upward pressure
generated by the depreciations of their currencies was more profound. The CPI and core inflation rates
remained on the rise across emerging economies, particularly in Russia and Latin America, during the
first quarter (Charts 2.2.3 and 2.2.4).
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Chart 2.2.3.
CPI Inflation in Advanced and Emerging Economies
(Annual Percent Change)
Chart 2.2.4.
Core Inflation in Advanced and Emerging
Economies
(Annual Percent Change)
Emerging Economies
10
10
Emerging Economies
6
6
Advanced Economies
Advanced Economies
0315
0914
0314
0315
Source: Bloomberg, CBRT.
0913
0
0313
0
0912
-2
0312
-2
0911
1
0311
1
0910
0
0310
0
0909
2
0309
2
0908
2
0914
2
0314
3
0913
3
0313
4
0912
4
0312
4
0911
4
0311
6
0910
6
0310
5
0909
5
0309
8
0908
8
Source: Bloomberg, DataStream, CBRT.
Global inflation forecasts for end-2015 were revised substantially downwards for advanced
economies and Asia-Pacific compared to the previous reporting period. The impact of falling energy
prices on inflation has largely been reflected on expectations by the massive downward revisions in the
previous and current reporting periods, and thus, downside risks to inflation expectations for advanced
economies have subsided. However, expectations might dip a little lower for Asia-Pacific due to low
inflation rates in China and Japan. Meanwhile, end-year inflation forecasts for both 2015 and 2016
might be revised upward for Latin America and Eastern Europe (Table 2.2.1). The deteriorated
expectations across commodity-exporting Latin American countries may be a result of the Chinese
slowdown, yet the upcoming inflation outlook for these countries and Eastern Europe will be
determined by the Fed’s monetary tightening.
Table 2.2.1.
Inflation Forecasts for end-2015 and end-2016
(Annual Percent Change)
January
World
Advanced Economies
USA
Euro Area
Germany
France
Italy
Spain
Greece
Japan
UK
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil*
Eastern Europe
Russia
April
2015
2.6
2016
3.1
2015
2.5
2016
3.0
0.7
0.1
0.7
0.3
0.2
-0.3
-0.6
0.9
1.2
2.2
1.2
1.6
1.2
0.7
1
0.6
1.8
1.2
0.1
0.1
0.4
0.1
0.1
-0.5
-1.3
0.4
0.7
2.2
1.2
1.6
1.1
0.8
1.2
0.5
1.6
1.0
2.5
1.8
5.9
12.3
6.4
7.1
10.8
2.8
2.2
5.8
10.6
5.6
5.3
6.4
2.0
1.4
5.4
14.6
7.9
8.5
13.0
2.6
2.0
5.6
11.9
5.6
5.8
7.2
* December to December.
Source: Consensus Forecasts.
2.3. Financial Conditions, Risk Indicators and Capital Flows
In the first quarter of the year, despite ongoing divergence in global economic activity and
continued slowdown across emerging economies, the waning concerns over the Euro Area and US
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recovery and the delay in the Fed’s expected rate hike had a positive impact on the global risk
appetite (Chart 2.3.1). The fed fund futures show that the timing of the expected policy rate hike has
been postponed (Chart 2.3.2).
Chart 2.3.1.
Chart 2.3.2.
Global Risk Appetite
Fed Funds Futures
(Percent)
24 April
Credit Suisse Risk Appetite Index
23 January
1.0
1.0
0.5
0.5
0.0
0.0
0318
1.5
1017
1.5
0517
45
2.0
1216
-8
2.0
0716
40
2.5
0115
-6
0714
35
0114
-4
0713
30
0113
-2
0712
25
0112
0
0711
20
0111
2
0710
15
0110
4
2.5
0216
10
0915
6
0415
VIX (inverted, right axis)
Maturity
Source: Bloomberg, Credit Suisse.
Source: Bloomberg.
With the favorable global risk appetite, global stock markets were broadly on the rise in the first
quarter. Stock markets of the emerging economies performed much better than those in advanced
economies (Chart 2.3.3). Yet, among emerging economies, Latin American stock markets diverged
negatively from the rest. Nevertheless, this poor performance of Latin American stock markets did not
spill over into bond yields, but the favorable risk appetite brought bond yields across all emerging
economies down in the first quarter (Chart 5.1.1).
Chart 2.3.3.
Chart 2.3.4.
Global Stock Markets
Weekly Portfolio Flows to Emerging Economies
(USD, 2007=100)
(Billion USD)
MSCI - Emerging Economies
Source: Bloomberg.
0315
0115
-15
1114
-15
0914
-10
0714
-10
0514
-5
0314
-5
0114
0
1113
80
0
0913
80
10
5
0713
90
Bond Funds
5
0513
90
0115
100
0714
100
0114
110
0713
110
0113
120
0712
130
120
0112
130
0711
140
0111
140
0710
150
0110
150
Equity Funds
10
0313
160
MSCI - Advanced Economies
0113
160
Source: EPFR.
In the first quarter of the year, emerging economies experienced capital outflows, especially in
January and March (Chart 2.3.4). Despite the favorable global risk appetite during this period, the
appreciating US dollar and the deteriorated growth expectations for emerging economies were the
key drivers of these outflows. The US dollar appreciation both exacerbated the debt burden of
emerging economies and lessened the USD yields on local bonds, causing emerging economies to
become less attractive to international investors.
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Although the delay in expectations about the timing of the Fed’s first policy rate hike seems to
support capital inflows to emerging economies in the upcoming period, the strong US dollar, the weak
emerging market growth outlook and growth performance of the Euro Area and the US add to the
downside risks to these inflows over the forthcoming period. However, future FOMC decisions and
global energy price developments are likely to play a major role in shaping the global risk appetite and
the direction of portfolio flows.
2.4. Global Monetary Policy
With the more pronounced slowdown in both advanced and emerging economies, the global
monetary policy appears to have been looser in the first quarter, except for the recovering US
economy and some emerging economies facing current account problems. On the advanced
economies front, this loosening was largely attributed to the ECB’s quantitative easing implemented
since mid-2014 amid deflationary risks and to the absence of inflationary pressures from commodity
prices. Accordingly, during January-April 2015, the Sveridge Riksbank cut short-term rates by 25 basis
points into a negative territory, while the Bank of Canada, the Central Bank of Korea, and the Reserve
Bank of Australia lowered rates by 25 basis points each, and the Bank of Israel opted for a rate cut of 15
basis points (Chart 2.4.1).
On the emerging economies side, after hiking the policy rate by 750 basis points in the final
quarter of 2014, the Central Bank of Russia took 300 basis points back by two rate cuts in the first
quarter. Moreover, during January-April 2015, the CBRT and the National Bank of Romania cut policy
rates by 75 basis points each; the National Bank of Poland lowered its policy rate by 50 basis points; the
Central Reserve Bank of Peru, the Bank of Thailand and Bank Indonesia delivered a rate cut of 25 basis
points each, and the Magyar Nemzeti Bank reduced its policy rate by 30 basis points. In Asia-Pacific,
the People’s Bank of China cut its policy rate by 25 basis points in March, whereas the Reserve Bank of
India lowered its rate by a total of 50 basis points in January and March. Meanwhile, unlike all other
central banks, Banco Central do Brasil hiked its policy rates twice by 50 basis points each (Chart 2.4.2).
Chart 2.4.1.
Chart 2.4.2.
Policy Rate Changes in Advanced Economies from
Jan. 2014 to Apr. 2015* (Basis Points)
Policy Rate Changes in Emerging Economies from Jan.
2014 to Apr. 2015* (Basis Points)
Canada
-100
Czech Rep.
-100
Euro Area
-75
Norway
-75
Australia
-50
Korea
-50
Sweden
-25
600
600
350
350
100
100
-150
-150
-400
-400
Mexico
0
850
Romania
0
-25
850
Turkey
25
1100
South Africa
25
2014
1100
Russia
50
Jan'15
Hungary
50
Feb'15
Indonesia
75
Poland
75
Mar'15
Colombia
100
Israel
Apr'15
2014
Peru
Jan'15
Thailand
Feb'15
Chile
Mar'15
Brazil
Apr'15
100
* As of 28 April 2015.
Source: Bloomberg, CBRT.
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Central Bank of the Republic of Turkey
At its first FOMC meeting in 2015, the Fed reiterated that it would remain patient about hiking
rates, which was interpreted as an almost unchanged policy stance. However, long-term interest rates
soared after the meeting due to the positive data regarding economic activity. At the mid-March
meeting, the Fed removed the word “patient” yet revised the end-2015 policy rate forecasts of FOMC
members down and clearly stated that an April hike was unlikely. Additionally, the Fed emphasized
that the rate hike would be dependent on further improvement in the labor market and on inflation
moving back toward 2 percent over the medium term. Following this statement, long-term interest rates
fell. Hence, having been on the rise since the first tapering hint in May 2013 until early 2014, long-term
interest rates followed a downward path, despite some fluctuations, thanks to the vanished uncertainty
due to the Fed’s transparent communication policy and the gradual termination of the asset
purchases (Chart 2.4.3). As for the Euro Area, the ECB’s easing policies appear to have alleviated
deflationary concerns and improved the growth performance as of the first quarter. The monetary
policy stance in advanced economies is expected to remain nearly unchanged in the next period.
Chart 2.4.3.
Yields on 10-year US Treasury Bonds
(Percent)
3.2
3.2
FOMC Meeting (28 January)
3.0
3.0
2.8
2.8
2.6
2.6
2.4
2.4
2.2
2.2
2.0
2.0
1.8
1.8
1.6
1.6
FOMC Meeting (18 March)
4/2/2015
2/2/2015
3/2/2015
1/2/2015
11/2/2014
12/2/2014
9/2/2014
10/2/2014
8/2/2014
6/2/2014
7/2/2014
4/2/2014
5/2/2014
2/2/2014
3/2/2014
1/2/2014
11/2/2013
12/2/2013
9/2/2013
10/2/2013
8/2/2013
6/2/2013
7/2/2013
4/2/2013
5/2/2013
2/2/2013
3/2/2013
1.4
1/2/2013
1.4
Source: Bloomberg.
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