Download II. Domestic Economic Outlook 2

Türkiye Cumhuriyet Merkez Bankası
II. Domestic Economic Outlook2
Economic activity presented a more positive outlook in the second quarter of 2013
compared to the first quarter. The revival in domestic demand and the base effect in gold
trade led to a slight deterioration in the current account deficit. Increased volatility in global
financial markets after May caused fluctuations in capital flows and exchange rates in
emerging market economies including Turkey.
Increased uncertainties over global monetary policies as of the second quarter of
2013 have led to capital outflows from emerging market economies including Turkey. The
recent tightening in financial conditions is expected to curb the increase in loans and the
current account deficit in the upcoming period. Although financial and non-financial
sectors had no trouble in borrowing from abroad, during the period from May to July, Turkey
posted a capital outflow of approximately USD 10 billion. However, with the postponement
of the expectations over Fed tapering, recovery of global risk appetite made capital flows
rebounded again. The recent volatility in portfolio flows to Turkey was higher than that
experienced after the Euro area debt crisis in 2011 (Chart II.1).
The current account deficit (CAD) makes the domestic economy more vulnerable to
capital flows. Even if a slight deterioriation was observed in current account deficit due
to the increase in imports demand as a result of revival in domestic demand as of the first
quarter of 2013, this deterioriation was mainly driven by gold trade. The domestic demand
and loans that are expected to display a moderate increase in the upcoming period might
restrain the increase of imports. Furthermore, the signs of recovery in the Euro area
economic activity also support the positive expectations regarding imports. In light of these
developments, the recovery in the CAD excluding gold is expected to continue in the
period ahead. Factors other than portfolio flows did not display a notable change in
financing the CAD, which alleviates concerns over financing it (Chart II.2).
2
This chapter has been prepared by E. Özgü Özen Çavuşoğlu.
Financial Stability Report | November 2013
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Chart II.1
Chart II.2
Cumulative Portfolio Flows1
Current Account Deficit and Financing Items1
(Billion USD)
(12-Month Cumulative Billion USD)
2011
2012
2013
30
30
25
25
20
20
15
15
10
10
5
5
0
0
Foreign Direct Investment
Other
Portfolio Investment
Current Account Deficit
100
80
60
40
20
01/07
05/07
09/07
01/08
05/08
09/08
01/09
05/09
09/09
01/10
05/10
09/10
01/11
05/11
09/11
01/12
05/12
09/12
01/13
05/13
09/13
-40
Dec
Nov
Oct
Sep
Jul
Aug
Jun
May
Apr
Mar
Jan
Feb
0
-20
(1) Calculated by weekly net portfolio flows. Includes the data of repo, GDDS
and securities portfolio as well as banks' off-balance sheet FX position.
Source: BRSA, CBRT
(1) Portfolio includes equities and government domestic debt securities. Other is
composed of the total of short and long-term net loans of banks and other sectors,
bonds issued abroad by banks and the Treasury, and deposits at banks.
Source: CBRT
Increased uncertainties over global monetary policies led to repricing of all financial
assets including exchange rates. The real effective exchange rate that had gradually
increased since mid-2011 depreciated after May 2013 due to nominal exchange rate
developments. In September, though, the depreciation in the real effective exchange rate
subsided amid developments that reduced concerns in global financial markets (Chart II.3).
The course of the real effective exchange rate after May is considered to contribute to the
economic rebalancing process.
Chart II.3
Real Effective Exchange Rate
(CPI-based, 2003=100)
Real Effective Exchange Rate
Depreciation Periods of TL
135
130
130
125
125
120
120
115
115
110
110
105
105
100
100
01/08
04/08
07/08
10/08
01/09
04/09
07/09
10/09
01/10
04/10
07/10
10/10
01/11
04/11
07/11
10/11
01/12
04/12
07/12
10/12
01/13
04/13
07/13
10/13
135
Source: CBRT
The relative deterioration in the risk outlook of emerging market economies has
exacerbated the volatility of exchange rates. The Turkish lira, with the lowest exchange rate
volatility among currencies of emerging market economies posting current account deficits,
started to display higher volatility in the post-May period (Chart II.4). While Turkey's
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Financial Stability Report | November 2013
Türkiye Cumhuriyet Merkez Bankası
susceptibility to external financing was instrumental in increasing the implied exchange rate
volatility relatively further, the Turkish lira displayed the lowest volatility compared to four
other emerging market currencies that recorded the highest depreciation in the same
period (Chart II.5).
Chart II.4
Chart II.5
Implied Volatility of Exchange Rates1
Implied Volatility of Exchange Rates1
(12-Month Ahead)
(12-Month Ahead)
30
30
30
30
CAD-posting EMEs
Selected EMEs
27
27
24
24
24
24
21
21
21
21
18
18
18
18
15
15
15
15
12
12
12
12
9
9
9
9
6
6
6
6
(1) Emerging market economies posting current account deficits include Brazil, Chile
Colombia, Czech Republic, Hungary, Indonesia, Mexico, Poland, Romania, South
Africa and Turkey.
Source: Bloomberg
27
10/13
07/13
04/13
01/13
10/12
07/12
04/12
01/12
10/11
07/11
04/11
01/11
10/10
07/10
Turkey
04/10
10/13
07/13
04/13
01/13
10/12
07/12
04/12
01/12
10/11
07/11
04/11
01/11
10/10
07/10
04/10
01/10
Turkey
01/10
27
(1) Selected emerging market economies include Brazil, India, Indonesia, South
Africa and Turkey.
Source: Bloomberg
Economic activity gained pace in the second quarter of 2013. After significant growth
in the first quarter of 2013, the final demand displayed a limited increase in the second
quarter, compared to the previous one. The private sector’s investment and consumption
demand recorded a moderate increase on a quarterly basis, while the public demand that
played an important role in the first quarter growth recorded a decline. On the other hand,
the largest contribution to the second quarter growth came from the change in inventories.
While net foreign trade had a negative contribution to growth after the boost of the imports
demand, the contribution of net imports to growth is expected to increase in view of the
recent developments (Chart II.7).
Chart II.6
Chart II.7
GDP and Final Domestic Demand
Contributions to Quarterly GDP Growth
(Seasonally Adjusted, Billion TL, Deflated by 1998 prices)
(2013Q2, Seasonally Adjusted, Percentage Points)
GDP
Final Domestic Demand
2.5
33
33
31
31
2.1
2
1.5
29
29
27
27
25
25
23
23
1
0.5
0.3
0.5
0.4
0
0
-0.5
-1
2010
2011
2012 2013
Import
Export
Inventories
Public Investment
2009
Public Consumption
2008
Private Investment
21
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
-1.2
Private Consumption
21
-0.7
-1.5
Source: CBRT, TURKSTAT
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The recovery trend in public debt indicators has been continuing in line with the
favorable outlook in the budget performance. The significant increases in tax and non-tax
revenues in 2013 became the main determinant of the favorable outlook in the budget
performance. The recovery trend in public debt stock indicators that started in 2010 on the
back of the improvement in budget performance has continued in 2013 as well (Chart
II.2.8). In line with these developments, internal debt rollover ratios have continued to hover
below 100 percent throughout the year. Maintenance of the positive outlook of public
finance and the fact that its susceptibility to the level of public debt stock as well as to
interest rate and exchange rate movements is limited are essential for macroeconomic
stability and for the stability of the Turkish banking system that bears significant amounts of
GDDS on its balance sheet.
Chart II.8
Chart II.9
Central Government Budget Balance-Debt Stock
Composition of Central Government Debt Stock and
Average Days to Maturity 1 (Month)
(Annualized, Ratio to GDP, %)
Primary Balance
FX Denominated
Floaing Rate
Fixed Rate
Average Maturity of Domestic Debt Stock (Right Axis)
Average Maturity of External Debt Stock
Total Debt Stock (Right Axis)
6
48
5
45
4
42
3
39
2
36
100%
120
114
80%
80
60%
45
40%
2008
2009
I
III
2010
I
III
2011
I
III
2012
* GDP data related to the third quarter of 2013 is an estimate.
Source: Undersecretariat of Treasury, Ministry of Finance
I
III*
0
2013
2012
III
2011
I
2010
III
2013 Q3
2007
I
2009
III
2008
30
I
20
0%
2007
0
40
2006
33
60
20%
2005
1
100
(1) Data of days to maturity pertains to October 2013.
Source: Undersecretariat of Treasury
In the repricing process of financial assets, domestic interest rates soared in response
to the increase in U.S. bond interest rate and in risk premiums of emerging markets. Interest
rates on GDDS that had decreased to historic lows on the back of sovereign rating
upgrades increased more than those of other emerging market economies during the postMay fluctuation (Chart II.10). Although the volatility in bond rates declined slightly due to the
CBRT's predictability-enhancing actions and the recovery in global risk appetite, it remained
above pre-May levels (Chart II.11).
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Financial Stability Report | November 2013
Türkiye Cumhuriyet Merkez Bankası
Chart II.10
Chart II.11
Change in Market Rates of Selected Countries with a 5-Year- Volatility of Interest Rates on U.S. and Turkish Treasury Bonds
Maturity
with a 10-Year-Maturity1
(Percentage Point)
2009 December-2013 April
2013 May-2013 October
US
Turkey (Right Axis)
120
4
0.8
110
2
Bernanke's
Remarks
100
0
FED's
September 0.7
Meeting
0.6
90
0.5
-4
80
0.4
-6
70
0.3
-8
60
-10
50
Turkey
Brazil
Indonesia
India
China
Colombia
Philippines
Thailand
Poland
S. Africa
Mexico
S. Korea
Malesia
Peru
Chile
Czech Rep.
Israel
Hungary
Romania
-2
0.2
Governor
Başçı's
Remarks
0.1
11/13
10/13
10/13
09/13
08/13
07/13
07/13
06/13
05/13
05/13
04/13
03/13
03/13
02/13
01/13
0
01/13
40
(1) The Move Index has been used for the volatility of US Treasury bond with a 10year-maturity. A 22-day standard deviation has been calculated for the yields on
Turkish Treasury bond with a 10-year-maturity.
Source: Bloomberg
Source: Bloomberg
In the bond market, transaction volumes, particularly of bond with a two-yearmaturity, declined significantly during the period of intensive sales by foreign investors,
hence bond rates drastically moved. Although transaction volumes recovered slightly after
July, the bond market could not gain the depth it used to have before the fluctuation
(Chart II.12). On the other hand, the GDDS yield curve that flattened out after the
fluctuation has returned to normal levels in the recent period (Chart II.13).
Chart II.12
Chart II.13
Transaction Volume of Bonds with a Maturity of 2 - 10 Years
GDDS Yield Curve1
(Million TL)
(%)
2-Year
10-Year
May.21
July 30
October 31
1,000
10
900
9
800
Yield (Percent)
700
600
500
400
8
7
6
300
5
200
100
4
0.5
Source: Bloomberg
Financial Stability Report | November 2013
09/13
10/13
04/13
05/13
06/13
07/13
08/13
12/12
01/13
02/13
03/13
08/12
09/12
10/12
11/12
06/12
06/12
07/12
0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Maturity (Year)
(1) Calculated from the compounded returns on bonds quoted in BIST Bonds and
Bills Market by using Extended Nelson-Siegel (ENS) method.
Source: BIST, CBRT
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