Latest Macroeconomic Developments Turkey · bank reserves which had increased by USD 9.9 bln in...

Latest Macroeconomic Developments

Turkey

February 26, 2015

Economic Research

“This report, prepared by T. Garanti Bankası A.Ş. from sources which we believe to be reliable and trustworthy is provided for information purposes only. Although the comments and assumptions

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Table of Contents

Macro Comment: What Were The Key External Financing Sources in 2014? 1

Inflation: Food and Energy Inflation: Two Main Determinants of CPI Trend 2

FX & Interest Rates: Rates Headed North Despite CBT’s Rate Cut 3

Growth: Preliminary Indicators Signal Ongoing Weak IP Performance 4

Sectorial Details: Sectorial Performances Continue to be Weak in Q1of 2015 5

Labor: Youth Unemployment Rate Continues its Accelerating Trend 6

Public Finance: Deceleration in Tax Revenues in January’15 is Negative 7

Debt: As of 2014, Banks’ Share in Long-term External Debt Stock Continued its Increasing Trend 8

Foreign Trade: External Rebalancing May Have Come to an End in Q4 of 2014 9

Balance of Payments: Net Foreign Direct Investment At Its Lowest Level Since 2004 10

CBT Balance Sheet: From «Tight» to «Cautious» Monetary Policy 11

Banking: Modest Outlook in Credit Growth 12

Emerging Markets: Turkish Stock Exchange Negatively Differentiated 13

Charts of the Month 14

Macroeconomic Indicators 15-18

Rating 19

Macro Comment

1

What Were The Key External Financing Sources in 2014?

The rebalancing process of Turkey was fast in 2014 due to

contained domestic demand and high external demand

contribution to GDP growth. Even though there was a

deterioration in the last quarter of 2014, the main driver of growth

was the external demand in the first three quarters of the year,

leading a significant fall in current account deficit. Current

account deficit declined by USD 18.8 bln, more than 2 percent of

GDP in 2014. With respect to our GDP estimate for the whole year,

current account to GDP ratio fell to 5.7% in 2014 from 7.9%, the

year before, the lowest level since 2009.

In line with the fall in current account deficit, external financing

need also declined. Looking at the external financing sources;

there is a decline in the inflows of all main financing

subcategories. In addition to the decline in capital inflows, central

bank reserves which had increased by USD 9.9 bln in 2013,

declined by USD 0.5 bln in 2014. The undefined sources of

financing was only slightly lower than the previous year, falling to

USD 2.2 bln from USD 2.8 bln.

Despite the financial volatility during the year, the highest capital

inflows have been registered as portfolio flows in 2014 as in 2013.

Net portfolio inflows were USD 20 bln in 2014, only USD 4 bln lower

than the year before. In 2014, equity and TL denominated bond

purchases were low, while Eurobond (sovereign, bank and real

sector) purchases were strong.

On the financing side of the current account deficit, there was a

remarkable deterioration in net FDI level. In 2014 net FDI was USD

5.5 bln, the lowest level since 2004. Even though there was a

decline in gross FDI inflows, it was not the only reason of poor net

FDI performance. The main reason was the FDI outflows due to

M&A activities of Turkish companies abroad, reaching USD 7 bln,

the record level.

The deposits, which was one of the main financing sources of

current account deficit in 2013 increasing by USD 13.2 bln has

almost remained constant in 2014. Net change in deposits

(the change in deposits of foreigners in banks and the

central bank, the change in deposits of Turkish residents

abroad) was only USD 1. 2 bln in 2014.

Other than above mentioned sources, one important source

of external financing is borrowing. On net basis, total

borrowing excluding commercial loans in 2014 was USD 6 bln

lower than the year before at USD 15.2 bln (banks USD 10.5

bln and real sector USD 5.8 bln).

Even though there was a deceleration in the pace of the

private sector external debt growth in 2014, total private

sector external debt continued to grow. As a % of GDP, the

ratio rose by 2.8 points to 35.4% in 2004. The financial sector

borrowing almost made up all of the rise, increasing by 2.4

points to 20.5%, while real sector external debt to GDP ratio

grew only slightly by 0.4 points to 14.9%.

In 2014, the financial sector was able to expand its borrowing

terms mainly in longer maturities, leading long term external

debt of the sector exceeding its short term external debt. This

has been also valid for the maturity of the real sector external

debt. Real sector short term external debt declined, while

long term external debt remained constant in 2014.

To sum up, portfolio flows remained to be the most important

financing source of the current account deficit as well as the

borrowing. In addition, recent developments on the external

debt front indicated a relative improvement in debt

sustainability compared to the year before.

Inflation- Food and Energy Inflation: Two Main Determinants of CPI Trend

Source: TURKSTAT, Garanti Bank calculations Source: CBT Source: TURKSTAT, Garanti Bank calculations

Graph 1: Inflation (YoY)

Source: TURKSTAT

Graph 4: Services Inflation (YoY)

Graph 2: Inflation (YoY)

Source: TURKSTAT, Garanti Bank calculations

While consumer prices rose by 1.10% (MoM), annual CPI decelerated from 8.17% in December to 7.24% in January. Annual domestic producer price inflation, on the other hand, decelerated from 6.36% to 3.28% (the lowest level since May’13) in the same period.

In January, annual food inflation decelerated to its lowest level in the last 10 months. However, severe weather conditions in February may limit the decelerating trend in food prices.

The highest contribution to monthly CPI in January was from food with 0.85 points. The highest decreasing impact came from clothing and textile (0.52pp).

Graph 6: Inflation Expectations (%)

2

Graph 5: January CPI Contributors

According to CBT’s expectation survey of February 2015, year-end CPI expectation decelerated to 6.77%. The CPI inflation expectations for the next 12 months-end decelerated to 6.69% and 24 months–end slightly accelerated to 6.42%.

The decrease in oil prices in January by 54% (YoY) on average is the main reason behind the negative energy inflation by 1.0%

Source: TURKSTAT, Bloomberg

Graph 3: Oil Price (USD) and Energy Inflation (YoY)

As food inflation decelerated, contribution from restaurants and hotels to services inflation also lost its momentum and rest&hotels annual inflation decelerated to its 7-month low .

7.2%

3.3%

0%

4%

8%

12%

16%

CPI

D-PPI

11.1%

8.7%

7.2%

4%

6%

8%

10%

12%

14%

16%Food Inflation Core Inflation Headline Inflation

-1.0%

-2%

0%

2%

4%

6%

8%

10%

12%

40

50

60

70

80

90

100

110

120

Brent Oil Price (USD)-left

Energy Inflation (YoY)

-8%

-4%

0%

4%

8%

12%

16%

01.1

1

07.1

1

01.1

2

07.1

2

01.1

3

07.1

3

01.1

4

07.1

4

01.1

5

Other Services Rent

Rest&hotels Transportation

Communication

0.85%0.20%

0.18%

0.16%

0.12%

-0.09%

-0.52%

-0.6

0%

-0.4

0%

-0.2

0%

0.0

0%

0.2

0%

0.4

0%

0.6

0%

0.8

0%

1.0

0%

Food

Beverage &tob.

Housing

Household equip.

Misc.

Transportation

Clothing&text.

6.69

6.42

5

5.5

6

6.5

7

7.5

8

8.5

9

9.5

02.0

8

08.0

8

02.0

9

08.0

9

02.1

0

08.1

0

02.1

1

08.1

1

02.1

2

08.1

2

02.1

3

08.1

3

02.1

4

08.1

4

02.1

5

12-month ahead 24-month ahead

3

FX & Int. Rates- Rates Headed North Despite CBT’s Rate Cut

Source: Bloomberg, Garanti Bank calculations Source: Bloomberg

Graph 8: Nominal FX Rates

Source: CBT

Graph 9: EM Currencies (01.01.2013=100)

Source: CBT Source: Bloomberg, Garanti Bank calculations

Dominated by local factors, TL slumped against the dollar (6% MoM as of Feb 25th). TL’s weakening against the euro-dollar basket was also 6% in the same period.

EM currencies continued to weaken against the globally strengthening dollar. Accordingly, EMFX index consisting of 10 most liquid EM currencies fell by 2% MoM against USD as of February 25th.

Graph 12: 5Y Treasury – CBT Policy Rate Spread

In February, despite the CBT’s rate cuts, Treasury TRY yield curve shifted up by some 100bps MoM across the curve as of Feb 25th reflecting the currency volatility.

Graph 10: USD-TL and US Bond Market Volatility

US Bond market volatility is on the rise as the Fed gets closer to its first rate hike. TL volatility calmed down somewhat after soaring at the start of February.

Graph 7: CPI Based Real Exchange Rates (2003=100)

In real terms, TL appreciated against advanced currencies by 3.7% and by 2.2% against emerging currencies, in January. Accordingly, TL’s appreciation against basket was 3.3% pushing the index up to 116.9.

Graph 11: Yield Curve

The spread between the 5Y Treasury yield and the CBT’s policy rate jumped to 50bps from negative 90bps, questioning the consistency of the CBT’s tightness argument referring to the slope of the yield curve.

Source: Bloomberg, Garanti Bank calculations

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

December-14 January-15

February-15

70

80

90

100

110

120

130

140

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

BasketEmerging MarketsAdvanced EconomiesPoly. (Basket)

1.500

1.700

1.900

2.100

2.300

2.500

2.700

2.900

3.100

3.300 USDTLEURTLBasket (0.5$+0.5€)

70

75

80

85

90

95

100

105

01.1

3

04.1

3

07.1

3

10.1

3

01.1

4

04.1

4

07.1

4

10.1

4

01.1

5

Turkey EMFX

5

9

13

17

20

40

60

80US Bond Market Uncertainity (2y)

TL Implied Volatility (1M)

4

Source: CBT Source: Markit Economics, Garanti Bank calculations

Manufacturing PMI in February fell below 50 (critical value to signal improvement) for the first time since July 2014. It was also below its long term trend in January.

Capacity utilization rate has also confirmed weak IP trend in the first 2 months of 2015. In this period, capacity utilization rate fell by 0.2 points compared to the same period last year.

Growth- Preliminary Indicators Signal Ongoing Weak IP Performance

Source: TURKSTAT

Graph 15: Main Subsectors in IP (YoY)

When calendar adjusted, all of the main subgroups slowed down in the last quarter compared to the previous one. The highest deceleration was observed in capital goods and energy goods production.

Source: TURKSTAT

Graph 13: Industrial Production (YoY)

Graph 16: IP and Exports (3 MA, YoY)

Graph 14: Industrial Production (QoQ)

Source: TURKSTAT

Source: TURKSTAT

The recent worsening in exports performance is one of the reasons behind the deterioration in IP performance.

Seasonal and calendar adjusted data also confirmed this trend. Despite the monthly rise of 1.2% in December, industrial production contracted by 0.5% in the last quarter compared to the previous quarter.

Graph 17: Manufacturing PMI (SA) Graph 18: Capacity Utilization Rate (%)

In the last quarter of 2014, the annual growth rate of industrial production slowed down from 3.7% in the third quarter to 2.5%, confirming ongoing weak economic activity. IP growth in 2014 slightly accelerated from 3.0% in 2013 to 3.6%.

-25%

-19%

-13%

-7%

-1%

5%

11%

17%

2008Q

1

2008Q

4

2009Q

3

2010Q

2

2011Q

1

2011Q

4

2012Q

3

2013Q

2

2014Q

1

2014Q

4-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2008Q

1

2008Q

4

2009Q

3

2010Q

2

2011Q

1

2011Q

4

2012Q

3

2013Q

2

2014Q

1

2014Q

4

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010Q

1

2010Q

4

2011Q

3

2012Q

2

2013Q

1

2013Q

4

2014Q

3

Intermediary goods

Consumption goods

Energy

Capital goods

30

35

40

45

50

55

60

01.0

6

01.0

7

01.0

8

01.0

9

01.1

0

01.1

1

01.1

2

01.1

3

01.1

4

01.1

5

Turkey PMI

PMI trend

66

68

70

72

74

76

78

02.1

0

08.1

0

02.1

1

08.1

1

02.1

2

08.1

2

02.1

3

08.1

3

02.1

4

08.1

4

02.1

5

Capacity utilization rate

Capacity utilization rate (adjusted)

0%

1%

2%

3%

4%

5%

6%

7%

-10%

-5%

0%

5%

10%

15%

20%

01.1

2

07.1

2

01.1

3

07.1

3

01.1

4

07.1

4

01.1

5

Exports

IP (right)

Sectorial Details- Sectorial Performances Continue to be Weak in Q1of 2015

Graph 19: Automobile and Commercial Vehicle Domestic Sales (YoY)

The significant recovery in automotive domestic sales in December 2014, turned into deceleration again in January 2015 despite the low base effect of last year.

5

Source: AMA Source: TURKSTAT

Source: TURKSTAT

In spite of the deceleration in automotive domestic sales, strong external demand pushed automotive production upward remarkably in January.

Graph 21: Construction and Occupancy Permits (YoY)

In January-February period, services and construction sectors sentiment improved while sentiment deteriorated in retail trade sector compared to the last quarter of 2014.

Source: TURKSTAT

The recovery in the production of non-metallic minerals in the last quarter of 2014 signaled that the construction sector growth rate may start to recover as well but the annual decline in house sales in January 2015 has showed that the sector’s performance is still weak.

Source:TEIAS, TURKSTAT

Graph 22: Construction GDP (YoY) Graph 23: Sectorial Confidence Indices (SA)

Even though construction permits significantly accelerated in 2014, occupancy permits decelerated remarkably in the same period, confirming the slow-down in construction sector in 2014.

Graph 24: Electricity Production and IP (3M avg, YoY)

Source: AMA

The limited increase in electricity production in January signaled that weak performance in IP may continue in the first quarter as well.

Graph 20: Automotive Production and Exports (YoY)

-40%

-15%

10%

35%

60%

85%

110%

135%

Automobile

Commercial Vehicle

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Production

Exports

8%

21%

16%

37%

30%

6%

37%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2013 2 014 2013 2 014

Number of dwelling unit Value (TL)

construction permits

occupancy permits

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

12-0

7

12-0

8

12-0

9

12-1

0

12-1

1

12-1

2

12-1

3

12-1

4

Production of Non-MetallicMineralsConstruction GDP 75

80

85

90

95

90

95

100

105

110

02.1

3

05.1

3

08.1

3

11.1

3

02.1

4

05.1

4

08.1

4

11.1

4

02.1

5

Service Retail trade (right) Construction -10%

-5%

0%

5%

10%

15%

20%

01.1

0

07.1

0

01.1

1

07.1

1

01.1

2

07.1

2

01.1

3

07.1

3

01.1

4

07.1

4

01.1

5

Industrial Production

Electricity Production

Labor – Youth Unemployment Rate Continues its Accelerating Trend

Graph 25: Unemployment Rate

Source: TURKSTAT

Graph 28: Labor Force Participation Rate (S.A)

Source: TURKSTAT

Graph 27: Number of Unemployed People (000)

Source: TURKSTAT

Unemployment rate accelerated from 9.3% in Nov’13 to 10.7% in Nov’14. Seasonally adjusted unemployment rate also increased to 10.7%, the highest level since Oct’10 .

Youth unemployment rate accelerated significantly to almost 20% in November from 18% in the same period of last year. It is the highest level since March’10.

Source: TURKSTAT

Graph 29: Change in Employment (000, S.A, YTD)

Albeit slowly, seasonally adjusted labor force participation rate continues its increasing trend. It reached 51% in November after 50.9% in October.

6

Source: TURKSTAT

Seasonally adjusted number of employed people in agriculture, construction and services sectors increased, while number of employed people in industrial sector decreased remarkably by 80 thousand people in November compared to October.

Source: TURKSTAT

Graph 30: Youth Unemployment Rate (S.A.)

Graph 26: Non-Agricultural Unemployment Rate

With 3.1 million people, number of unemployed people increased to the highest level since August 2009.

Seasonally adjusted non-agricultural unemployment rate increased slightly to 12.8% in Nov’14 from 12.7% in Oct’14.

8%

10%

12%

14%

16%

18%

11/0

7

05/0

8

11/0

8

05/0

9

11/0

9

05/1

0

11/1

0

05/1

1

11/1

1

05/1

2

11/1

2

05/1

3

11/1

3

05/1

4

11/1

4

Non-agriculture S.A. Total S.A.

2000

2200

2400

2600

2800

3000

3200

3400

03/0

8

11/0

8

07/0

9

03/1

0

11/1

0

07/1

1

03/1

2

11/1

2

07/1

3

03/1

4

11/1

4

10.7%

10.7%

7%

8%

9%

10%

11%

12%

13%

14%

15%

11/0

8

05/0

9

11/0

9

05/1

0

11/1

0

05/1

1

11/1

1

05/1

2

11/1

2

05/1

3

11/1

3

05/1

4

11/1

4

Unemployment rate S.A

Unemployment rate

312

14251

702

-50

150

350

550

750

13%

15%

17%

19%

21%

23%

25%

27%

8%

9%

10%

11%

12%

13%

14%

15%Unemployment rate S.A

Youth people unemploymentrate (S.A)-right

44%

45%

46%

47%

48%

49%

50%

51%

52%0%

2%

4%

6%

8%

10%

12%

14%

11/1

0

05/1

1

11/1

1

05/1

2

11/1

2

05/1

3

11/1

3

05/1

4

11/1

4

Unemployment rate

Non-agricultural unemployment rate

LFPR - right, inverse

Public Finance- Deceleration in Tax Revenues in January’15 is Negative

Source: Ministry of Finance, Garanti Bank calculations Source: Ministry of Finance Source: Ministry of Finance, Garanti Bank calculations

Graph 31: Budget Balance (Share of GDP)

Source: MTP, Ministry of Finance

Graph 34: Tax Revenues (12 month cum.,YoY)

Source: MTP, Ministry of Finance

Graph 35: Non-interest Exp. (12 month cum., YoY )

In January, central government budget surplus came in at TL 3.8bn. Meanwhile, primary surplus recorded as TL 8.8bn. In order to reach the government’s budget targets for 2015 (MTP), tax revenues will be vital.

In January, the annual rise in tax revenues decelerated from 15% in December to 7%.

Re-acceleration in goods and services procurements in January pointed out a positive contribution to GDP growth from government consumption expenditures. However, investment expenditures are still decreasing as of January.

As total revenues increased by 5.8% (YoY), the annual increase in total expenditures remained relatively slight (0.9%) in January.

Non-interest expenditures to tax revenues ratio slightly decelerated to 112.5% in January – a positive sign for the budget performance.

Although government is planning to curb expenditures in 2015, general election to be held in mid-2015 raises a question mark on the targets for the expenditure side.

Graph 33: Revenues and Expenditures (12-month cum.)

Graph 36: Non-interest Exp./Tax Rev. (12 month cum.)

7

Graph 32: Revenues and Expenditures (Share of GDP)

Source: Ministry of Finance, Garanti Bank calculations

-5%

0%

5%

10%

15%

20%

25%

30%

01-1

2

05-1

2

09-1

2

01-1

3

05-1

3

09-1

3

01-1

4

05-1

4

09-1

4

01-1

5

Total Tax Revenue Income Tax

VAT SCT

-5%

0%

5%

10%

15%

20%

25%

30%

35%

01.1

2

05.1

2

09.1

2

01.1

3

05.1

3

09.1

3

01.1

4

05.1

4

09.1

4

01.1

5

Personnel PaymentsGoods&Servs Proc.Current TransfersInvestment Expenditures

112.5%

105%

110%

115%

120%

01-1

1

07-1

1

01-1

2

07-1

2

01-1

3

07-1

3

01-1

4

07-1

4

01-1

5

250

275

300

325

350

375

400

425

450

04-1

1

08-1

1

12-1

1

04-1

2

08-1

2

12-1

2

04-1

3

08-1

3

12-1

3

04-1

4

08-1

4

12-1

4

(bn TL)

Expenditures

Revenues

4.0%

-1.8%

1.6%

-1.3%

1.7%

-1.1%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Primary Balance Budget Balance

2008

2014

2015MTP 18%

4%

18%

5%

20%

4%

23%

3%

20%

3%

22%

3%

0%

5%

10%

15%

20%

25%

Tax Revenues Non-TaxRevenues

Non-InterestExpenditures

InterestExpenditures

2008

2014

2015MTP

Debt– As of 2014, Banks’ Share in Long-term External Debt Stock Continued its Increasing Trend

Source: Treasury Source: CBT Source: Treasury

Source: Treasury Source: Treasury Source: Treasury

At the beginning of 2016, the domestic debt stock redemption will reach TL 15.8bn which is the highest amount within the next 11 months from now.

The share of bank’s long term external debt stock (LTEDS) in the total LTEDS increased from 35.1% in 2013 to 39.5% at the end of 2014 .

Between the beginning of 2013 and 2014, the share of fixed rated domestic debt stock has risen almost 400 basis points, whereas the increase in fixed rate external debt stock was slightly below 300 basis points in the same period.

The share of the Eurobond issuance in banks’ long term external debt stock reached 32.5% as of December’14 which is higher than the level observed in Q3’14.

Compared to the end of 2014, the average maturity of domestic debt stock remained almost constant while the average maturity of external debt stock increased in the same period.

Graph 37: Redemption Projections of Central Government Debt Stock

Graph 39: Central Government Eurobond Issuance

Graph 40: Shares in Debt Stock Graph 42: Eurobond Issuance of Private Sector Graph 41: Sectors’ Share in Long-term External Debt

Graph 38: Average Maturity in Debt Stock (year)

8

In 2014 the Central Government of Turkey issued eurobonds accounted USD 7.3bn – the highest level from 2000 and onwards.

32.5%

5.9%

0%

5%

10%

15%

20%

25%

30%

35%

Banks eurobond share in its LT

external debt

Real sector eurobond share inits LT external debt

10.5%

39.5%

76.5%

50.3%

13.0%

10.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Banks

Real Sector

Financial Sector except for banks

3.94.6 4.6

9.3 9.5 9.8

6.3

0

2

4

6

8

10DomesticExternalTotal

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0 Domestic (TL bln)

External (USD bln)-right6.7

4.2

7.1

6.1

7.3

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014

USD bln

52%

23% 24%

81%

19%

56%

19%25%

84%

16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fixed Floating CPI Linked Fixed Floating

Jan'13

Jan'14

ExternalDomestic

Foreign Trade- External Rebalancing May Have Come to an End in Q4 of 2014

Source: TURKSTAT

Graph 43: Exports and Imports (3M avg., YoY)

Source: TURKSTAT

Graph 45: Real Foreign Trade Figures (3MA, YoY)

Source: TURKSTAT Source: TURKSTAT, Bloomberg, GarantiBank calculations

9

Source: TURKSTAT

The decline in Eur/$ parity and the sharp fall in import prices in Q4 of 2014 led the contraction in exports prices to accelerate further. Exports and imports prices fell by 3% and 7%, respectively in Q4 of 2014.

Graph 46: Exports and Imports Price (YoY)

Source: TURKSTAT, GarantiBank calculations

The sharp annual fall in Eur/$ parity may continue to lower exports in nominal terms in the following period since nearly half of our exports are registered in Euro. We calculate a decline in exports by USD 1.2bn in 2014 stemming from the decline in parity.

Geopolitical risks and EU’s growth performance continue to weigh on Turkey’s exports. Exports to Iraq and Russia decreased by 16% and 22% (YoY), respectively, in Q4 of 2014 while exports to EU28 was almost steady in the same period.

Graph 48: Exports to Iraq&Russia&EU (3M avg.,YoY)

In Q4 of 2014, exports and imports contracted by 0.3% and 2.5%, respectively, on annual basis. The preliminary figures from Ministry of Customs and Trade indicated that the annual contraction in both of them will accelerate in January.

Turkey’s energy imports fell by USD 1.2bn to USD 55.9bn at the end of 2014 on annual basis. Due to the lag effects, Turkey’s energy imports is likely to decline more rapidly in the following period. We calculate a decline of USD 12bn in energy imports with an estimate of 69$ oil price on average in 2015.

Graph 44: Oil Prices & Energy Imports

In Q4 of 2014, real exports and real imports grew by 3.4% and 4.6%, respectively. This showed that rebalancing in the economy may have come to an end toward the end of last year. We estimate a limited negative contribution from external demand in Q4 of 2014.

Graph 47: Exports Price and Parity (YoY)

-2.6%

-6.1%-10%

0%

10%

20%

30%

40%

50%

01-1

1

07-1

1

01-1

2

07-1

2

01-1

3

07-1

3

01-1

4

07-1

4

01-1

5

Exports

Imports

55.9

82.980

85

90

95

100

105

110

115

55

56

57

58

59

60

61

62USD bln Energy Imports (12 M cumulative)

Oil Prices (9 M average)-right

-10%

-5%

0%

5%

10%

15%

20%

25%

12.1

1

03.1

2

06.1

2

09.1

2

12.1

2

03.1

3

06.1

3

09.1

3

12.1

3

03.1

4

06.1

4

09.1

4

12.1

4

Real Exports

Real Imports

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%Exports Price

Imports Price

-18%

-12%

-6%

0%

6%

12%

18% Exports Price

Eur/$ Parity

-16.4%

-21.9%

-0.2%

-35%

-25%

-15%

-5%

5%

15%

25%

Iraq

Russia

EU-28

Balance of Payments- Net Foreign Direct Investment At Its Lowest Level Since 2004

Graph 49: 12M Cumulative Current Account Bal. (USD bn)

Source: CBT

Graph 51: Non Energy&Gold Accounts (12-month Cumulative, USD bn)

12M cumulative current account balance excluding net energy and gold increased from USD 7.8bn in November to USD 8.0bn in December.

10

Source: CBT, Garanti Bank Calculations

Graph 52: Net Energy Bill (12-month Cumulative, USD bn)

Graph 50: Breakdown of Current Account Balance (12M Cumulative, USD bn)


12M cumulative trade deficit was USD 63.6bn in December, while services balance gave a surplus of USD 25.4bn.

Including the USD 6.8bn monthly deficit in December, 12M current account deficit decreased to USD 45.8bn , from USD 47.4bn in November. Hence, deficit was parallel to Government’s USD 46.0bn forecast.

Turkey’s net energy bill, which had started to decline in September 2014 thanks to fall in oil prices, decreased in December as well and came in at USD 49.9bn; the lowest level since December 2011.


Table 1: External Financing (12-month, USD mn)

Net foreign direct investments, which were USD 8.8bn in 2013, were the lowest level recorded since 2004 in 2014 (USD 5.5bn).


-80

-75

-70

-65

-60

-55

-50

-45

-40

-35

-30

12/1

0

04/1

1

08/1

1

12/1

1

04/1

2

08/1

2

12/1

2

04/1

3

08/1

3

12/1

3

04/1

4

08/1

4

12/1

4

15

17

19

21

23

25

-95

-70

-45

-20

5

CABTrade Bal.Income Bal.&Curr.Transf.Service Bal.-right

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

-70

-60

-50

-40

-30

-20

-10

0

10

12/1

2

04/1

3

08/1

3

12/1

3

04/1

4

08/1

4

12/1

4

CABCAB Exc. Net Energy - rightCAB Exc. Net Energy&Gold - right

0

10

20

30

40

50

60

70

80

12/0

8

08/0

9

04/1

0

12/1

0

08/1

1

04/1

2

12/1

2

08/1

3

04/1

4

12/1

4

Current Account Deficit

Net Energy Bill

2013 2014 Change

Current Account Balance -64,658 -45,836 -29.1%

Capital and Financial Account -61,958 -43,658 -29.5%

Direct Investment -8,830 -5,483 -37.9%

Abroad 3,627 7,047 94.3%

In Turkey -12,457 -12,530 0.6%

Real Estate (Net) 3,049 4,321 41.7%

Portfolio Investment -23,986 -19,987 -16.7%

Assets -2,601 706 -127.1%

Liabilities 21,385 20,693 -3.2%

Equity Securities 842 2,559 203.9%

Bond 20,543 18,134 -11.7%

Eurobond 4,621 4,202 -9.1%

Banks 8,054 10,196 26.6%

Other Investment -39,053 -17,720 -54.6%

Assets -4,548 -267 -94.1%

Currency and Deposits -13,181 -1,235 -90.6%

Liabilities 8,633 968 -88.8%

Banks 21,636 12,160 -43.8%

Long Term 8,749 8,320 -4.9%

Short Term 12,887 3,840 -70.2%

Other Sectors 1,099 5,795 427.3%

Long Term -137 5,410 -4048.9%

Short Term 1,236 385 -68.9%

Currency and Deposits 8,633 968 -88.8%

Banks 7,226 169 -97.7%

Reserve Assets 9,911 -468 -104.7%

End of Year, 12M

CBT Balance Sheet- From «Tight» to «Cautious» Monetary Policy

Source: Bloomberg Source: CBT Source: CBT

Source: CBT, BIST Source: Bloomberg

Graph 56: FX Implied vs CBT Funding Rates

11

Graph 53: Interest Rates (10-day average)

Despite the rate cut, the CBT continued to squeeze the cheap liquidity in the face of TL depreciation. The CBT forces the banks to borrow some part of the liquidity from the marginal borrowing rate (10.75%) to increase O/N rates to tame currency volatility.

FX forwards had not priced in a rate cut from the CBT as 3M implied rates hovered around 9.5% as of Feb 25th, shedding some light on excess currency volatility.

The CBT cut one-week repo rate from 7.75% to 7.5%; overnight lending rate (marginal funding rate) from 11.25% to 10.75%; overnight borrowing rate from 7.5% to 7.25% in its February meeting.

Although CDS premiums stayed muted, TRY yields on Treasuries rose sharply pricing the volatility on the currency front. Yield curve shifted up by some 100bps MoM as of Feb 25th despite the CBT’s measured rate cuts.

Graph 54: CBT Funding Volumes (TL Mn)

Graph 57: Contribution from Export Credits to CBT Reserves (USD bn)

Source: CBT, BIST

As of Feb 25th, total reserves of the CBT was USD 133.5bn, USD 39.5bn of which is net of its FX liabilities.

Export credits continue to support CBT’s reserves, where contribution realized at USD2bn in January after amounting to USD 13bn in 2014.

Graph 58: International Reserves (USD bn)

Graph 55: 5Y CDS and Benchmark Bond Yield

1.0 1.11.9

8.3

12.7 13.0

2.0

0

2

4

6

8

10

12

14

0

10,000

20,000

30,000

40,000

50,000

60,000

09/1

3

11/1

3

01/1

4

03/1

4

05/1

4

07/1

4

09/1

4

11/1

4

01/1

5

One-week repo O/N Lending (PD)O/N Lending One-Month Repo

100

125

150

175

200

225

250

275

300

5%

6%

7%

8%

9%

10%

11%

12%

07/1

3

09/1

3

11/1

3

01/1

4

03/1

4

05/1

4

07/1

4

09/1

4

11/1

4

01/1

5

2-year Benchmark Yield

5-year CDS (10-day avg.-right)

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

FX Implied Rate (3M)

CBT Funding Rate

30

32

34

36

38

40

42

44

46

60

70

80

90

100

110

120

130

140

150

01/1

3

04/1

3

07/1

3

10/1

3

01/1

4

04/1

4

07/1

4

10/1

4

01/1

5

Gold FX Reserves

Net Reserves-right

7.9%

10.8%

3%

5%

7%

9%

11%

13%

15%

08/1

2

12/1

2

04/1

3

08/1

3

12/1

3

04/1

4

08/1

4

12/1

4

CBT Avg. Funding Rate

BIST Interbank Repo Rate

Banking- Modest Outlook in Credit Growth

Source: BRSA, Garanti Bank calculations

Graph 61: Consumer and Commercial Loans (Annualized, 13 Week Average)

As of 13th of February, 13-week average annualized loan growth rate follows almost the same growth trend in the same week of 2014. However, it is below the realization in the same week of the historical average between 2007 and 2013.

Source: CBT, BRSA, Garanti Bank calculations

Graph 60:Total Loans (FX Adjusted, Annualized, 13 Week Average)

Source: BRSA

Source: BRSA *FX Deposits are calculated in USD currency.

Graph 62: Consumer Loans (Annualized, 13 Week Average)

The improving trend in auto loans seen at the beginning of the year worsened again in February with an accelerating contraction.

12

Graph 59: Total Loans Growth Rate (YoY)

Compared to 2014 year-end, both non-adjusted and FX-adjusted annual loan growth accelerated by almost 1pp as of 13th of February.

Source: CBT, BRSA, Garanti Bank calculations Source: CBT, BRSA, Garanti Bank calculations

Graph 63: Deposits Growth Rate (YoY)

While FX deposits are contracting, there is an acceleration in the growth rate of TRY deposits since the end of January’15 as of the second week of February’15.

Compared to 2014 year-end realization, 13-week average annualized commercial loan growth rate decelerated whereas consumer loan growth rate continues its accelerating trend, albeit slowly as of 13th of February.

Graph 64: Personal Credit Cards (Annualized, 13 Week Average)

As of 13th of February, the contraction in credit cards observed since February’14 turned into a positive growth rate at 1%.

18.6%

16.6%10%

15%

20%

25%

30%

35%

40%

45%

02.1

1

06.1

1

10.1

1

02.1

2

06.1

2

10.1

2

02.1

3

06.1

3

10.1

3

02.1

4

06.1

4

10.1

4

02.1

5

Non-Adjusted

FX Adjusted

%20.5

%17.4

0%

5%

10%

15%

20%

25%

30%

35%

40%

02.1

3

04.1

3

06.1

3

08.1

3

10.1

3

12.1

3

02.1

4

04.1

4

06.1

4

08.1

4

10.1

4

12.1

4

02.1

5

Commercial Loans (FX adjusted)

Consumer Loans

17.7%

-10.5%

18.6%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

02.1

2

06.1

2

10.1

2

02.1

3

06.1

3

10.1

3

02.1

4

06.1

4

10.1

4

02.1

5

Housing Automobile Other

18.1%

0%

5%

10%

15%

20%

25%

30%

35%

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Total Loans Compared, FX Adjusted

Total Loans (2007-2013)

Total Loans 2014

Total Loans 2015 Week

15.2%

-3.4%

12.8%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

02.1

3

05.1

3

08.1

3

11.1

3

02.1

4

05.1

4

08.1

4

11.1

4

02.1

5

TRY

FX

Total

1%

-30%

-20%

-10%

0%

10%

20%

30%

40%

02.1

3

06.1

3

10.1

3

02.1

4

06.1

4

10.1

4

02.1

5

Emerging Markets- Turkish Stock Exchange Negatively Differentiated

Graph 68: EM Stock Exchange (01.01.14=100)

Source: Bloomberg, Garanti Bank Source: EPFR Source: Bloomberg, Garanti Bank

Graph 65: Average Policy Rates in EM, % Graph 66: Policy Rates & Annual Inflation, %

Source: Bloomberg, GarantiBank

Graph 67: EM Currencies Against Basket (0.5*EUR+0.5*USD) (01.01.14=100)

Source: Bloomberg, Garanti Bank

In February, Romania, Indonesia and Turkey decreased their policy rates, each by 25bps, while Russia decreased its key rate from 17% to 15%. Ukraine increased its policy rate by 550bps to 19.5% in February.

Among selected EM economies, inflation continued to be higher than policy rate in Mexico. Russia has the highest inflation rate among below selected countries, while Brazil’s policy rate well exceeds its inflation rate.

When 12M cumulative flows considered, inflows to EMs were recorded on the bond side by the third week of February.

EM currencies on average depreciated against currency basket as of February 24th (MoM). BRL in particular has depreciated by 10.3% against the basket.

MSCI indices indicate that Turkey’s large and mid-cap segments performed well compared to EMs on average in January.

As of the 24th of February, on a monthly basis, stock exchanges from below selected countries all rose except Turkey’s, which decreased by 4.5%.

Graph 69: MSCI Cumulative Indices (2000=100)

Graph 70: EM Fund Flows (12M Cumulative, USDbn, starting from 2012)

13

Source: Bloomberg, Garanti Bank *Czech Republic, South Africa, Hungary, Mexico, Poland, Romania, Russia (key rate), Ukraine, Indonesia, Colombia, China, S. Korea, Taiwan, Thailand, Malaysia, India, Peru, Brazil, Chile

0

100

200

300

400

500

600

01.0

0

02.0

1

03.0

2

04.0

3

05.0

4

06.0

5

07.0

6

08.0

7

09.0

8

10.0

9

11.1

0

12.1

1

01.1

3

02.1

4

MSCI Turkey Index

MSCI EM Index

MSCI EM&Developed Index

-150

-100

-50

0

50

100

150

01.1

2

04.1

2

07.1

2

10.1

2

01.1

3

04.1

3

07.1

3

10.1

3

01.1

4

04.1

4

07.1

4

10.1

4

01.1

5

Equity Bonds Total

90

110

130

150

170

190

210

01.1

4

02.1

4

03.1

4

04.1

4

05.1

4

06.1

4

07.1

4

08.1

4

09.1

4

10.1

4

11.1

4

12.1

4

01.1

5

02.1

5

De

pre

cia

tio

n →

TRY RUB

BRL ZAR

HUF

50

60

70

80

90

100

110

120

130

140

01.1

4

02.1

4

03.1

4

04.1

4

05.1

4

06.1

4

07.1

4

08.1

4

09.1

4

10.1

4

11.1

4

12.1

4

01.1

5

02.1

5

Turkey Russia

Brazil S. Africa

Hungary

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

01/1

0

05/1

0

09/1

0

01/1

1

05/1

1

09/1

1

01/1

2

05/1

2

09/1

2

01/1

3

05/1

3

09/1

3

01/1

4

05/1

4

09/1

4

01/1

5

EM Average

Long Term Average (2010-2015)

2.0 2.1 2.3

3.0

5.6

5.8 7.5 12.3 15.0-1.3 -1.4

0.4

3.1

0.8

4.4

7.2

7.1

15.0

-4

0

4

8

12

16

Policy Rate as ofFebruary 24th

January 2015 CPIinflation

Charts of the Month

*Czech Republic, S. Africa, Hungary, Mexico, Poland, Romania, Russia, Ukraine, Indonesia, Colombia, China, S. Korea, Taiwan, Thailand, Malaysia, India, Peru, Brazil, Bulgaria, Chile, Turkey. Source: Bloomberg

14

Source: TURKSTAT

Graph 73: Real Wages in Industry (YoY)

Graph 75: Annual Interest Rates (4 week moving avg.) Graph 76: EM Annual CPI Inflation, %*

Source: Ministry of Culture and Tourism

Source: TURKSTAT Source: TURKSTAT

Graph 71: Economic Sentiment Graph 72: Labor Productivity in Industry

The annual growth rate of production by hour worked (as an indicator of labor productivity) was almost steady in Q4 of 2014. Production by hour in industrial sector rose by 2% on average in 2014.

Real wages in industry increased by 5.3% on annual basis in Q4 of 2014. The real rise was 6.2% in the whole 2014.

As of 13th of February, interest rates slightly increased for both consumer and commercial loans compared to their 2014 year-end levels.

Annual CPI inflation in Turkey continued to remain well above EM average, although both declined in January.

Turkstat has started to release economic sentiment data regarding the whole economy initializing from 2012. In the January-February period, economic sentiment has worsened by 5% compared to the same period of last year.

Graph 74: Total Fertility and Number of Births

As of 2018, the government plans to keep fertility rate at 2.1 which is close to UN projection for the period 2010-2015. If it can be achieved, the deceleration in birth as shown below can be prevented.

Source: UN, Ministry of Development

14.9%

13.0%

13.1%

10.9%

8%

10%

12%

14%

16%

18%

02.1

3

06.1

3

10.1

3

02.1

4

06.1

4

10.1

4

02.1

5

Other Consumer AutoHousing Commercial Rate

80

85

90

95

100

105

110

115

120

02.1

2

05.1

2

08.1

2

11.1

2

02.1

3

05.1

3

08.1

3

11.1

3

02.1

4

05.1

4

08.1

4

11.1

4

02.1

5-12%

-8%

-4%

0%

4%

8%

12%

2006 Q

2

2006 Q

4

2007 Q

2

2007 Q

4

2008 Q

2

2008 Q

4

2009 Q

2

2009 Q

4

2010 Q

2

2010 Q

4

2011 Q

2

2011 Q

4

2012 Q

2

2012 Q

4

2013 Q

2

2013 Q

4

2014 Q

2

2014 Q

4

-15%

-10%

-5%

0%

5%

10%

15%

2006 Q

2

2006 Q

4

2007 Q

2

2007 Q

4

2008 Q

2

2008 Q

4

2009 Q

2

2009 Q

4

2010 Q

2

2010 Q

4

2011 Q

2

2011 Q

4

2012 Q

2

2012 Q

4

2013 Q

2

2013 Q

4

2014 Q

2

2014 Q

4

Hours worked

Production by hour

2.8

3.8

4.8

5.8

6.8

7.8

8.8

9.8

10.8

11.8

01/1

0

05/1

0

09/1

0

01/1

1

05/1

1

09/1

1

01/1

2

05/1

2

09/1

2

01/1

3

05/1

3

09/1

3

01/1

4

05/1

4

09/1

4

01/1

5

EM Average

Turkey

0

1

2

3

4

5

6

7

Total Fertility (children per woman)

Number of births (millions)

Macroeconomic Indicators – I

15

2014 Forecast

Grow th 2010 2011 2012 2013 Gov ernment 4Q 13 1Q 14 2Q 14 3Q 14

GDP (TL billion, nominal prices) 1,099 1,298 1,417 1,565 1,764 405.9 409.2 425.9 461.7

GDP (US$ billion) 731 774 786 822 810 200.5 185.0 201.3 213.7

GDP (12-month, TL billion, nominal prices) - - - - - 1,565.2 1,618.7 1,658.2 1,702.7

GDP (12-month, US$ billion) - - - - - 822.3 808.2 798.9 800.5

GDP Per C apita (US$) 9,918 10,364 10,397 10,725 10,537 - - - -

GDP Yearly Grow th Rate 9.2% 8.8% 2.1% 4.1% 3.3% 4.5% 4.8% 2.2% 1.7%

Industrial Production 2011 2012 2013 2014 Gov ernment 11.2014 12.2014 01.2015 02.2015

Industrial Production (C alendar adj, YoY) 9.9% 2.5% 3.4% 3.6% - 0.7% 2.6% - -

C apacity Utilization Rate 75.4% 73.6% 74.6% 74.4% - 74.5% 74.6% 73.7% 72.8%

Labor 2011 2012 2013 2014 Gov ernment 1Q 14 2Q 14 3Q 14 4Q 14

Real Wage Index in Industry (Per hour, 2010=100) 60.9 64.6 68.8 75.4 - 70.1 71.6 75.0 75.4

YoY C hange 8.7% 6.2% 6.4% 6.1% - 7.7% 5.9% 5.8% 5.3%

Productiv ity Index in Industry (Per hour, 2010=100) 103.6 102.3 103.1 105.0 - 101.2 105.8 105.7 107.3

YoY C hange 3.7% -1.3% 0.8% 1.9% - 3.7% 1.3% 2.4% 0.2%

2010 2011 2012 2013 Gov ernment 08.2014 09.2014 10.2014 11.2014

Unemploy ment Rate 11.1% 9.1% 8.4% 9.0% 9.6% 10.1% 10.5% 10.4% 10.7%

Inflation 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

C PI (MoM) - - - - - 1.9% 0.2% -0.4% 1.1%

C PI (YoY) 10.4% 6.2% 7.4% 8.2% 9.4% 9.0% 9.2% 8.2% 7.2%

C PI (A nnual av erage) 6.5% 8.9% 7.5% 8.9% - - - 8.9%

D-PPI (MoM) - - - - - 0.9% -1.0% -0.8% 0.3%

D-PPI (YoY) 13.3% 2.5% 7.0% 6.4% - 10.1% 8.4% 6.4% 3.3%

D-PPI (A nnual av erage) 11.1% 6.2% 4.5% 10.2% - - - 10.2%

Deflator 8.6% 6.9% 6.1% 8.9% 9.1% - - 8.9%

Realizations Latest Four Realizations

Source: TURKSTA T, Ministry of Dev elopment, C BT and GarantiBank

Macroeconomic Indicators – II

16

2014 Forecast

Interest Rates 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

Benchmark bond (End of period) 11.0% 6.2% 10.0% 8.0% - 8.5% 7.5% 8.0% 6.8%

F ixed Int. Rate Dom. Borrow ing A v erage C ost 10.3% 5.8% 9.2% 8.8% - 9.8% 8.3% 8.8% 7.8%

Dom. Borrow ing C ash Maturity (Month) 24.27 21.70 63.23 12.13 - 52.43 71.54 12.10 60.19

O /N (End of period) 5.0% 5.0% 3.5% 7.5% - 7.5% 7.5% 7.5% 7.5%

Eurobond (2030, Yield) 6.1% 4.0% 4.0% 4.7% - 4.9% 4.6% 4.7% 4.3%

Foreign C urrency 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

Basket (0.5*USD+0.5*EURO , end of period) 2.1829 2.0672 2.5354 2.5771 - 2.4845 2.4819 2.5771 2.5787

EURO /USD (end of period) 1.29 1.32 1.38 1.22 - 1.2558 1.2459 1.2150 1.1332

TL/USD (av erage) 1.6742 1.7872 1.9156 2.1884 2.18 2.2536 2.2340 2.2927 2.3326

TL/USD (end of period) 1.9065 1.7826 2.1343 2.3269 - 2.2027 2.2102 2.3269 2.4176

TL/EURO (end of period) 2.4592 2.3517 2.9365 2.8272 - 2.7662 2.7535 2.8272 2.7397

Balance of Pay ments (US$ million) 2011 2012 2013 2014 Gov ernment 09.2014 10.2014 11.2014 12.2014

Exports (f.o.b) 134,906 152,462 151,803 157,713 160,500 13,589 12,900 13,080 13,328

Imports (c.i.f) 240,839 236,544 251,661 242,225 244,000 20,596 19,184 21,387 21,834

C urrent A ccount Balance -75,082 -48,497 -64,658 -45,836 -46,000 -2,285 -2,250 -5,731 -6,816

C urrent A ccount Balance (12-month) -75,082 -48,497 -64,658 -45,836 -46,000 -46,820 -45,820 -47,369 -45,836

C urrent A ccount Balance/GDP -9.5% -5.9% -7.9% -5.7% - -5.9% -

Non-energy C .A . Balance (12-month) -25,699 -5,561 -14,056 -4,100 - 4.337 5.085 3.161 4.110

Net Tourism Rev enue 20,171 21,251 23,180 24,480 29,500 3,352 2,823 1,355 912

Foreign Direct Inv estment (Net) 13,822 9,150 9,791 5,483 - 608 540 -836 912

C apital and F inacial A ccount Balance 65,947 47,438 62,054 43,724 - 2,600 4,026 9,194 7,838

Eurobond Issues (net) 5,325 14,648 16,127 17,575 - 2,654 2,485 1,287 19

Source: Treasury , C BT, TURKSTA T, Ministry of Dev elopment, Bloomberg and GarantiBank


Macroeconomic Indicators – III

17

2014 Forecast

Total External Debt Stock 2010 2011 2012 2013 Gov ernment 4Q 13 1Q 14 2Q 14 3Q 14

Total External Debt Stock (US$ Billion) 291.9 303.9 339.0 389.5 - 389.5 388.3 402.0 396.8

Public 100.6 103.6 111.1 121.1 - 121.1 122.0 123.7 121.6

Priv ate 191.3 200.3 228.0 268.4 - 268.4 266.3 278.3 275.2

F inancial Sector 87.9 93.2 112.9 145.3 - 147.5 145.7 156.0 154.9

Real Sector 103.0 107.5 114.8 121.7 - 120.9 120.6 122.3 120.3

Short-term 71.5 73.3 88.2 112.1 - 130.5 125.8 131.8 131.9

F inancial Sector 47.6 46.5 59.4 77.1 - 77.1 74.1 78.7 78.2

Long-term 214.6 222.4 238.2 259.1 - 259.1 262.5 270.2 264.9

Total External Debt Stock/GDP 39.9% 39.3% 43.1% 47.3% - 47.4% 48.0% 50.3% 49.6%

Public/GDP 13.8% 13.4% 14.1% 14.8% - 14.7% 15.1% 15.5% 15.2%

Priv ate/GDP 26.1% 25.9% 29.0% 32.6% - 32.6% 32.9% 34.8% 34.4%

F inancial Sector/GDP 12.0% 12.0% 14.4% 17.7% - 17.9% 18.0% 19.5% 19.3%

Real Sector/GDP 14.1% 13.9% 14.6% 14.8% - 14.7% 14.9% 15.3% 15.0%

Short-term/GDP 10.6% 10.6% 12.8% 15.7% - 15.9% 15.6% 16.5% 16.5%

F inancial Sector/GDP 6.5% 6.0% 7.5% 9.1% - 9.4% 9.2% 9.9% 9.8%

Long-term/GDP 29.3% 28.7% 30.3% 31.6% - 31.5% 32.5% 33.8% 33.1%

Reserv es (US$ million) 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

Total Foreign Reserv es 88,218 120,290 132,874 126,448 - 132,287 133,440 126,448 130,527

C entral Bank Reserv es 78,330 100,320 112,002 106,314 - 112,710 113,159 106,314 109,639

C B Net FX Position 41,886 43,856 39,184 39,361 - 41,382 40,957 39,361 39,263

Monetary A ggregates (US$ billion) 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

M1 77.9 101.8 105.5 108.2 - 112.0 110.8 108.2 103.9

M2 349.1 419.2 426.0 438.0 - 447.2 446.2 438.0 420.7

M3 367.4 443.2 445.2 455.1 - 467.2 465.6 455.1 440.2

Base Money 43.9 43.4 42.7 45.9 - 45.7 43.4 45.9 42.1

O pen Market O peration (End of period) -20.5 -10.9 -18.2 -19.8 - -18.6 -19.4 -19.8 -20.3

Source: Treasury , Ministry of Dev elopment, C BT and GarantiBank


Macroeconomic Indicators – IV

18

2014 Forecast

Banking Sector (TL Billion) 2010 2011 2012 2013 Gov ernment 1Q 14 2Q 14 3Q 14 4Q 14

A ssets 1,006.7 1,217.7 1,370.7 1,732.4 - 1,797.3 1,830.2 1,929.7 1,994.2

A ssets/GDP 91.6% 93.8% 96.8% 110.9% - 111.0% 110.4% 113.3% -

Loans 525.9 682.9 794.8 1,047.4 - 1,082.9 1,123.5 1,187.3 1,240.7

Loans/GDP 47.9% 52.7% 56.1% 67.1% - 66.9% 67.8% 69.7% -

C ommercial Loans/GDP 36.1% 39.8% 42.4% 51.2% - 77.7% 79.2% 82.8% -

C onsumer Loans/GDP 11.7% 13.0% 13.7% 15.9% - 15.6% 15.7% 16.0% -

Housing 60.8 74.7 85.1 109.9 - 111.8 114.5 119.5 125.4

A uto 5.7 9.1 8.0 8.5 - 7.9 7.4 7.0 6.8

O ther 21.0 32.3 29.6 45.9 - 52.9 62.4 69.9 75.6

C redit C ards 43.6 55.5 71.6 83.8 - 79.2 76.5 75.2 74.1

Deposits 617.0 695.5 771.9 945.8 - 959.5 975.1 1,020.1 1,052.7

FX Deposits (Billion US$) 119.8 126.7 142.1 165.4 - 178.2 171.5 175.5 168.9

Deposits/GDP 56.2% 53.7% 54.5% 60.6% - 59.3% 58.8% 59.9% -

Shareholders' Equity 134.5 144.6 181.9 193.7 - 202.0 214.5 219.1 232.0

Shareholders' Equity /GDP 12.2% 11.2% 12.9% 12.4% - 12.5% 12.9% 12.9% -

C entral Gov ernment Budget (TL Billion) 2011 2012 2013 2014 Gov ernment 10.2014 11.2014 12.2014 01.2015

Rev enues 295.9 331.7 389.4 425.8 424.0 34.2 39.2 38.9 40.1

Expenditures 313.3 360.5 407.9 448.4 448.4 37.2 35.6 50.2 36.3

Interest Pay ments 42.2 48.4 50.0 49.9 50.2 7.0 3.2 1.4 5.0

Budget Balance -17.4 -28.8 -18.4 -22.7 -21.0 -3.0 3.6 -11.3 3.8

Primary Balance 24.8 19.6 31.5 27.2 33.0 4.0 6.8 -9.9 8.8

C entral Gov ernment Domestic Debt Stock 368.8 386.5 403.0 414.6 - 411.1 413.6 414.6 416.9

Interest Expenditures/GDP 3.3% 3.4% 3.2% - 2.8% - - - -

Budget Balance/GDP -1.3% -2.0% -1.2% - -1.4% - - - -

Primary Balance/GDP 1.9% 1.4% 2.0% - 1.5% - - - -

C entral Gov ernment Debt Stock 2010 2011 2012 2013 Gov ernment 4Q 13 1Q 14 2Q 14 3Q 14

C .G. Domestic Debt Stock/GDP 32.1% 28.4% 27.3% 25.8% - 26.1% 25.4% 24.9% 24.4%

C .G. External Debt Stock/GDP 11.0% 11.5% 10.3% 11.7% - 12.5% 11.8% 11.4% 11.6%

Total Public Debt Stock/GDP 45.2% 42.1% 39.8% 40.0% - 39.8% 39.3% 37.9% 37.7%

Total Public Net Debt Stock/GDP 28.9% 22.3% 17.0% 12.7% - 12.6% 12.2% 11.2% 10.4%

EU Defined Debt Stock/GDP 42.3% 39.1% 36.2% 36.3% 33.1% 36.2% 35.8% 34.4% 34.1%

Source: BRSA , C BT, TURKSTA T, Ministry of F inance, Ministry of Dev elopment, Treasury and GarantiBank


Rating

Foreign Currency Local Currency Latest Change Direction

Turkey S&P Long-Term Outlook/Watch Long-Term

17.08.2004 BB- Positive BB

29.06.2006 BB- Stable BB

03.04.2008 BB- Negative BB


14.11.2008 BB- Negative BB


19.02.2010 BB Positive BB+

20.09.2011 BB Positive BBB-

01.05.2012 BB Stable BBB-

27.03.2013 BB+ Stable BBB

07.02.2014 BB+ Negative BBB ↓

Turkey Moody's F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction

11.02.2005 B1 Positive B1

15.12.2005 Ba3 Stable Ba3

18.09.2009 Ba3 Positive Ba3

08.01.2010 Ba2 Stable Ba2



16.05.2013 Baa3 Stable Baa3

11.04.2014 Baa3 Negative Baa3 ↓

Turkey Fitch F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction

09.02.2004 B+ Stable B+

25.08.2004 B+ Positive B+

13.01.2005 BB- Stable BB-

14.12.2005 BB- Positive BB-

10.05.2007 BB- Stable BB-


03.12.2009 BB+ Stable BB+

24.11.2010 BB+ Positive BB+

23.11.2011 BB+ Stable BB+

05.11.2012 BBB- Stable BBB ↑

Other Emerging Markets S&P F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction

Russia 26.01.2015 BB+ Negative BBB- ↓

Hungary 28.03.2014 BB Stable BB ↑

Brazil 24.03.2014 BBB- Stable BBB+ ↓

Poland 27.10.2008 A- Stable A ↓ 19

Latest Macroeconomic Developments Turkey · bank reserves which had increased by USD 9.9 bln in...

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