Latest Macroeconomic Developments Turkey

Transcription

1 Latest Macroeconomic Developments Turkey February 16, 2012 Economic Research This report has been prepared by T. Garanti Bankası A.Ş. is provided for information purposes only. Although the information on which the report is based has been obtained from sources which we believe to be reliable, no representation or warranty is made by T. Garanti Bankası A.Ş. for the accuracy or completeness of the information contained herein. Information contained herein is subject to change without notice. T. Garanti Bankası A.Ş. and/or any person connected with it accepts no liability whatsoever for any direct or consequential loss of any kind arising out of the use of this document or any part of its contents.

2 Table of Contents Macro Comment: Thoughts on Core Inflation in Turkey 1 Inflation: Core Inflation Re-accelerated in January 2 FX & Interest Rates: Appreciation in TL, Fall in Bond Rates 3 Growth: Economic Activity Is Still Expanding More Than Expected 4 Sectoral Details: Slight Downward Trend in Leading Indicators 5 Labor: Seasonally Adjusted Unemployment Rate Fell in November 11 6 Public Finance: 2011 Central Budget Figures Are Better Than Expected 7 Debt: Treasury Borrowed More than Its Estimate in January 8 Foreign Trade: The Growth Rates of Both Exports and Imports Cut Pace in December 9 Balance of Payments: Current Account Deficit was USD 77 Billion in CBT Balance Sheet: Funding Rates Ease Below Banking: FX Deposits Rose Significantly in January Emerging Markets: Export Growth Rates Decelerated in EM Economies 13 Charts of the Month 14 Macroeconomic Indicators Rating 19

3 Macro Comment Thoughts on Core Inflation in Turkey One of the most important characteristics of the post-lehman period for the Turkish economy was that the cyclical downward trend of the core inflation became more pronounced. Core inflation fell after 2008 with the fall in domestic demand. During , while the average core inflation was 4.9%, non-core inflation averaged at 10.1%. Average headline inflation was 7.. close to 6%, higher than the CBT s estimate of for the headline by 1H13. Can Core Inflation Fall Below 4% Again? Core inflation had been cyclically coming down to a lower plateau since 2006, signaling a break in inflationary expectations as the CBT would have hoped. Yet, the unusual combination of TL s depreciation and output gap decreasing, carried core inflation to above 8% at the end of Based on our analysis, we find out that core inflation is effected from the output gap with a six month lag as well as from the value of the TL. Even though there was an output gap both at the beginning of 2009 and 2010, core inflation fell to a lower level at the end of 2010 due to TL s appreciation. In order for core inflation to fall below 4% again, there has to be an output gap as wide as the one in In our base scenario, in which the GDP slows down significantly below 4% during 1H12, output gap re-emerges and helps core inflation to fall but only to level. More importantly, if the economy reaccelerates in the second half to 4%, core inflation increases How About the Headline? The hardest part of the inflation estimates in Turkey is forecasting the non-core inflation as its volatility has been increasing significantly lately. If core inflation increases close to 6% as in our base scenario, non-core inflation will be of vital importance for the CBT to meet the target. Putting our analysis on core and non-core inflation together, we find out that headline comes in between as the CBT calculates by the end of And yet with an accelerating core inflation, headline increases above 7% during 1H13, contrary to CBT s expectations of inflation meeting the target by mid A Different Scenario Developments in the financial markets since the beginning of 2012 has made us think of a scenario in which growth does not fall below 4% throughout 2012 and TL is stronger than envisaged. This is also probably the scenario that the CBT has in mind. We still find out that the current levels of the currency is not sufficient to bring the CPI down to the targeted level of by the end of 1H

4 Inflation Core Inflation Re-accelerated in January Consumer prices rose by 0.56% (MoM) in January slightly above the expectations. Thus annual inflation rose to 10.61%. In addition, producer prices rose by 0.38% below the expectations while annual PPI inflation fell from 13.3% in December to 11.1%. Graph 1: YoY Inflation In January, annual inflation of processed and unprocessed foods decelerated by 10.7% and 12.8% respectively, on a year on year basis. Graph 2: CPI & Food Inflation (YoY) In January, other than food there was a rise in some goods prices (such as furniture, household appliances) while there was a sharp fall in clothing prices due to seasonality. Graph 3: January CPI Inflation CPI 16% PPI 12% 11.1% 8% 10.6% 4% -4% -8% Source: TURKSTAT CPI Unprocessed Processed Source: TURKSTAT, Garanti Bank calculations Clothing&text. Education Communication Beverage &tob. Health CPI 0.56% Rest &hotels Recr. &culture Food Housing Household equip. Misc. Transportation -8%-7%-6%--4%-3%-2%-1% 1% 2% 3% Source: TURKSTAT, Garanti Bank calculations In January 12, goods inflation (yoy) increased to 12.5 while services inflation (yoy) fell to 6.3%. Graph 4: (YoY) Services & Goods Inflation Excluding food, tobacco and energy prices, core inflation increased from 8.1% in December to 8.4% in January 12. Graph 5: CPI & I Index (YoY) According to the first expectation survey of the CBT in February, inflation expectations were 6.87% and 6.37% for the next 12 months and 24 months, respectively. Graph 6: Inflation (YoY) & Expectations 14% 12% 1 8% 6% 4% 2% Services Goods % % 1 8% 3% CPI I Index % 9% 8% 8% 7% 7% 6% 6% Expected (next 12 months) Expected (next 24 months) Source: TURKSTAT Source: TURKSTAT Source: CBT, TURKSTAT 2

5 FX & Int. Rates Appreciation in TL, Fall in Bond Rates... During January, TL appreciated by 5.7% against the currency basket (0.5$+0.5 ). Appreciation was even stronger against the $ with 6.. TL s strengthening continued during the first half of February with 1%... Graph 7: Nominal Exchange Rates TL appreciated in real terms during January as well. While the real appreciation in January was 2., TL s appreciation since August, its lowest value in the past 6 years, has been 8.4%... Graph 8: CPI Based Real Exchange Rates (2003=100) The decline in average funding cost from the CBT and the rise in risk appetite in the financial markets led to significant fall in benchmark bond rates in the past one month, falling to 9.3% in mid-february from 11.6% as of January 5th... Graph 9: Benchmark Bond Interest Rates (%) Source: CBT In January 2012, real interest rate fell to - 1.1%, the lowest level in the past 11 years Graph 10: Real Interest Rates on Benchmark Bonds (Ex-post) Source: CBT Yield curve came down as of mid-february compared to the end of December while interest rate on the short-term maturities fell more than the longer-term maturities Graph 11: Yield Curve Source: Bloomberg Spread between two-year swap rates and benchmark bonds fell below 2% during the first half of February. While the benchmark bond rates fell from above 11% to 9.3% level, swap rates fell from above 9% to around 7. Graph 12: Spread Between 2-Year Swap Rates and Benchmark Source: Bloomberg, Turkstat and GarantiBank calculations Source: Reuters, GarantiBank calculations Source: CBT, Reuters, GarantiBank calculations 3

6 Growth Economic Activity Is Still Expanding More Than Expected... December Industrial Production (IP) figures pointed out that economic activity is still expanding more than expected. IP increased by 3.7% (YoY) in December, above the 2.2% market forecast. Graph 13: Breakdown of IP (YoY) Moreover, seasonal adjusted IP rose significantly by 2.7% (MoM) in December. Accordingly, IP accelerated on a quarterly basis in 4Q2011, rising by 3.6%, the highest increase in Graph 14: Calendar and Seasonal Adjusted IP Leading indicators for January 2012 signal that IP rose in line with December s figure. On the other hand, the growth rate of IP will continue to increase moderately during the first quarter due to positive calendar effect... Graph 15: Industrial Production, CUR and Electricity Production (YoY) Source: TURKSTAT, GarantiBank calculations Confidence indices have been decelerating since mid On a 3-month-average basis, both consumption and confidence indices fell to the lowest level almost in the past two years... Graph 16: Consumption and Confidence Indices Source: TURKSTAT Despite the deceleration in annual growth rate in the last quarter of the year, moderate increase in IP signaled that economic activity continued to grow. We estimate growth rate at around 4. (YoY) in 4Q11 and 8.3% (YoY) in the overall Graph 17: IP vs. GDP (YoY) Source: TURKSTAT, CBRT, GarantiBank On the other hand, the contribution of foreign demand to GDP is expected to surpass 2% in 4Q, the highest level in the last 10 quarters. Graph 18: Contributions of Domestic and Foreign Demand to GDP Source: CNBC-e, TURKSTAT Source: TURKSTAT, GarantiBank Source: TURKSTAT, GarantiBank * 2011Q4 figures are GarantiBank forecasts. 4

7 Sectoral Details Slight Downward Trend in Leading Indicators Auto domestic sales fell by 3 in line with our expectations in January 12. With the high base effect and downward trend in economic growth expectations, we forecast nearly 1 contraction in sales in Graph 19: Auto Domestic Sales (YoY) Auto credits which have decelerated since June 11 except December, fell (MoM) in line with the fall in auto sales in January 12. Graph 20: SA Auto Sales & Credits (MoM) After a slight rise in 4Q 11 there was a fall in commercial vehicle sales in January 12. Graph 21: Commercial Auto Sales (SA) ,000 60,000 50,000 40,000 30,000 20,000 10,000 auto sales (unit - S.A) auto credit (MoM) - right % 11% 9% 7% 3% 1% -1% -3% - 61,500 51,500 41,500 31,500 21,500 11,500 1,500 PC Light commercial vehicle Heavy commercial vehicle 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 Jan'12 4,400 3,900 3,400 2,900 2,400 1,900 1,400 Source: OSD, Garanti Bank Calculations Source: ODD, BRSA, Garanti Bank Calculations Source: OSD, Garanti Bank Calculations Electricity consumption growth rate decelerated slightly to 8.6% in January 12. Despite a fall in November (YoY) due to high base effect, we forecast a decelerated rise in 4Q 11 in cement sales which is the leading indicator for the construction sector. Not only cement sales but also slowing total economic growth signed us a decelerated growth (nearly 7.8%) in construction sector in 4Q 11. Graph 22: Electricity Consumption (YoY) Graph 23: Cement Domestic Sales (YoY) Graph 24: Construction GDP industrial production - left Electricity consumption Q'03 2Q'04 4Q'04 2Q'05 4Q'05 2Q'06 4Q'06 2Q'07 4Q'07 2Q'08 4Q'08 2Q'09 4Q'09 2Q'10 4Q'10 2Q'11 4Q'11T 2Q'12T 4Q'12T Total GDP Cement total sales ConstructionGDP F 2012F Source: TEAIS, TURKSTAT, Garanti Bank Calculations Source: TCMA, Garanti Bank Calculations Source: TCMA, TURKSTAT, Garanti Bank Calculations 5

8 Labor Seasonally Adjusted Unemployment Rate Fell in November 11 As of November 11, unemployment rate remained unchanged at 9.1% compared to October 11. Also, there was a fall in seasonally adjusted data from 9.4% to 9.3%. Graph 25: Unemployment Rate Non agricultural unemployment rate fell in November 11 both in unadjusted and seasonal adjusted basis. Graph 26: Non Agricultural Unemployment Rate As of November 11, the number of unemployed people were slightly below 2,5 mln in Turkey. Graph 27: The Number Of Unemployed (S.A) 17% 16% 1 14% 13% 12% 11% 1 9% 8% Unemployment rate S.A Unemployment rate % 16% 14% 12% 1 8% Non agriculture (S.A) Total (S.A) Source: TURKSTAT Source: TURKSTAT, Garanti Bank Calculations Source: TURKSTAT As of November 11, workforce participation rate remained at its highest level, nearly 5. In November 11, the number of employed people increased on a seasonally adjusted basis. The rise in the number of employed people mainly stemmed from the service sector in November 11 (SA). Graph 28: Workforce Participation Rate Graph 29: Non Agricultural Unemployment Graph 30: Change in Number of Employment (SA, MoM) 5 49% 48% 47% 46% Employed (S.A.) Unemployed (S.A) Agriculture Industry Construction Service Source: TURKSTAT Source: TURKSTAT Source: TURKSTAT, Garanti Bank Calculations 6

9 Public Finance 2011 Central Budget Figures Are Better Than Expected The ratio of central budget deficit to our estimated 2011 GDP, the ratiı declines to 1.3% from the 3.6% in According to the Medium-Term Fiscal Plan the ratio expected to be 1.8% in Graph 31: Budget Performance Ongoing tax revenur performance was key in the improved budget performance in Tax to GDP (Garanti estimation) ratio reached 19.6% at the year end. Graph 32: Tax Revenues/GDP Other important positive improvement was the decline in the non-interest expenditures to GDP ratio in The level declined to 20.9% from 22.2% in 2010 according to Garanti GDP estimate. Graph 33: Non-Interest Expenditures/GDP 7% 3% 1% -1% -3% - -7% % % % %-1.8% 0.1% 0.8%1.3%1.8%2.1.9% Primary Surplus/GDP Budget Balance/GDP -1.8% -1.4% -1.3% -2.8% -1.8% -3.6% % %19.1% 18.4% 18.1%18.1% 18.1% 17.9% 17.7% 23% 22% 21% 19% 18% 17% 16% % % 17.1% 17.1% %21.8% 21.4% 20.9% 20.9% Source: Ministry of Finance, Turkstat, GT: Government Target Source: Ministry of Finance, Turkstat, Garanti Bank Source: Minister of Finance, Turkstat, Garanti Bank 12 month cumulative central budget deficit narrowed in January from TL 17.4 bn in December to TL 16.7 bn. The rise in total revenues was over the rise in expenditures. Graph 34: Budget Performance In January 2012, the growth rate of income tax revenues accelerated, while SCT (Special Consumption Tax) and VAT revenues decelerated on 12 month average basis. Graph 35: Tax Revenues (12 MA, y/y) In the first month of 2012, the rise in noninterest expenditures continued moderately. The growth rate of both goods&services procurements and current transfers decelerated. Graph 36: Non-Interest Expenditures (12 MA, y/y) 340 (bln TL) 320 Expenditures Revenues Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec Total Tax Revenue VAT Income Tax SCT /07 04/08 Personnel Payments Current Transfers 08/08 12/08 04/09 08/09 12/09 04/10 Goods&Servs Proc. Non-Int Payments 08/10 12/10 04/11 08/11 12/11 Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance 7

10 Debt Treasury Borrowed More Than Its Estimate in January As of September 2011, EU defined public debt stock to GDP ratio was 40.1%, we estimate the ratio to fall to 39.6% at the end of We expect the ratio to fall below 37% in According to Garanti calculations made on current debt figures, after the redemptions in the first quarter of 2011, redemptions due on remaining quarters in 2012 are relatively low. The highest external debt payments of the public sector in 2012 are due on February, May and July. Graph 37: EU Defined Public Sector Debt Stock/GDP 78% 8 74% 68% % 47% 46% 42%41% % Q1 11Q2 11Q3 2011GE 2012GE Source: Treasury, GE: Garanti Estimate Source: Treasury, Garanti Bank calculations Source: Treasury Private sector long term external debt redemption is higher than USD 3 bln in March, June, July and August Graph 38: Domestic Debt Redemption Schedule (TL bln) As of November 2011, long term external debt of private sector was USD bln, USD 2 bln lower than the level the month before. Graph 40: LT Ext. Debt Redemption of Private Sector Graph 41: LT External Debt of Private Sector Table 1: Financing Table Graph 39: Foreign Public Debt Redemption Schedule 2,200 1,900 1,600 1,300 1, (US$, mln) Interest Principal In the first month of 2012, the domestic debt roll over ratio was 95., significantly higher than the 83. expected for the overall Revenue growth (yoy) was higher than the expenditure growth in January. (USD bln) Finance Non-Finance /12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/12 Source: CBT (USD bln) Source: CBT Q Finance Q2 Non-Finance Q Source: Treasury, Garanti Bank calculations Real January Program Financing Need Dom. Debt Service Principal Interest Ext. Debt Service Principal Interest Financing Dom. Borrowing Ext. Borrowing Other Financing Domestic Debt Roll Over Ratio

11 Foreign Trade The Growth Rates of Both Exports and Imports Cut Pace in December In December, imports eased to its weakest pace since the recovery began in November 2009, rising just by 0.2% (YoY) to US$ 20.6 bn, while exports rose just by 6% to US$ 12.5 bn, due to the contraction in Eurozone economy and base effect. Preliminary figures indicated that exports rose by 1 in January Graph 42: Exports and Imports (3MA, YoY) Accordingly, in 2011 imports jumped by 3 to US$ billion compared to 2010, while exports increased by 18% to US$ billion. We expect that imports will remain at US$ 240 bn in 2012, while exports will increase by 12% to US$ 151 bn. Graph 43: Exports and Imports (Annual Figures) The growth rate of real exports surpassed the growth rate of real imports in the last two months of the year. During 2011, real exports rose just by 6., while real imports jumped by 12%... Graph 44: Real Exports and Real Imports (YoY) Source: TURKSTAT, Turkish Exporters Assembly (TEA) Foreign trade balance improved in 4Q2011 through deceleration in imports mainly on the back of base effect. During this period, even though intermediate goods imports picked up by 14%, consumption and investment goods import growth rates contracted by 5.8% and 5.4%, respectively. Graph 45: Breakdown of Imports (YoY) Source: TURKSTAT F: GarantiBank forecast Due to the deceleration in domestic demand, non-energy imports decreased in December 2011, for the first time almost in the past two years, falling by 5. compared to the same month previous year. Graph 46: Energy and Non-Energy Imports (YoY) Source: TURKSTAT On the other hand, exports decelerated in December as well, due to 3% (YoY) fall in exports to EU-25 countries, the first decline in Graph 47: Exports By Country Group (YoY) Source: TURKSTAT Source: TURKSTAT, GarantiBank calculations Source: TURKSTAT, GarantiBank calculations 9

12 Balance of Payments Current Account Deficit was USD 77 Billion in 2011 Together with a USD 6.6 billion deficit in December, current account deficit reached USD 77 billion in December. There was a deceleration in the last two months of 2011 on a 12 month cumulative basis. Graph 48: Current Account Balance (Bn USD) Source: CBT As of December, there was also an improvement in current account deficit on a seasonally adjusted basis. According to our calculations, CA/GDP ratio will fall to 8% in 2012 from1 in Graph 49: Current Account / GDP -2% -4% -6% -8% -1-12% % -2% -4% - -6% -6% -6% -6% Source: CBT, Garanti Bank Calculations In December 11, there was a USD 5.3 billion and USD 3.0 billion fall in the short term external debt of banks and total deposits respectively (12 month cumulative ). 2012F -8% In 2011, FDI reached USD 13.4 billion with a USD 3.0 billion in December 11. Also, the contribution of net error and emissions for financing deficit was USD 12.5 billion in Table 2: External Financing (12-month, Million USD) Current Account Balance -78,562-78,055-77,089 Capital and Financial Account 64,979 65,840 64,628 Direct Investment 12,723 12,182 13,420 Abroad -1,941-2,157-2,312 In Turkey 14,664 14,339 15,732 Real Estate (Net) 2,128 2,062 2,013 Portfolio Investment 17,545 19,183 22,079 Assets 1,760 3,386 2,552 Liabilities 15,785 15,797 19,527 Equity Securities , Bond 10,799 12,050 14,805 Eurobond 3,207 2,521 2,521 Banks 2,546 3,180 3,165 Other Investment 39,849 39,603 27,336 Assets 12,526 14,218 10,834 Graph 50: Current Account (S.A) Table 3: Hot Money (12 month, mn USD) Currency Deposits 14,498 16,508 12, Liabilities 27,323 25,385 16,502 3, ,000-6,000-9, Current account Non energy current account Non-Resident 13,406 13,927 14,587 Government Securities 13,345 15,230 17,970 Equity securities , Deposits (TL+FX+Repo) 1, ,397 Resident 13,967 14,359 9,219 ST lending of ban. to oversees ST ext. debt of banking sector 12,241 12,191 6,817 ST ext. debt of private sector 2,383 2,954 3,011 Net Error & Omissions 13,583 12,215 12,461 TOTAL 40,956 40,501 36,267 Banks 16,760 16,268 12,141 Long Term 4,519 4,077 5,324 Short Term 12,241 12,191 6,817 Other Sectors 6,407 7,192 7,079 Long Term 4,024 4,238 4,068 Short Term 2,383 2,954 3,011 Currency and Deposits ,235-4,362 Banks ,073-5,844 Reserve Assets -5,113-5,103-1,813 % of Current Account -52% -52% -47% Net Errors and Omissions 13,583 12,215 12,461 Source: CBT, Garanti Bank Calculations Source: CBT, Garanti Bank Calculations Source: CBT, Garanti Bank Calculations 10

13 CBT Balance Sheet Funding Rates Ease Below 7. After fully stopping funding the market via one-week repo auctions during the first week of January, CBT used traditional daily repo auctions to fund the market for 12 days at around 11.. Graph 51: Volumes at CBT Funding (TL Mn) Average cost of funding increased close 12% during the first half of January. After re-opening one-week repo auctions at 5.7, funding cost has started to fall. As of February 10th, the average cost stands at 7.4%... Graph 52: CBT s Interest Rates After the fall in average funding rate of the CBT, money market rates fell significantly in the past month, as well ON repo rate was 6.6% on February 13rd, the lowest level since mid- October 2011 Graph 53: Interest Rates Source: CBT After intervening directly through FX sales of around $1bn during the first week of January, CBT held daily auctions, selling US$1.1bn until January 24th. After that date CBT abandoned daily FX selling auctions Graph 54: Daily FX Selling Buying Auctions by the CBT (US$ Mn) Source: CBT, ISE, Garanti Bank calculations Calculated as the weighted average of policy rate, ISE repo rate and ON lending CBT s reserves fell to US$ 76bn at the end of January 2012, the lowest level since the end of The foreign debt payments of the Treasury caused the FX reserves to fall during the month Graph 55: International Reserves (US$ bn) Source: CBT, ISE Deceleration in the yoy growth rate of monetary indicators continued in January. The growth rate of monetary indicators are below the yoy CPI as of end of January, except for M3Y Graph 56: YoY Change in Monetary Indicators Source: CBT Source: CBT, Garanti Bank Source: CBT, Turkstat 11

14 Banking FX Deposits Rose Significantly in January 2012 Both commercial and consumer loans growth rate declined in January Graph 57: Loan Growth Rate (YoY) 57% Commercial Loans 47% 37% 27% 17% 7% -3% Source: BRSA *Consumer loans include credit cards Compared to end 2011, TL deposits declined by TL 13.8 billion, while FX deposits rose by USD 5.9 billion as of February 3, FX deposits reached its highest level since November Graph 60: Deposits Consumer Loans 28.2% 27.3% There was a deceleration in most types of the loans in December 2011; however other investment loans growth rate accelerated and surpassed the growth rate of total loans. Graph 58: Change in Loans (YoY) Source: BRSA Compared to the year before, the shares of cash and loans in total assets increased in December 2011, while the shares of securities both available for sale and held to maturity declined. Graph 61: Share in Total Assets Working Capital Loans Consumer Loans Total Loans Directed Loans Other Investment Loans Annual growth rate of loans decelerated sharply in non-adjusted basis in January, while the growth rate of currency adjusted loans remained almost constant due to the appreciation of thetl against USD. Graph 59: Currency Adjusted Loan Growth 4 Non-adjusted 4 Currency Adjusted Source: BRSA, Garanti Bank calculations As of December 2011, the share of deposits in total liabilities declined, while the shares of payables to banks and funds from repo transactions increased compared to the year before. Graph 62: Share in Total Liabilities 26.3% 22.8% /07 10/08 08/09 11/09 02/10 04/10 06/10 09/10 11/10 01/11 04/11 06/11 08/11 10/11 01/12 Source:BRSA TL deposits (TL billion, left) FX deposits (US$ billion, right) % Source: BRSA Dec-10 Dec-11 Cash 19% 1 Securitie s Available for Sale 56% 52% Loans 9% 7% Securitie s Held to Maturity (Net) 61% 6 57% Deposit Source: BRSA 12% 14% Dec-10 Dec-11 6% 8% Payables to Banks Funds from Repo Transactions 12

15 Emerging Markets - Export Growth Rates Decelerated in EM Economies In December, policy rate was reduced by 25 basis points in Russia, while it raised by 50 basis points in Hungary. In early January 2012, policy rate was cut by 25 basis points in Romania. Graph 63: Average Policy Rates in EM /07 02/08 05/08 08/08 11/08 02/09 05/09 08/09 11/09 02/10 05/10 08/10 11/10 02/11 05/11 08/11 11/11 Due to the continued rise in inflation in Turkey, negative real ex-post policy rate increased. Policy rate is high in Brazil compared to its inflation. Graph 64: Policy Rates & Annual Inflation Policy Interest Rates Annual Inflation 12% 10. 9% 6% 3% 4.8% Poland 3. Mexico 6. South Africa Turkey 4.2% 4.3% 3.4% Romania China Hungary 6.8% 6.6% Russia Brazil In December, TRY and BRL depreciated slightly by 0.9%, while the depreciation in RUB (2.6%) and HUF (5.7%) was higher, ZAR appreciated by 2.7%. In 2011, the depreciation in TRY, ZAR, HUF, BDR and RUB were 20.3%, 19.9%, 15., 10.2% and 3.4%, respectively. Graph 65: EM Currencies Against Basket (0.5*EUR+0.5*USD) ( =100) Depreciation Appreciation /1/2009 7/1/2009 1/1/2010 TRY RUB BRL 7/1/2010 ZAR HUF 1/1/2011 7/1/2011 Source: Bloomberg, Garanti Bank Source: IIF, Bloomberg, GarantiBank *Czech Republic, South Africa, Hungary, Mexico, Poland, Romania, Russia, Ukraine, Turkey, Indonesia, Colombia, China, S. Korea, Taiwan, Thailand, Malaysia, India, Peru, Brazil, Chile In 2011, stock exchange indices declined by 22.3% in The deceleration in export growth rate in Turkey, 21.9% in Russia, 20.4% in Hungary and the second half of 2011 was more 18.1% in Brazil. South Africa stock exchange index significant in other Eastern Europe rose by 6.1% in countries than in Turkey. Graph 66: EM Stock Exchange ( =100) Graph 67: Exports Growth Rate (3MA, y/y) Turkey South Africa Russia Hungary Brazil Turkey Czech Rep. Hungary Poland Source: Reuters, Garanti Bank Among the other emerging market economies, the export performance deteriorated sharply in India in October and November Graph 68:Exports Growth Rate (3MA, y/y) India South Korea Brazil China Source: Reuters, Garanti Bank Source: IIF, Garanti Bank Source: IIF, Garanti Bank 13

16 Charts of the Month There was a 83% correlation between total investment growth rate and heavy commercial vehicle sales which fell slightly due to base effect in 4Q 11 while seasonally adjusted data signalled a slight rise. Graph 69 : CV Sales & Investment Growth Rate There was a slight rise in average expenses (per capita) in tourism sector in 2011 after a sharp fall in the last two years. Graph 70 : Per Capita Average Expenses in Tourism (YoY) The spread between commercial loan and 3 month deposit interest rate declined only slightly in the last month of Graph 71: The Spread Between Loan&Deposit Rates % 1% -1% -3% Investment growth rate (YoY) -10-7% -1% Heavy Commercial Vehicle Sales (YoY) -2% 6% 4% 3% 2% 1% Commercial Loan 3 Month Deposit Interest Rate Spread Source: OSD, TURKSTAT, Garanti Bank Calculations Source: CBT, Garanti Bank Calculations Source: BRSA, CBT, Garanti Bank calculations During , while the average core inflation was 4.9%, non-core inflation averaged at 10.1% and average headline inflation was 7.. Graph 72: CPI, Core and Non-core Inflation (YoY) After September 2011, core inflation went above 8% due to decreasing output gap and TL s depreciation. Graph 73: Annual Core Inflation and Output Gap The acceleration in TL s depreciation toward the end of 2011 was one of the factors carrying core inflation to above 8%. Graph 74: Annual Change in TL over the Basket & Annual Core Inflation Source: Turkstat, GarantiBank calculations Source: GarantiBank calculations, Turkstat Source: CBT, Turkstat, GarantiBank calculations 14

17 Macroeconomic Indicators I Realizations 2012 F orecast Latest F our Realizations Grow th Garanti Gov ernment 4Q 10 1Q 11 2Q 11 3Q 11 GDP (TL billion, nominal prices) ,104 * 1,297 1,448 1, GDP (US$ billion) * GDP (12-month, TL billion, nominal prices) GDP (12-month, US$ billion) GDP Per Capita (US$) 10,438 8,559 10,079 * 10,529 10,551 10, GDP Yearly Grow th Rate 0.7% -4.8% 9. * 8.3% 2.7% % 9.2% 11.6% 8.8% Industrial Production Garanti Gov ernment Industrial Production (YoY) -0.6% -9.9% 13.1% 8.9% 3.6% % - C apacity Utilization Rate 76.7% 65.2% 72.6% 75.4% % % Labor Garanti Gov ernment 4Q 10 1Q 11 2Q 11 3Q 11 Real Wage Index in Industry (Per hour, 2005=100) YoY C hange 0.2% -7.7% 6.7% % % 8.3% Productiv ity Index in Industry (Per hour, 2005=100) YoY C hange 0.3% 1.1% 8.2% % 7.2% % Garanti Gov ernment Unemploy ment Rate % * 9.8% 10.2% 10.4% 9.2% 8.8% 9.1% 9.1% Inflation Garanti Gov ernment C PI (MoM) % 1.7% 0.6% 0.6% C PI (YoY) 10.1% % 10.4% % 7.7% % 10.6% CPI (Annual average) 10.4% 6.3% 8.6% % PPI (MoM) % 0.7% % PPI (YoY) 8.1% 5.9% 8.9% 13.3% % 13.7% 13.3% 13.8% PPI (Annual average) 12.7% 1.2% % 7.4% Deflator % 6. * % Source: TU RKSTA T, Ministry of Dev elopment, C BT and GarantiBank * GarantiBank forecasts 15

18 Macroeconomic Indicators II Realizations 2012 F orecast Latest F our Realizations Interest Rates Garanti Gov ernment Benchmark bond (End of period) % 7.1% % - 9.8% 10.8% % Primary (Discounted A uctions-a v erage) 19.1% 11.4% 8.2% % 10.6% % Dom. Borrow ing C ash Maturity (Month) O /N (End of period) Eurobond (2030, Yield) 7.7% 6.4% 5.7% 6.1% % 5.9% 6.1% 6.3% F oreign C urrency Garanti Gov ernment Basket (0.5*USD+0.5*EURO, end of period) EURO /US$ (end of period) TL/USD (av erage) TL/USD (end of period) TL/EURO (end of period) Balance of Pay ments (US$ million) Garanti Gov ernment Exports (f.o.b) 132, , , , , ,467 10,755 11,918 11,090 12,484 Imports (c.i.f) 201, , , , , ,727 21,203 19,919 18,649 20,590 C urrent A ccount Balance -41,959-13,991-47,693-77,089-62,000-65,417-6,348-4,496-5,426-6,573 C urrent A ccount Balance (12-month) -41,959-13,991-47,693-77,089-62,000-65,417-77,358-78,562-78,055-77,089 Current Account Balance/GDP -5.7% -2.3% -6. *-9.9% -7.8% Non-energy C.A. Balance (12-month) 1,217 11,495-15, ,316-31,240-29,634-27,697 Tourism Rev enue 21,951 21,250 20,807 23,020-26,000 3,045 2,684 1,505 1,020 F oreign Direct Inv estment (Net) 16,955 6,858 7,816 13, ,077 C apital A ccount Balance 37,256 8,925 43,003 64, ,239 3,311 4,506 6,587 Eurobond Issues 4,000 3,750 6,698 4, , Source: Treasury, C BT, TURKSTA T, Ministry of Dev elopment, Reuters and GarantiBank * GarantiBank forecasts 16

19 Macroeconomic Indicators III Realizations 2012 F orecast Latest F our Realizations Total External Debt Stock Garanti Gov ernment 4Q 10 1Q 11 2Q 11 3Q 11 Total External Debt Stock (US$ Billion) Public Priv ate F inancial Sector Real Sector Short-term F inancial Sector Long-term Total External Debt Stock/GDP 37.4% 43.6% 39.4% % 39. Public/GDP 12.4% 15.7% 13.7% % % 13.3% Priv ate/gdp % 25.7% % % 25.7% F inancial Sector/GDP % 11.2% % 11.1% % Real Sector/GDP % 14.2% 14.1% Short-term/GDP 6.8% % % 10.2% 10.8% 11.2% F inancial Sector/GDP 3.3% 3.7% 6.6% - 6.6% 6.1% Long-term/GDP 30.6% % % 29.3% 28.6% 27.8% EU Defined Debt Stock/GDP % 42.2% * 39.6% % 41.3% 40.3% 40.1% Reserv es (US$ million) Garanti Gov ernment Total F oreign Reserv es 73,346 74,810 85,960 88, ,628 94,843 88,218 86,422 C entral Bank Reserv es 70,075 70,689 80,696 78, ,433 85,490 78,330 76,327 C B Net F X Position 36,213 37,182 50,156 41, ,578 46,699 41,886 37,165 Monetary A ggregates (US$ billion) Garanti Gov ernment M M M2Y M3Y Base Money O pen Market O peration (End of period) Source: Treasury, Ministry of Dev elopment, C BT and GarantiBank 17

20 Macroeconomic Indicators IV Realizations 2012 F orecast Latest F our Realizations Banking S ector (TL Billion) G aranti G ov ernment 4Q 10 1Q 11 2Q 11 3Q 11 A ssets , , , , ,213.7 A ssets/gdp 77.1% 87.6% % 90.8% 95.2% 96.7% Loans Loans/GDP 38.7% 41.2% 49.1% % % 52.7% C ommercial Loans/GDP 26.3% 27.6% 33.3% % C onsumer Loans/GDP 12.3% 13.6% 15.8% % 16.1% 17.1% 17.2% Housing A uto O ther C redit C ards Deposits F X Deposits (Billion U S $ ) Deposits/GDP 47.8% % % 54.6% 54.8% 54. Shareholders' Equity Shareholders' Equity /GDP 9.1% 11.6% 11.7% % 11.7% 11.6% 11.3% C entral Gov ernment Budget (TL Billion) Garanti Gov ernment Rev enues Expenditures Interest Pay ments Budget Balance Primary Balance C entral Gov ernment Domestic Debt Stock Interest Expenditures/GDP 5.3% 5.6% 4.4% * 3.3% Budget Balance/GDP -1.8% % * -1.3% -1.7% Primary Balance/GDP % 0.8% * 1.9% 1.2% C entral Gov ernment Debt Stock Garanti Gov ernment 4Q 10 1Q 11 2Q 11 3Q 11 C.G. Domestic Debt Stock/GDP 28.9% 34.6% % 30.1% 29.2% C.G. External Debt Stock/GDP 9.4% % % 10.7% 10.4% 10.1% Total Public Debt Stock/GDP % % 43.2% 43. Total Public Net Debt Stock/GDP 28.2% % % 27.8% % Source: BRSA, C BT, TURKSTA T, Ministry of F inance, Ministry of Dev elopment, Treasury and GarantiBank * GarantiBank forecasts 18

21 Rating Foreign Currency Local Currency Turkey S&P Long-Term Outlook/Watch Long-Term Latest Change Direction B+ Stable B B+ Positive BB BB- Positive BB BB- Stable BB BB- Negative BB BB- Stable BB BB- Negative BB BB- Stable BB BB Positive BB BB Positive BBB- Turkey Moody's F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction B3 Positive from Stable B B2 Stable B B1 Positive B Ba3 Stable Ba Ba3 Positive Ba Ba2 Stable Ba Ba2 Positive Ba2 Turkey Fitch F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction B- Negative B B- Positive B B Positive B B+ Stable B B+ Positive B BB- Stable BB BB- Positive BB BB- Stable BB BB- Stable BB BB+ Stable BB BB+ Positive BB BB+ Stable BB+ Other Emerging Markets S&P F.C. L-T Outlook/Watch L.C. L-T Latest Change Direction Russia BBB Stable BBB+ Hungary BB+ Negative BB+ Brazil BBB Stable A- Poland A- Stable A 19