Turkey and the Emerging Market Economies during the Global Crisis Yelda Yücel 14 June 2009 Nicosia
Green Shoots in The Global Economy? There are more signs of easing of the global recession in the second quarter of 2009. Emerging market economies leading the way. Source: IIF
Easing tensions in the financial markets CBOE Volatility Index 85 75 Collapse of Lehman Brothers 65 55 45 35 25 15 5 03.01.05 21.04.05 08.08.05 22.11.05 14.03.06 29.06.06 16.10.06 05.02.07 23.05.07 07.09.07 24.12.07 10.04.08 28.07.08 10.11.08 25.02.09 VIX Improved economic news from East Asia and less dire news from Europe revived risk appetite especially towards emerging economy assets. Source: IIF
Despite signs of green shoots, impacts on real economy will be long lasting and severe World output will contract by 1.3% in 2009 World trade will contract in 2009 by around 10% according to the World Trade Organization and the IMF 1 CEE export in 2009 will decline by 65 bn vs 2008 (excl. Russia): it s the first drop in a decade 2 Investment activity will experience negative growth in all the CEE countries (-9.7% on average in CEE in 2009) 2 Emerging and developing economies will record net private capital outflows in the amount of $190 bn (as opposed to inflows in the last decade) FDI towards CEE will almost halve in 2009 vs. 2008 (less than EUR 35 bn, the lowest figure since 2004) 2 (1) Source: IMF, WTO; (2) Source: UniCredit CEE Strategic Analysis
Turkey s Trade Opennes and Dependency Trade openness of CEE countries (Export+Import / GDP, %, 2008) EU15-CEE 1 trade integration % of export and import on total Turkey Other (Russia & Ukraine) South Eastern Europe 46% % of UE-15 export to owards CEE excluding intra-e EU trade 40% 30% avg Paper & publishing Basic metals and metal pr. Rubber and plastic Highly integrated Textiles Machinery Leather Non-metallic Transport mineral pr. Equip. Electrical Equip. Baltics 20% Chemicals Wood Food, beverages Central Europe 0% 50% 100% 10% 25% 50% 75% % of CEE export to EU-15 (1) CEE includes New Member states (excl. Slovenia) and Turkey; EU15: the 15 members of old Europe ; Source: UniCredit CEE Strategic Analysis, Global Insight;
Turkey s Trade Structure (2008) Imports of... / total imports 18.00% 16.00% petroleum 14.00% 12.00% Chemicals basic metals 10.00% 8.00% 6.00% Coke, petr. pro. machinery autom. 4.00% 2.00% 0.00% Electrical m. Agriculture Communication Textiles Food Paper Furnituremetal prod. non-metallic minerals clothing 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Exports of.../ total exports Source: Turkstat
Turkey trying to diversify export markets Exports (2006, %) Exports (2008, %) North America Countries; 6% Near And Middle Eastern; 13% Other; 15% Other European Countries; 14% EU (27); 52% Other; 17% North America Countries; 4% Near And Middle Eastern; 19% Other European Countries; 12% EU (27); 48% Falling star: EU Rising star: Middle East Source: Tursktat
Industrial production: Turkey and her Peers (s.a., 2005Q1 = 100) 140 140 130 130 120 120 110 110 100 100 90 05 Q1 05 Q2 05 Q3 05 Q4 06 Q1 06 Q2 06 Q3 06 Q4 07 Q1 07 Q2 07 Q3 07 Q4 08 Q1 08 Q2 08 Q3 08 Q4 Argentina Brazil Mexico Turkey 09 Q1 90 05 Q1 05 Q2 05 Q3 05 Q4 06 Q1 06 Q2 06 Q3 06 Q4 07 Q1 07 Q2 07 Q3 07 Q4 08 Q1 08 Q2 08 Q3 08 Q4 Hungary Czech Rep. Russia Turkey 09 Q1 GDP Growth (% change over a year ago) 2008 2009f 2008 Q3 2008 Q4 2009F Q1 CEE8 4.1-7.0 4.5-0.8-7.8 (CEE5) 39 3.9-2.3 23 43 4.3 15 1.5-1.9 19 Bulgaria 6.0-3.7 6.8 3.5-3.5 Czech Republic 3.2-2.0 4.0 0.2-3.4 Hungary 0.5-6.0 1.3-2.5-6.4 Poland¹ 4.9-1.0 5.0 3.0 0.5 Romania 7.0-5.8 9.2 2.9-6.4 Russia 5.6-8.7 6.0 1.2-9.5 Turkey¹ 1.1-7.5 1.2-6.2-9.5 Ukraine¹ 2.7-16.6 7.1-7.9-18.4 ¹ CEE5: Bulgaria, Czech Rebuplic, Hungary, Poland, Romania Source: IIF
Turkey has been one of those, hit the hardest among the CEE Industrial Production (yoy % growth, March 2009) (%, 2005-09) -2.0 Poland Unemployment rate CE -19.6-17.0 Hungary Czech Rep 20-15.9 Slovakia -18.5 Slovenia 15-17.9 Lithuania Baltics -23.4 Latvia -25.7 Estonia 10-12.1 Romania -17.1 Bulgaria SEE -14.2-6.6 Croatia Serbia 5-30.4-21.3 Turkey Ukraine 0 Croatia Turkey Bulgaria Poland Slovakia Romania CIS -20.4-13.6 Russia Germany Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Source: Bloomberg, UniCredit CEE Strategic Analysis
Foreign financing dried up in Q1 09 n USD m Net Capital Inflows and Corporate Sector s Rollover Ratio 60000 300% 50000 40000 30000 20000 10000 0 2008 1 2 3 4 5 6 net capital flows(12 month sum) 7 8 9 10 11 12 2009 1 2 3 4 250% 200% 150% 100% 50% 0% monthly roll over ratio of corporate sector long-t. debt TURKEY'S FINANCING NEED ($ bn) 2009 Current Account Deficit 10.0 Private Sector Debt Services 49.7 Public Sector Debt Services 8.0 Eurobond Payments 4.5 Net Errors and Ommisions 0.0 TOTAL 72.2 FINANCING MEANS ($ bn) 2009 FDI (net) 5.0 Equity+GDIs (net) -2.0 Eurobonds issues 40 4.0 Private Sector Borrowing 60.2 Public Sector Borrowing 5.0 TOTAL 72.2 Private sector s rollover ratio: 121%. Seems not compatible with recent trends Source: CBRT and Treasury
FDI inflows to Turkey expected to slow 70 FDI inflows in CEE (EUR bn) FDI in CEE countries (EUR bn, cumulated inflows) 1989-1999 2000-'08 60 South Eastern Europe Poland 29.0 87.1 Hungary 24.8 18.1 Central Europe & Baltics 50 Czech Rep. 17.2 55.3 Slovakia 2.1 29.1 40 Baltics 5.8 17.1 Romania 5.7 41.0 Bulgaria 23 2.3 30.2 30 Western Balkans 5.7 32.9 Turkey 7.9 62.3 20 CEE 100.6 373.2 Ukraine 3.4 29.0 Russia 7.8 144.5 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Western Balkans: Slovenia, Croatia, Serbia, Bosnia-H. Source: UniCredit CEE Strategic Analysis
IMF loans increasingly devoted to Emerging Economies Ukraine Hungary Latvia Serbia Romania Turkey Regular Stand-by 05.11.2008 2 year, SDR 11 billion($16 ($16.4 bn) 06.11.2008 17 month, SDR 10.5 billion ($15.7 bn) 23.12.2008 27 month, SDR 1.52 billion ($2.35 bn) 26.03.2009 27 month, SDR 2.6 billion ($3 bn) 03.05.2009 2 year, Euro 12.95 billion ($17.5 bn) TBA Flexible Credit Line One year precautionary arrangement, Poland 14.04.2009 SDR 13.7 billion ($20.5 bn) Mexico 01.04.2009 $47.1 bn Colombia 11.05.2009 SDR 7 billion ($10.5 bn) IMF support packages since the start of the crisis reached USD 185 bn: two thirds of these funds were devoted to CEE countries Source: IMF, UniCredit CEE Strategic Analysis,
Competitiveness in CEE countries Productivity and Production Costs 1 (EU 25=100) Productiv vity per person (EU U-25=100) 100 75 50 Poland Turkey Latvia Slovenia Hungary Slovakia Czech Estonia Croatia Lithuania EU 15 Turkey is relatively l low costly in terms production among her peers, but lags significantly behind in terms of productivity Romania Bulgaria 25 1 2 3 4 5 6 7 Index of production costs 1 (1) The index, which ranges from 1 to 7, has been built taking into account labour costs (40% weight in the index), taxation (20%), electricity prices for industrial users (25%), cost of financing (ie. Interest rates locally, 15%). Source: World Economic Forum Global Competitiveness Index, World Bank Ease of doing business, Eurostat, UniCredit CEE Strategic Analysis, 2009
Unemployment is the biggest challenge Unemployment Rate 17.5 13.5 16.11 13.6 9.5 55 5.5 1 2 3 4 5 6 7 8 9 10 11 12 months 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 GDP Growth (%) 6.2 5.3 9.4 8.4 6.9 4.7 1.1 New Employment -170-207 644 255 284 235 456 Non-Agricultural New Employment 461 86 409 1,162 689 347 307 Agricultural New Employment -631-293 235-907 -405-112 149 Source: Turkstat
Women in Labor Market Labor Force Participation Rate Change in Employment (Feb. 2009, YTD thousand) 80 60 69.1 Services Industry 40 23.5 Agriculture 20 Total employment 0 2007 2008 months men women 2009-Jan n-feb -400-300 -200-100 0 100 200 300 Men Women Adjustment is taking place in labor market during the crisis. Women employment increase, men are loosing jobs. Source : Turkstat
Employed Women not Registered to Any Public Social Security Institution (February 2009) AGRICULTURAL SECTOR NON-AGRICULTURAL SECTOR 100% 100% 100% 75% 97% 80% 97% 95% 90% 85% 80% 89% 60% 40% 20% 0% 21% 22% 83% Regular and Casual employee Employer Own account worker Unpaid family worker agriculture Regular and Casual employee Employer Own account worker Unpaid family worker non- agriculture Source: Turkstat
Positives: Signs of Recovery? Automobile Sales (number) Durable Good Sales (number) 70000 600,000 60000 50000 500,000 40000 400,000 30000 20000 300,000 10000 200,000 Ja n F e b M ar A pr M a y Ju n Jul J A u g S e p O ct N o v D e c Ja n Fe b M a r A p r M a y Ju un Ju l A u g Se p O c t N ov D e c 2007 2008 2009 2007 2008 2009 Source: OSD and BESD
Positives: Inflation no more concern, at least in the short-term Inflation CPI Inflation 80 70 68.5 16 60 50 12 40 39 35.0 CPI 8 Target 30 29.7 20.0 4 20 10 0 18.4 12.0 93 9.3 8.0 7.7 9.7 8.4 10.1 5.0 40 4.0 4.0 6 7.5 6.5 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010* 0 05 Q1 05 Q2 05 Q3 05 Q4 06 Q1 06 Q2 06 Q3 06 Q4 07 Q1 Hungary Czech Rep. Bulgaria Russia Turkey 07 Q2 07 Q3 07 Q4 08 Q1 08 Q2 08 Q3 08 Q4 09 Q1 Source: Turkstat and IIF
Positives: Interest rates declining Bond Rates and CB s O/N Rates Selected Interest Rates 28.0% 26.1% 24 24.0% 18 20.0% 16.0% 12.0% 12.3% 12 6 8.0% 9.7% 0 02.01.08 22.01.08 11.02.08 29.02.08 20.03.08 09.04.08 30.04.08 21.05.08 10.06.08 30.06.08 18.07.08 07.08.08 27.08.08 16.09.08 09.10.08 30.10.08 19.11.08 15.12.08 05.01.09 23.01.09 12.02.09 04.03.09 24.03.09 13.04.09 05.05.09 26.05.09 05 Q1 05 Q2 05 Q3 05 Q4 06 Q1 06 Q2 06 Q3 06 Q4 07 Q1 07 Q2 07 Q3 07 Q4 08 Q1 08 Q2 08 Q3 08 Q4 09 Q1 bond CB O/N (ann.comp.) Hungary Czech Rep. Bulgaria Russia Turkey * Hungary: 90-day Treasury bill auction rate. Czech Rep.: Interbank deposit rate (3-month). Bulgaria: Short-term lending rate (annual). Rusia: Central bank refinancing rate. Turkey: Treasury bill (average auction yield). ** Source: IIF Source: ISE, CBRT and IIF
Positives: Expectation surveys steadily on the rise Consumer Confidence Index* Real Sector Confidence Index** 150 140 130 120 110 100 90 80 70 60 2004 1 35 7 9 11 2005 1 35 7 9 11 2006 1 35 7 9 11 2007 1 35 7 9 11 2008 1 35 Consumer confidence index Purchasing power (present) Assessment on spending money on durable goods (present) 7 9 11 2009 1 3 160 140 120 100 80 60 40 2007 3 4 5 6 7 8 9 10 11 12 2008 1 2 3 4 5 6 7 8 9 10 11 12 2009 1 2 3 4 5 Real Sector Confidence Index Investment Expenditures (next 12 months) Export Orders (next 3 months) Domestic orders (next 3 months) * Central Bank and Turkish Statistical Institution ** New index starting from 2007.
Closing words There are more signs of green shoots in the global economy suggesting that the worst may be over. Risks are beginning to shift to the management of an exit from fiscal stimulus and large budget deficits, monetary and quantitative easing. Budget deficits, inflation concerns, increase in commodity prices and increase in interest t rates are the future agenda for almost every country during the recovery, including Turkey. Turkey started to implement crisis management measures, after notable delay. Deteriorating public finances and labor market weaknesses are the major threats ahead of Turkey. Unemployment and depressed domestic demand may forestall the return to recovery. We need credible medium and long-term strategies for an overall transformation of the existing model. However, these measures always surpass the life of a governing authority. Once Turkey is back on track with fiscal and economic reforms, recovery may be faster than expected.
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