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Turkey: Macroeconomic Outlook And Monetary Policy - 20 April

IM Research
By IM Research
7 years ago
Turkey: Macroeconomic Outlook And Monetary Policy - 20 April

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  1. MACROECONOMIC OUTLOOK AND MONETARY POLICY IN TURKEY Murat Çetinkaya Governor April 20, 2017 Washington D.C.
  2. Outline I . Macroeconomic Outlook II. Monetary Policy 2
  3. Macroeconomic Outlook 3
  4. Turkey has outperformed emerging economies in recent years . Growth Rates in Turkey and Emerging Economies (Percent) 10 9 Turkey Emerging Economies excluding China and India 8 7 6 5 4 3 2 1 0 2012 2013 2014 2015 2016 Emerging Economies excluding China and India: Brazil, Chile, Colombia, Czechia, Hungary, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, S Africa, Thailand, Turkey, Ukraine. Source: Bloomberg, CBRT. Last Observation: 2016 Q4 4
  5. The contraction in 2016 Q3 proved temporary . Seasonally Adjusted GDP (Chain-Linked Volume Index, 2009=100) 165 160 155 150 145 140 135 130 125 120 115 1 2 3 2012 Source: TURKSTAT. 4 1 2 3 2013 4 1 2 3 2014 4 1 2 3 2015 4 1 2 3 4 2016 Last Observation: 2016 Q4 5
  6. Leading data indicate mild growth in 2017 Q1 ; economic activity is expected to gain pace in Q2. Industrial Production PMI Production Index (QoQ, Seasonally Adjusted) (Seasonally Adjusted) 5 60 4,1 58 4 56 3 54 2 1,0 1 52 50 0 48 -1 46 -2 44 42 03.17 11.16 07.16 03.16 11.15 07.15 03.15 2017 11.14 2016 07.14 2015 03.14 2014 11.13 2013 07.13 2012 40 03.13 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1* 11.12 -4 07.12 -2,8 03.12 -3 * Average of January and February 2017. Source: TURKSTAT, CBRT. Last Observation: February, 2017 Source: PMI Markit. Last Observation: March, 2017 6
  7. Export oriented firms display stronger performance . Capacity Utilization Rate (Seasonally Adjusted, Percent) 80 78 76 74 72 Exporters 70 Others 68 1 2 3 2012 Source: CBRT. 4 1 2 3 2013 4 1 2 3 2014 4 1 2 3 2015 4 1 2 3 2016 4 1 2017 Last Observation: March, 2017 7
  8. Net exports will contribute to growth positively in 2017 . Exports and Imports (Volume Indices, Seasonally Adjusted, 2015=100) 115 110 105 100 95 Exports Imports 90 1 2 3 2015 4 1 2 3 2016 4 1* 2017 * Forecast Source: TURKSTAT. Last Observation: February, 2017 8
  9. Demand from the European Union economies will continue to provide significant contribution to export growth . Exports to EU and EU’s Final Domestic Demand 15 160 EU's Final Domestic Demand (billion €) Exports to EU (2010=100, right axis) 14 140 13 120 12 100 11 80 10 60 9 2017* 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 20 2004 7 2003 40 2002 8 * Forecast. Source: Eurostat, IHS, CBRT. Last Observation: 2016 9
  10. Real exchange rate hovers at historically low levels . Real Effective Exchange Rate (CPI-Based, 2003=100) 140 130 120 110 100 89,4 90 Source: CBRT. 03.17 09.16 03.16 09.15 03.15 09.14 03.14 09.13 03.13 09.12 03.12 09.11 03.11 09.10 03.10 09.09 03.09 09.08 03.08 09.07 03.07 09.06 03.06 09.05 03.05 09.04 03.04 09.03 03.03 80 Last Observation: March, 2017 10
  11. Current account balance has adjusted markedly in recent years ; sequential trend suggets further improvement. Current Account Balance Current Account Balance (12-Month Cumulative, Percent of GDP) (Excluding Gold, Seas. Adj., 3-Month MA, Billion USD) 0 0 -1 -1 -2 -2,1 -2 -3 -3,8 -3 -4 -4,0 -5 -6 -4 -5 -7 -6 -8 CAB/GDP Source: CBRT. 11.16 05.16 11.15 05.15 2016 11.14 2015 05.14 2014 11.13 2013 05.13 2012 11.12 2011 05.12 2010 -8 11.11 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 05.11 -10 -7 11.10 CAB/GDP (excl. gold) 05.10 -9 Last Observation: February, 2017 11
  12. Current account deficit is financed mainly through long term borrowing and FDI flows . Financing of Current Account Deficit (12-Month Cumulative, Billion USD) 100 80 60 40 20 0 -20 FDI and Long Term Portfolio and Short Term CAD 05.07 08.07 11.07 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 02.12 05.12 08.12 11.12 02.13 05.13 08.13 11.13 02.14 05.14 08.14 11.14 02.15 05.15 08.15 11.15 02.16 05.16 08.16 11.16 02.17 -40 *Long term inflows are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury. Short term capital movements are sum of banking and real sectors' short term net credit and deposits in banks. Source: CBRT. Last Observation: February, 2017 12
  13. CPI inflation increased sharply since November due to base effects in food prices , higher oil prices, and FX pass-through. CPI and Core Price Index (B)* (Annual Percentage Change) 11 10 9 8 7 6 CPI 5 B 03.17 01.17 11.16 09.16 07.16 05.16 03.16 01.16 11.15 09.15 07.15 05.15 03.15 01.15 11.14 09.14 07.14 05.14 03.14 01.14 11.13 09.13 07.13 05.13 4 *B index, among special indicators, which are newly released by the TURKSTAT, is the successor of the H index released before 2017. B: CPI excluding unprocessed food, energy, alcoholic beverages tobacco and gold. Source: TURKSTAT, CBRT. Last Observation: March, 2017 13
  14. The contribution of unprocessed food , energy and tobacco prices to CPI inflation rose dramatically in recent months. Contribution of Unprocessed Food, Energy and Tobacco (Percentage Points) 5 4 3 2 1 Source: TURKSTAT, CBRT. 03.17 01.17 11.16 09.16 07.16 05.16 03.16 01.16 11.15 09.15 07.15 05.15 03.15 01.15 11.14 09.14 07.14 05.14 03.14 01.14 11.13 09.13 07.13 05.13 0 Last Observation: March, 2017 14
  15. Exchange rate pass-through has been the main driver of core inflation . Import Price Index (2010=100) 220 200 180 Import Prices (in USD) Import Prices (in TL) 160 140 120 100 80 Shaded area shows the forecasts for March and April 2017. Source: TURKSTAT, CBRT. 03.17 11.16 07.16 03.16 11.15 07.15 03.15 11.14 07.14 03.14 11.13 07.13 03.13 11.12 07.12 03.12 11.11 07.11 60 Last Observation: February, 2017 15
  16. The historically high impact of fiscal measures during the past year is expected to fade away throughout 2017 . Contribution of Tax Adjustments to Inflation (Percent) 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 2011 Source: TURKSTAT, CBRT. 2012 2013 2014 2015 2016 Last Observation: December, 2016 16
  17. Inflation is expected to peak in April , before gradually coming down in the forthcoming period. January 2017 Inflation Report Forecasts Forecast Range* Uncertainty Band Year-End Inflation Targets Realization Control Horizon 11 11 12.19 09.19 06.19 -3 03.19 -3 12.18 -1 09.18 -1 06.18 1 03.18 1 12.17 3 09.17 3 06.17 5 03.17 5 12.16 7 09.16 7 06.16 9 03.16 9 12.15 Percent Output Gap *Shaded region indicates the 70 percent confidence interval for the forecast. Source: January 2017 Inflation Report. 17
  18. Monetary Policy 18
  19. The CBRT has significantly tightened monetary policy . Money Market Rates (Percent) 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 Average O/N Funding Rate in BIST* 1 Week Swap Rate CBRT Average Funding Rate 6 6 *Average O/N Funding Rate in BIST excluding CBRT Funding. Source: CBRT, BIST. 04.17 03.17 02.17 01.17 12.16 11.16 10.16 09.16 08.16 07.16 06.16 05.16 04.16 03.16 02.16 5 01.16 5 Last Observation: April 17, 2017 19
  20. The yield curve confirms the tight stance of monetary policy . Yield Curve (Swap, Percent) 12,5 12,5 12,0 12,0 11,5 11,5 11,0 11,0 10,5 10,5 10,0 10,0 9-Jan-17 9,5 9,5 17-Apr-17 9,0 9,0 0.25 Source: Bloomberg. 0.5 1 2 3 Term (Year) 4 5 7 10 Last Observation: April 17, 2017 20
  21. Currency volatility abated shortly after the tightening . Options Implied TL Volatility (12-Month, Percent) 18 18 CBRT Policy Response 15 14 14 Source: Bloomberg. 04.17 15 03.17 16 02.17 16 01.17 17 12.16 17 Last Observation: April 17, 2017 21
  22. Comprehensive measures taken by regulatory and government authorities have been effective in stimulating credit growth . Annual Percentage Change (Adjusted for Exchange Rate Effect) 25 25 Commercial 20 20 Consumer Source: Bloomberg. 03.17 02.17 01.17 12.16 10.16 09.16 08.16 06.16 05.16 04.16 02.16 01.16 12.15 0 10.15 0 09.15 5 08.15 5 06.15 10 05.15 10 04.15 15 03.15 15 Last Observation: April 07, 2017 22
  23. Asset quality for corporate loans confirms the resilience of firms against shocks . NPL Ratios For Corporate Loans (Percent) 5,0 5,0 4,5 4,5 3,9 4,0 3,5 4,0 3,5 3,0 3,0 FX 2,5 2,5 TL 2,0 2,0 1,5 1,1 1,5 1,0 1,0 0,5 0,5 0,0 0,0 1 2 3 2013 Source: Independent audit reports. 4 1 2 3 2014 4 1 2 3 2015 4 1 2 3 4 2016 Last Observation: 2016 Q4 23
  24. Overview  Recent macroeconomic developments indicate the resilience of the Turkish economy.  Supportive fiscal and macroprudential policies have mitigated the downside risks on economic activity.  Contribution of exports to economic growth will increase throughout 2017.  Lagged impact of cost push factors will keep inflation at elevated levels in the near term.  Tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement. 24
  25. MACROECONOMIC OUTLOOK AND MONETARY POLICY IN TURKEY April 20 , 2017 Washington D.C.