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BBVA Research
January 2018
Turkey Economic Outlook – 1Q 2018
Key messages
GLOBAL
Global growth confirmed and
short-terms risks moderated
Turkey Economic Outlook – 1Q 2018
Global risks
05 Less significant in the short run;
without changes in medium to
long run
4
Turkey Economic Outlook – 1Q 2018
1.2
The global economy continues to grow,
supported by the recovery of the industrial sector
1.0
Confidence indicators continue to improve, and
anticipate the outlook will continue to be positive
0.4
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
EURO ZONE
UNITED STATES
2018 2019
MEXICO 6.3 6.0
2018 2019 2018 2019
2.0 2.2 4.5 4.3
WORLD
SOUTH AMERICA
2017 2018
2018 2019 3.8 3.8
1.6 2.6
TURKEY
Up
Unchanged
Down
2011
2012
2013
2014
2015
2016
2017
2018
2000
2009
2010
developed economies
7
Turkey Economic Outlook – 1Q 2018
A better outlook for emerging economies but also for oil prices
Price of oil
(Dollars per barrel,%)
The increase in oil prices reflects a greater
global demand, which would account for 60% of
65.9 such increase
61.5 21.8%
But this is also due to supply factors, linked to
geopolitical risks and the correction of
18% inventories
Interest rate
rises
Partial
Hike in interest rates reinvestment
Reinvestment of
maturities
Reduction
of
purchasing
of bonds Fed
Easing
BoJ
ECB
9
Turkey Economic Outlook – 1Q 2018
Elements of uncertainty:
2
"Risk-on mood"
Acceleration in
1.5 the normalization
process
Pre-Trump
1
0.5
-0.5
Post-Trump
-1
"Risk-off mood"
-1.5
-2
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Turkish
Economy
Strong Growth and Inflation
12
Turkey Economic Outlook – 1Q 2018
13
Turkey Economic Outlook – 1Q 2018
0.04 4.05
FX Depreciation
0.03
3.95
0.02
3.85
0.01
0 3.75
-0.01
3.65
-0.02
FX Appreciation
3.55
-0.03
-0.04 3.45
Oct-17 Nov-17 Dec-17 Jan-18
May-17
May-17
Apr-17
Feb-17
Mar-17
Mar-17
Jul-17
Jul-17
Oct-17
Oct-17
Aug-17
Sep-17
Nov-17
Dec-17
Dec-17
Jan-17
Jan-17
Jun-17
Jan-18
TL Weekly Change %
14
Turkey Economic Outlook – 1Q 2018
14%
Hundreds
2017
13%
M ean May Jun Jul Aug Sep Oct Nov Dec
Industrial Production 3.9 4.2 2.2 7.7 7.7 13.8 8.6 9.6 11%
Non-metal Mineral 1.7 2.7 0.9 8.2 8.4 14.2 7.7 8.7
Electricity Production 4.5 6.6 4.5 8.4 8.5 12.2 9.5 9.7 6.5
10%
Auto Sales 3.5 -10.3 -9.7 2.4 7.1 14.6 7.3 -1.4
8%
Tourist Arriv als 2.1 26.5 36.5 45.5 45.3 38.2 31.0
Number of Employ ed 5.5 16.1 10.5 6.1 1.5 -0.8 -5.1 7%
Number of Unemploy ed 3.5 2.0 2.7 3.5 4.3 4.5 4.8
5%
Auto Imports 5.1 -13.9 -14.4 -6.7 -3.4 3.1 -0.9 -8.4
Auto Exports 9.2 32.4 24.0 23.2 9.8 5.9 33.3 28.9 4%
Financial Conditions 75.4 30.6 35.6 40.5 35.4 38.9 26.1 10.0 15.2
2%
13-week Credit Growth 17.8 37.2 29.2 20.1 17.6 14.5 14.5 12.0 13.4
Retail Sales 3.6 0.1 0.8 1.8 2.0 1.5 1.3 1.9 1%
Real Sector Conf idence 106.1 104.8 108.8 107.7 110.2 111.2 112.2 109.8 109.2
-1% BBVA-GB GDP Growth (Monthly)
MICA Forecast 11.8% 9.1% 6.7% GDP Growth October : 11.8% (100% of inf.)
GDP Y oY 5.4% 11.1% -3% November : 9.1% (90% of inf.)
GDP growth nowcast
Co ntractio n Slo w-do wn Gro wth Boom
-4% Mar-14 December : 6.7% (26% of inf.)
Mar-15
Mar-16
Mar-17
Sep-13
Dec-13
Sep-14
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Jun-14
Jun-15
Jun-16
Jun-17
Source: BBVA Research Nowcasting Model 15
Turkey Economic Outlook – 1Q 2018
Strong domestic demand has finally benefited the labor market while
the amount of slack has now disappeared
Unemployment Rate Output Gap Models and Core inflation
(SA, %) ( Ouput gap % of GDP (left) and Core Inflation B YoY ,right)
24% 5 14
12%
4
12
3
2 10
21%
11%
1
8
0
6
-1
10% 18%
-2 4
-3
2
-4
9% 15%
-5 0
Feb-15
Feb-14
Feb-16
Feb-17
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Jun-14
Jun-15
Jun-16
Jun-17
2012
2013
2014
2015
2016
2017
Unemployment Rate Median 6 Models* 1 stdev range BBVA MPM Model Output Gap
Youth people unemployment rate-rhs Core Inflation (RHS) Central Bank of Turkey November IR Output Gap
* Output gap one standard deviation range includes: Linear Model, Capacity
Utilization, Hodrick-Prescott Filter (1600), Credit Neutral (Borio et al), Multivariate
Filter Model , Open Economy NK Model.
Source: Turkstat and BBVA Research Source: BBVA Research & CBRT Inflation Report 17
Turkey Economic Outlook – 1Q 2018
Favorable base effects on food will help inflation fall sharply in the
short term but it will navigate on high levels due to still high domestic
demand, inertia and lagged effects of exchange rate depreciation
CPI Inflation & Its Components Inflation Expectations
(YoY) (YoY)
17% 0.095
14% 0.09
11% 0.085
8% 0.08
5% 0.075
2% 0.07
-1% 0.065
-4% 0.06
Mar-14
Mar-15
Mar-16
Mar-17
Dec-13
Sep-14
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Jun-14
Jun-15
Jun-16
Jun-17
Mar-14
Mar-15
Mar-16
Mar-17
Dec-13
Jun-14
Sep-14
Dec-14
Jun-15
Sep-15
Dec-15
Jun-16
Sep-16
Dec-16
Jun-17
Sep-17
Dec-17
The CBRT tightened monetary policy by 75 bps at the end of 2017 with
additional «verbal tightening» during the last meetings
CBRT Interest Rates CBRT Monetary Policy Statement Sentiment
(Annual Level, %) (Standardized, estimated through Big Data LDA Techniques from
Minutes & Statements)
14% 4
Hundreds
10% 1
9%
0
8%
-1
7%
6% -2
5%
-3
May-16
May-15
May-17
Jan-15
Sep-15
Jan-16
Sep-16
Jan-17
Sep-17
Jan-18
Jul-10
Jul-06
Jul-07
Jul-08
Jul-09
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jan-10
Jan-18
Jan-06
Jan-07
Jan-08
Jan-09
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
CBRT One-Week Repo CBRT Cost of Funding
CBRT LLW
0.02
We expect some deterioration in fiscal balance
0.015
on the back of lower nominal revenues and
0.01 some upward pressures on expenditures
0.005
Better than expected budget deficit in 2017
0 opens the door for more fiscal consolidation
-0.005
However, we think that the Government will
-0.01 stick to the programmed Medium Term Plan
given some pressures on some expenditure
-0.015
items (i.e defence and security)
-0.02
-0.025
Dec.12
Dec.13
Dec.14
Dec.15
Dec.16
Dec.17
Dec.18
Dec.19
Dec.20
45%
Intense
30%
15%
High
0%
Low
-15%
-30%
Safe
-45%
May-13
May-14
May-15
May-16
May-17
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Nov-12
Aug-13
Nov-13
Aug-14
Nov-14
Aug-15
Nov-15
Aug-16
Nov-16
Aug-17
Nov-17
Jul-16
Mar-16
May-16
Apr-16
Mar-17
May-17
Apr-17
Jul-17
Feb-16
Oct-16
Feb-17
Oct-17
Aug-16
Sep-16
Nov-16
Dec-16
Aug-17
Sep-17
Nov-17
Dec-17
Jan-16
Jun-16
Jan-17
Jun-17
Strong domestic demand, higher energy prices and gold imports led
current account deficit to rise above 5% of GDP again
Current Account Balance Current Account Financing
(12M sum, bn USD) (12M sum, % GDP)
14%
30.0
12%
10.0
10%
-10.0 8%
-30.0 6%
4%
-50.0
2%
-70.0
0%
-90.0
-2%
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
CAB CAB Exc. Energy & Gold
Net Portfolio Flows Net FDI Net Other Investment CAD
Turkey
Outlook
The Base Scenario and
The Balance of Risks
23
Turkey Economic Outlook – 1Q 2018
GDP Forecasts
(YoY)
12%
Economic growth will moderate as last year´s
11% stimuli fade away. We expect GDP to grow
9% 4.5% in 2018 after the extraordinary growth
8%
rate of 2017 at 7.0%
Aug.16
Aug.17
Aug.18
Aug.19
Dec.14
Dec.15
Dec.16
Dec.17
Dec.18
Dec.19
Apr.15
Apr.16
Apr.17
Apr.18
Apr.19
Inflation will remain high but the worst is over in our base case scenario
Inflation Forecasts
(3MA YoY baseline scenario)
Mar-18
Mar-19
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Jun-16
Sep-16
Jun-17
Sep-17
Jun-18
Sep-18
Jun-19
Sep-19
The CBRT will maintain the current policy unless a new shock arises.
Exchange rate will depreciate more moderately.
Monetary Policy Rate Forecasts Exchange Rate Forecasts
(% Average Funfing Cost) (USDTRY Level baseline scenario)
16% 5.2
5
14% 4.8
12% 4.6
4.4
10% 4.2
4
8%
3.8
6% 3.6
3.4
4% 3.2
3
2%
2.8
0% 2.6
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Mar-17
Mar-16
Mar-18
Mar-19
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Jun-16
Sep-16
Jun-17
Sep-17
Jun-18
Sep-18
Jun-19
Sep-19
Elements of uncertainty:
Baseline forecasts
Private consumption (%) 3.7% 6.2% 4.0% 3.6% 4.3% 4.1% 4.1% 4.3%
Public consumption (%) 9.5% 2.2% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5%
Gross fixed investment (%) 2.2% 7.9% 3.0% 4.6% 5.1% 5.7% 5.6% 5.5%
Exports (%) -1.9% 11.8% 8.4% 6.5% 6.0% 5.6% 5.6% 5.5%
Imports (%) 3.7% 6.1% 5.2% 5.6% 6.5% 6.5% 6.5% 6.5%
Inflation (end of period. YoY %) 8.5% 11.9%* 9.0% 8.0% 7.5% 7.0% 6.7% 6.0%
Exchange Rate vs US dollar (end of period) 3.52 3.77* 4.15 4.45 4.65 4.84 5.04 5.25
Exchange Rate vs US dollar (average) 3.02 3.65* 4.01 4.31 4.56 4.75 4.95 5.16
Official Interest Rate (end of period) 8.3% 12.8%* 12.8% 10.0% 8.3% 7.5% 7.5% 7.5%
Official Interest Rate (average) 8.4% 11.5%* 12.8% 11.6% 8.6% 7.8% 7.5% 7.5%
Current Account Balance (% of GDP) -3.8% -5.5% -5.6% -5.6% -5.4% -5.4% -5.4% -5.5%
Central Government Budget Balance (% of GDP) -1.1% -1.5% -2.2% -2.2% -2.1% -1.8% -1.6% -1.4%
EU Defined Public Debt (% of GDP) 28.3% 29.3% 30.9% 31.6% 31.7% 31.4% 31.1% 31.0%
This report has been produced by the Turkey, China and Geopolitics Unit
Chief Economist for Turkey, China and Geopolitics Unit
Álvaro Ortiz
alvaro.ortiz@bbva.com
Seda Güler Mert Adem İleri Yiğit Engin Serkan Kocabas
sedagul@garanti.com.tr ademil@garanti.com.tr yigite@garanti.com.tr serkankoc@garanti.com.tr
+90 212 318 10 64 +90 212 318 10 63 +90 212 318 10 60 +90 212 318 10 57
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Turkey Economic Outlook
1st Quarter 2018
BBVA Research
January 2018