AN OVERVIEW OF THE ECONOMY AND THE INDUSTRY IN 2018

Global growth trend has been revised for both developed and developing economies in 2018.

IMF’s global growth slowed to 3,7% in 2018. The same organization decreased its growth forecasts for some countries including USA, China, Germany and France for 2019.

IMF revised Turkey’s growth expectation as well and stated that it anticipates a growth rate of 0,4% in 2019.

2018 has witnessed significant fluctuations in financial markets.

USD/TL rate which started the year at 3,80, ending the year at 5,29. After experiencing a significant loss of value in August, Turkish Lira has recovered some of this loss with favorable developments in foreign policies in the months to follow.

After the exchange rate shock in August, a rapid rate of increase in Turkey’s risk premium has been observed in comparison with other developing countries. Credit default swap premium which was at 155 base points at the beginning of 2018, closed the year at 361 base points.

Fluctuation in exchange rates caused an increase in bond interests as well. 2-year benchmark bond interest was 13,43% at the beginning of 2018 and reached 20,71% at the end of the year. 10-year bond interest which started the year at 11,6% was up to 16,69% at year end.

Central Bank of Turkey responded to price developments with interest rate hikes.

Central Bank of Turkey (TCMB) continued its tight monetary policy in 2018 and increased interest rates 5 times during the year. Following the 125 base point increase in June, CBRT hiked another 625 basis points in September due to high FX volatility and inflationary pressures. By 2018 year end, one week repo rate was set at 24%, overnight lending rate at 25,5% and late liquidity window interest rate at 27%.

Ratio of current account deficit to GDP has decreased by almost 2 points YoY.

In addition to shrinking growth trend and decreasing import demand, as well as decrease in tourism revenues, current account deficit to GDP ratio has gone down from 5,6% to 3,6% in 2018.

On the finance side, while financial fluctuations during summer months resulted in fx deposit outflow and repayment of FX denominated loans from abroad.Throughout the year, Central Bank foreign currency reserves increased by USD 19 billion.

Economic stabilization that started in the second half of 2018 in Turkey is expected to continue until mid-2019.

Turkish economy which grew by 1,6% annually in the third quarter of 2018 due to shrinking credit growth and tightening financial conditions is expected to have a negative annual growth for the last quarter of 2018 and first two quarters of 2019. However it is anticipated that net exports will run strongly during that period and it will have a positive contribution to growth performance. In the second half of the year, annual growth might turn out to be positive thanks to credit-incentive programs and increase in minimum wages.

The New Economic Program estimates growth rate will be close to 2,3% in 2019