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Economic Outlook of Turkey
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    Economic Outlook of Turkey Economic Outlook of Turkey Presentation Transcript

    • Turkish Economic OutlookNovember 23, 2012Mehmet ŞimşekMinister of Finance1
    • Outline2Determinants of Long-Term GrowthShort-Term Macro OutlookFiscal Performance & OutlookChallenges & Structural IssuesMedium-Term OutlookReform Agenda
    • Determinants of Long-Term GrowthQuality of InstitutionsDemographicsProductivity3
    • Progress along These Lines?4
    • Quality of InstitutionsCombattingcorruptionCreating a levelplaying fieldImprovinginternationalcompetitiveness5
    • Corruption Perceptions Index (2002)(65th among 102 countries)3144 4558 59657073 74962030405060708090100 ItalyGreeceBrazilMexicoChinaTURKEYArgentinaIndiaRussiaIndonesiaSource: Transperancy Intenational6
    • Corruption Perceptions Index (2011)6166 66 697375 758095100 100 100143152406080100120140160TURKEYCrotiaSlovakRepublicItalyBrazilChinaRomaniaGreeceIndiaArgentinaIndonesiaMexicoRussiaUkraine(61st among 183 countries)Source: Transperancy Intenational7
    • Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 117 countries)384547 48535457 59697130354045505560657075ItalyIndiaGreeceChinaRussiaArgentinaBrazilMexicoIndonesiaTURKEYSource: World Economic ForumGlobal Competitiveness Index (2005)8
    • Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(43rd among 144 countries)Source: World Economic ForumGlobal Competitiveness Index (2012)294142 434849505359 6067717378942030405060708090100ChinaPolandItalyTURKEYBrazilPortugalIndonesiaMexicoIndiaHungaryRussiaSlovakRepublicUkraineRomaniaArgentineMoved up 16 places in a year2nd fastest rising country9
    • 6269 707184939710811112213113860708090100110120130140MexicoItalyUruguayRomaniaTURKEYArgentinaRussiaChinaGreeceBrazilIndonesiaIndia(84th among 175 countries)Source: World BankEase of Doing Business (2006)10
    • 4871 72737884 8991112124 128 130 13213720406080100120140MexicoTURKEYRomaniaItalyGreeceCrotiaUruguayChinaRussiaArgentinaIndonesiaBrazilIndiaUkraine(71st among 185 countries)Source: World BankEase of Doing Business (2013)11
    • EU Accession12Despite unfavorable politics of enlargement,EU accession process is relevantDespite the general perception of no progress,the underlying trend is positive
    • Favorable Demographics13Source: EurostatShareof15-24yearsinTotalPopn(%)16,879111315171921 AndorraItalyGreeceSpainPortugalGermanySloveniaIrelandBulgariaLuxembourgSwitzerlandCroatiaCzechRepublicAustriaLiechtensteinSerbiaHungaryNetherlandsFinlandFranceDenmarkUnitedKingdomNorwaySwedenEstoniaUkraineMaltaPolandLatviaSlovakiaMontenegroLithuaniaIcelandFormerYugoslavRepublic…GeorgiaTurkeyMoldovaAzerbaijan
    • 71,930,383,468,82030405060708090Male FemaleOverall Higher EducationLabor Participation Rate2012July(%)Source: TURKSTATRoom for improvement with further education14
    • Improving Girls’ Education2002 201191 girls per100 boys100.4 girls per100 boys
    • Source: Ministry of DevelopmentSchooling Ratios are Improving (Gross Rates)1611,296,580,835,846,4108,492,681,61030507090110130pre-primary education primary education secondary education higher education2002-2003 2011-2012
    • Have Investors noticed theTransformation?17
    • Int’l Companies Operating in Turkey (1000s)Source: Ministry of Economy185,66,78,811,715,016,119,222,025,329,630,90510152025303520022003200420052006200720082009201020112012September
    • Foreign Direct Investment InflowsSource: CBRTBilliondollar14.8119.90204060801001201401980-2002 2003-2012 September19
    • REER AppreciationSource: CBRT(2003=100)2055657585951051151251351989-171990-171991-171992-171993-171994-171995-171996-171997-171998-171999-172000-172001-172002-172003-172004-172005-172006-172007-172008-172009-172010-172011-172012-17Linear Trend
    • SHORT-TERM MACRO OUTLOOK21
    • Back to Growth22
    • Strong Post-Crisis RecoverySource: TURKSTATRealGDP(s.a,2007Q4=100)96,1101,688,2114,1808590951001051101152007-Q1Q2Q3Q42008-Q1Q2Q3Q42009-Q1Q2Q3Q42010-Q1Q2Q3Q42011-Q1Q2Q3Q42012-Q1Q223
    • Done with Rebalancing?ContributiontoGrowth,%Source: TURKSTAT17,313,59,52,21,0-2,0-5,6-5,10,53,24,65,7-6-14914Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12Domestic DemandNet Export24
    • Indicators Point to Pick up in DemandPurchasingManagersIndexSource: CBT, HSBCCapacityUtilizationRate2555606570758085303540455055602007-13579112008-13579112009-13579112010-13579112011-13579112012-13579Purchasing Managers IndexCapacity Utilization Rate
    • Factors Supportive of Growth26
    • Strong EmploymentSource: TURKSTATEmployment(MnPeople,s.a.)272021222324252008-12009-12010-12011-12012-1
    • Unemployment at Decade Low28801001201401601802002202008-12009-12010-12011-12012-1USAEU-27TurkeyUnemploymentRate,s.a.(December2007=100)
    • Well-Capitalized & Highly Profitable Banks5101520252006-12007-12008-12009-12010-12011-12012-1Target Rate 12%CapitalAdequacyRatio,%Legal Rate 8%Source: BRSA29
    • Solid Asset Quality30NonperformingLoanstoTotalLoans*,%* Latest dataSource: BRSA, IMF2,9048121620GreeceRomaniaItalyPortugalRussiaSpainCzechRepublicFranceDenmarkUnitedKingdomUnitedStatesBrazilNetherlandsGermanyTurkeyBelgiumAustriaJapanAustraliaCanadaFinland
    • Relatively under-Leveraged Households95,488,066,019,5020406080100120England US Euro Area TurkeyHouseholdLiabilities,%ofGDP201131Source: CBRT, ECB, Bloomberg
    • Easier Financial Conditions325,009,005,75381320.10.201122.12.201122.02.201218.04.201221.06.201216.08.201219.10.2012O/N Borrowing O/N Lending One-Week Repo RateSource: CBRT
    • 13weekmovingavg.,y-on-y%Credit GrowthSource: Central Bank of Turkey.Note: Credit Growth is adjusted for exhange movements.Jan.Feb.Mar.Apr.May.Jun.Jul.Aug.Sep.Oct.Nov.Dec.331001020304050602012 2011 2007-2011 Average
    • Other Factors34Urban RenewalSale of 2B LandRemoval ofReciprocity
    • Fiscal Performance & Outlook35
    • General Government Deficit10.81.60.9-327122002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015ProjectionsGen.Gov.BudgetDeficit/GDP(%)Source: Ministry of Finance
    • Gross Public Debt74.036.531.0303540455055606570752002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015ProjectionsSource: TreasuryDebt/GDP(%)
    • 88.4-3.5-5515253545556575852002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Q238(BillionTL)Zeroing Net Public Sector External DebtSource: Treasury
    • 2012 Oct.200344%47%9%Fixed Floating CPI Indexed53%28%19%Fixed Floating CPI IndexedLower Interest Rate RiskSource: TreasuryNote: Central Government Domestic Debt Stock39
    • 4041.972.858.127.2203040506070802002 2011TL Stock Döviz StockFX SockLower FX RiskCentralGovernmentDebtStock(%)Source: Treasury
    • 41Source: TreasuryNote: As of August 2012, the average maturity of domestic cash borrowing is 60.8 months.9.444.7813182328333843482002 2011Lengthening Maturity of Domestic BorrowingMaturityofDebt(Months)
    • A Soft Spot: Current Account Deficit42
    • Current Account Deficit is Large, but(12MonthRolling,USDbn)Source: Central Bank of TurkeyNarrowing43-80-60-40-20020402002-147102003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-147Current AccountCurrent Account without Energy ImportCurrent Account + Net FDI + Net Errors and Omissions
    • Financing Quality is ImprovingSource: CBRT(12MonthRolling,USDbn)44-1001020304050607080902007-13579112008-13579112009-13579112010-13579112011-13579112012-13579FDI Inflows and Long-Term Portfolio and Short-Term Current Account Deficit
    • REER is still Supportive of AdjustmentSource: Central Bank of TurkeyCPI-DevelopingCountries-BasedREER(2003=100)458590951001051101151201252003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-14710
    • Europe56.6%Other43.4%Exports 2002Diversifying away from Europe?Europe38.3%Other61.7%Exports Jan-Sep 2012Source: TURKSTAT46
    • Source: TURKSTATExports to Asia (% Total Exports)14,535,912182430362002 2012Jan-Sep47
    • Source: TURKSTATMENA: a life saverExportstoMENA(%ofTotal)12,132,81015202530352002 2012Jan-Sep48
    • Exports by Destination(3-MonthMA,2007=100)Source: TURKSTAT49601201802403003602007-13579112008-13579112009-13579112010-13579112011-13579112012-13579EU-27 MENA
    • 832051015202530352000 2011Source: TURKSTATExport Diversification - INumber of Products over $1 billion50
    • 530051015202530352000 2011Source: TURKSTATNumber of Export Markets over $1 billionExport Diversification -II51
    • Share of Largest Five in Total Exports (%)Source: TURKSTAT2002 2011Germany 16.3 Germany 10.3USA 9.3 Iraq 6.2United Kingdom 8.4 United Kingdom 6.0Italy 6.6 Italy 5.8France 5.9 France 5.0Largest five 46.5 Largest five 33.452
    • Current Account Deficitas a Structural Problem53
    • Savings-Investment Gap(%)Source: Ministry of Development541012141618202224262002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
    • -505101520252002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Public Savings/GDP Private Savings/GDPFall in Private Savings(%)Source: Ministry of Development55
    • Source: Ministry of Development, Bloomberg*2012 September 12 Month RollingEnergy Import Bill(BrentType,Dollar/Barrel)EnergyImports(BillionDollars)569,248,354,159,02397111 112,40204060801001200102030405060702002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012SepEnergy Import Oil Prices
    • Medium-to Long-Term Remedies toNarrow Current Account DeficitIncentives for private pensionFocus on local & renewable energyBoosting R&D investmentsIncentives for creating the Turkish BrandNew investment incentive schemeImproving quality of educationBuilding infrastructure57
    • 58Medium-Term Outlook
    • Economic GrowthSource: MTP3,24,05,0 5,03,03,54,04,55,05,52012 2013 2014 2015RealGDPGrowth(%)59
    • Headline Inflation (CPI, %, eop)Source: MTP(%)7,45,35,0 5,0456782012 2013 2014 201560
    • General Government Deficit (%, GDP)Source: MTP611,61,51,20,90,81,01,21,41,61,82012 2013 2014 2015
    • Public Sector Primary Balance (%, GDP)Source: MTP620,50,81,01,10,40,50,60,70,80,91,01,11,22012 2013 2014 2015
    • 63Satisfying Maastricht Criteria since 2004Source: MTP36,535,033,031,030313233343536372012 2013 2014 2015Gross Public Debt (%, GDP)
    • Current Account Deficit (%, GDP)64Source: MTP7.37.16.96.56,46,66,877,27,42012 2013 2014 2015
    • Deterioration in the Eurozone CrisisUSA Debt Ceiling and the Fiscal CliffHard Landing in Emerging MarketsGeopolitical RisksExternal Risks to the Outlook65
    • 66Reform Agenda
    • Reform Agenda67Tax ReformCombatting the Shadow EconomyJudicial ReformImproving Quality of EducationDeepening Financial MarketsEnhancing Investment ClimateLabor Market ReformsR&D and InnovationBuilding a better Infrastructure
    • Tax Reform68
    • Our Tax PolicyImproving FiscalDisciplineRaising Employment& InvestmentsReducing RegionalDevelopment GapsIncreasingCompetitiveness
    • Simplifying Tax SystemBuilding a Simple and Effective Tax system• Boosting competitiveness• Widening tax base• Increasing tax predictability• Supporting Investments & Employment70
    • Legislative Tax Reforms: CompletedCorporateIncome TaxTransferPricingCommercialCode
    • Legislative Tax Reforms: Under ProgressPersonal Income Tax Tax Procedure Law
    • Combatting the Shadow Economy73
    • Combatting the Shadow EconomyA levelplayingfieldImprovedBusinessEnvironmentHealthyEconomySound FiscalPerformanceBetterSocialSafety Net
    • Source: Schneider, 2012Size of the Shadow Economy (2012, % GDP)32,329,629,52928,627,226,52625,82524,322,821,619,419,219,217,116,4161614,814,713,813,713,512,81110,598,27,97,85101520253035 BulgariaRomaniaCroatiaLithuaniaEstoniaTurkeylatviaCyprusMaltaPolandGreeceHungaryItalyPortugalAverageSpainBelgiumCzechRepSloveniaSlovakiaNorwaySweedenDenmarkFinlandGermanyirelandFranceUKNetherlandsLuxembourgAustriaSwitzerland
    • Source: Schneider, 2012Turkey: Size of the Shadow Economy (% GDP)32,231,530,730,429,128,428,928,327,727,226272829303132332003200420052006200720082009201020112012
    • Source: Schneider, 2012Size of Pure Tax Evasion (% GDP)7,87,37,47,57,57,16,86,35,75,35,35,73,63,43,43,43,53,43,33,12,92,62,52,823456789199920002001200220032004200520062007200820092010Turkey Average of 38 CountriesTax evasion is on average 3 ppt higher in Turkey
    • Judicial Reform78
    • Reforms794th Judicial PackageA New ConstitutionNew Patent Law
    • Improving Quality of Education80
    • 11.368.10102030405060702002 2013Source: Ministry of FinanceResources Allocated to EducationBillionTL81
    • Improving Quality of EducationWith Fatih Project, we are providing our children withBroadband Internet AccessSmart BoardsTablet PCsOther Information Technology Tools82
    • Deepening Financial Markets83
    • Revising Capital Markets Law84New legal framework in line with thebest global practices•Increasing financial deepening & innovation•Strengthening investor rights•Improving corporate governane
    • Restructuring of ISE85Regional LeadershipRaising Market Cap/GDP to 80%1,000 new companies
    • Increasing Private Pensions25% State ContributionPenalty for Early Withdrawals86
    • Incentives for Global Fund ManagersA tax free environment for Global Funds87Making it easier to manage assets in Turkey
    • Incentives for Venture Capital• 10% of VC Revenues• 20% of VC CapitalAllowing Venture Capital to be deducted fromCorporate & Personal Income Tax Base, up to88Tax Relief from Dividends
    • Incentives for Business Angels8975% income tax relief onAngel Capital100% tax relief forR&D and InnovationIncome & Withholding TaxRelief on divestment of stocks
    • SukukGlobal issuance: $170 bnSimilar to euro bonds, international holders of Sukukwill not be subject to withholding taxSep-12: First Sukuk issued for $1.5bnOct-12: Sukuk denominated in TL issued for TL1.6bn90
    • Enhancing Investment Climate91
    • YENİ TEŞVİK SİSTEMİRegional Customs DutyExemption VAT Exemption Lower CIT rate Support for theemployer’s share ofinsurance premium Allocation of Land Customs DutyExemption VAT Exemption Lower CIT rate Support for theemployer’s shareof insurancepremium Allocation ofLand Interest Support Customs DutyExemption VAT Exemption Customs DutyExemption VAT Exemption Lower CIT rate Support for theemployer’s shareof insurancepremium Allocation ofLand Interest Support VAT RebateGeneralIn the 6th Region, additional support for The employee’s share of insurance premium Income tax stoppageNew Investment Incentive SchemeLarge-Scale Strategic92
    • Labor Market Reforms93
    • National Employment Strategy4 Main ObjectivesReducing labor market rigiditiesIncreasing employment of women, youth and the disadvantageousStrengthening the link between education and employmentStrengthening the link between employment and social protection94
    • Average Weekly Hours Worked on the Main Job (2011)Source: OECD9548,93032343638404244464850TurkeyKoreaMexicoGreeceCzechRepublicSlovakRepublicPolandIcelandHungarySloveniaPortugalChileEstoniaSpainFranceAustriaItalyNewZealandFinlandLuxembourgBelgiumSwedenUnitedKingdomAustraliaGermanySwitzerlandIrelandNorwayDenmarkNetherlandsHighest among the OECD countries!
    • Share of Part-time Employment (%, 2011)Source: OECD9611,70510152025303540NetharlandsSwitzerlandIrelandAustraliaUnitedKingdomGermanyNewZelandJapanNorwayCanadaDenmarkAustriaBelgiumMexicoChileIcelandItalyLuxembourgSweedenIsraelFranceKoreaSpainFinlandUnitedStatesTurkeyPortugalGreeceEstoniaSloveniaPolandHungarySlovakRepublicCzechRepublıc9th lowest among the OECD countries.
    • R&D and Innovation97
    • Why is R&D so significant for us?The share of high and medium-hightechnology sectors in production and inexport is lowBoosting R&DSource: Ministry of Development27.672.435.664.401020304050607080High and Medium-High Low and Medium-LowProduction Export98
    • •0.862011•0.532002Source: The Scientific and Technological Council of Turkey99R&D Spending
    • Brand Turkey, moving up the LaddersSource: Brand - Finance100With a brand value of$487bn, Turkey ranks inthe top 20.
    • Boosting R&D InnovationCreatingBrand NamesMoving up the Value Chain101
    • Industrial Design Applications36,578 applications in 2011Up by 80 % since 2002Ranking 3rd in EuropeSource: TPI102
    • Trademark Applications• 117,7232011• 36,4292002Source: Turkish Patent Instıtute103
    • Building a better Infrastructure104
    • 1,714 KmTotal of Motorways4,387 KmTotal of State andProvincial DualCarriagewaysTotal: 6,101 KmDual CarriagewayNetwork(January 1, 2003)2,236 KmTotal of Motorways19,565 KmTotal of State andProvincial DualCarriagewaysTotal: 21,801 KmDual CarriagewayNetwork(October 4, 2012)105
    • Our RailwaysPRE-REPUBLIC RAILWAY NETWORK 4,136 km MAINLINEEARLY YEARS OF THE REPUBLIC (1923-1950) 3,764 km MAINLINE (134 km on annual average)1951-2003 945 km MAINLINE (18 km on annual average)2003 DEN GÜNÜMÜZE KADAR (2010 dahil) 1.076 km ANAHAT (Yılda Ortalama 135 km)UNDER CONSTRUCTION 2,047 km MAINLINE2003-2011 1,076 km MAINLINE (135 km on annual average)İSTANBULEDİRNEESKİŞEHİRPOLATLIANKARAKONYAİZMİRSİVASAFYONKAYSERİBURSA ERZİNCANERZURUMKARSMERSİNADANA GAZİANTEPDİYARBAKIRELAZIĞMALATYAZONGULDAKSAMSUNBANDIRMAVANTATVAN2010 : 11.940 km ( Konvansiyonel + Yüksek Hızlı )AdapazarıSource: Ministry of Transport2010:12,000 km (Conventional+High Speed)106
    • High Speed Railway ProjectsİSTANBULESKİŞEHİR POLATLIANKARAKONYASİVAS212km533km405kmYOZGATHST lines to be completed until 2015Completed High Speed Train (HST) Lines: ANK-Eskişehir and ANK-KonyaYerköyHST lines being under-construction in 2015AFYONİZMİRMANİSA 624kmBURSABİLECİK124 km235km ERZİNCANSource: Ministry of Transport 107
    • AIRPORTS AVAILABLE FORCIVIL AVIATION TRAFFIC IN TURKEY20032012Airports serving Scheduled Flight(48)Airports under Construction (6)Airports being Planned(2)The number ofairports servingscheduledflights=48The number ofairports servingscheduledflights=48The number ofairports servingscheduledflights=26The number ofairports servingscheduledflights=26Airports serving Scheduled Flight(26)108
    • THANK YOU…109