WORLD ECONOMY

In 2019, US Central Bank (Fed) changed its policy taking into account the slowdown in US Economy and started adopting expansionary monetary policies again.

As increase in concerns over the future of global economy reduced global demand, growth expectations of countries were revised downwards. Commodity prices, particularly oil prices, fluctuated during the year as a result of additional sanction threats of USA President Trump for Iran and Russia and instability observed in oil exporting countries.

Expectations for 2019 were; recovery of USA economy will continue, the Fed will reduce its balance sheet by increasing interests, European and Japanese Central Banks will continue their expansionary monetary policies and growth in developing countries will accelerate. However, the Fed decreased interests by 75 basis points and increased liquidity starting with the second half of the year considering the slowdown in US economy. At the Fed meeting minutes, interest reductions were positioned as re-arrangement of policy standing, rather than the start of an easing period. Monetary policy makers, who are facing slow global growth and pressures of President Trump, give hints of continuing interest reductions in the future to maintain growth of USA which has been going on for a record period of time.

Despite decreasing rate of unemployment in Euro zone, downward trend in PMI data confirms economic shrinkage. In this context, European Commission reduced its growth expectation for Euro Zone. Moreover, ECB announced that it has restarted its asset purchase program as a result of decrease in domestic demand, industrial production and increase in economic weakening. ECB also decreased deposit interests by 10 basis points more from 0.40% to -0.50%.

IN 2019, US CENTRAL BANK (FED) CHANGED ITS POLICY TAKING INTO ACCOUNT THE SLOWDOWN IN US ECONOMY AND STARTED ADOPTING EXPANSIONARY MONETARY POLICIES AGAIN.

ECB stated that it will continue its expansionary monetary policy unless an obvious recovery is observed in European economy. It is anticipated that negative interest will continue in the following period.

As the Fed started adopting an expansionary monetary policy in 2019, markets in developing countries started to rise and currencies of these countries gained value. However, continuing structural deficiencies in developing countries constitute a barrier for incoming capital flow to these countries.

Fluctuating course of commodity prices during the year had a relatively negative impact on economies of developing countries. Central banks around the world continued to diversify their reserves and accelerated their gold purchases which they regard as safe harbor. This demand in gold caused the rise of gold prices. On the other hand, phase one trade deal was signed between USA and China. This deal states that, in return for USD 200 million of increase in agriculture, product and energy purchases of China from USA in the next two years, USA will remove additional tariffs applied to China in December.

Currencies and markets of developing countries were affected positively from the increase in global risk appetite resulting from this phase one trade deal between China and USA.

TURKISH ECONOMY

In 2019, as a result of the stabilization trend in Turkish economy, interests and inflation followed a significant downward course and TL gained stability. Particularly as a result of base effect in the second half of the year, single digits were achieved in inflation and Central Bank reduced policy interest by 1,200 basis points. As the improvement in inflation continues, Central Bank will continue decreasing interests. Moreover, most recent manufacturing industry data is an indication of a faster turn of the wheels of economy compared with prior year.

Foreign institutions also started to raise their expectations of Turkey’s growth considering these developments. The World Bank raised its growth expectations for Turkey for 2020-2021 and announced them as 3% and 4%. Additionally, Turkey’s 5-year CDS premium was realized as 272 in December, a premium figure below 300 points for the first time since February 2019.

The economy administration took the required steps and developed effective policies to provide sustainable growth, to keep inflation under control and to maintain fiscal discipline. In this context, New Economy Program was introduced by the Ministry of Treasury and Finance, covering the 3-year period for 2020-2022.

IN 2019, AS A RESULT OF THE STABILIZATION TREND IN TURKISH ECONOMY, INTERESTS AND INFLATION FOLLOWED A SIGNIFICANT DOWNWARD COURSE AND TL GAINED STABILITY.

In 2019, while promising developments were realized in terms of foreign trade data, current account balance demonstrated a surplus annually. USD 180.5 billion of exports was realized in 2019 which was a record in the history of Turkish Republic. Export/import coverage ratio increased by 9.3% from 76.5% to 85.8%. This improvement is expected to continue in the following period. In tourism revenues, an increase beyond expectations was observed, number of visitors increased by approximately 15% when compared to prior year. In the following period, Turkey’s tourism revenues are anticipated to increase even more than expectations as a result of competitive currency and service quality.

In 2019, global economy was shaped in line with the Fed’s expansionary monetary policy and trade wars. Re-appearance of signs of slowing in Europe and USA provided interest reduction opportunities for Central Banks of both developed and developing countries.

In Turkey, an economic stabilization process was conducted in 2019 and significant improvements were recorded in macro-economic data. For the following period, it is anticipated that capital inflow will increase, TL will remain strong with the support of CBRT’s tight monetary policy and inflation will remain at single digits. Moreover, with the acceleration of capital inflow to developing countries, it is also anticipated that Turkey will grow beyond expectations as well.