Fast Growing Economies: A Turkish Perspective Ali BABACAN Deputy - - PowerPoint PPT Presentation

September 20, 2012

Fast Growing Economies: A Turkish Perspective

Ali BABACAN

Deputy Prime Minister Republic of Turkey

EMERGING MARKETS vs DEVELOPED ECONOMIES

2

• 5
• 3
• 1

1 3 5 7 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Growth Divergence

3 Source: IMF Emerging and Developing Economies Advanced Economies

GDP Growth Rate (percent)

Seismic Shift in the Global Economy

4

30 35 40 45 50 55 60 65 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Emerging and Developing Economies Advanced Economies

Share of global GDP (based on PPP adjusted GDP, percent)

Source: IMF.

Economic Centre of Gravity

5 Source: McKinsey “Urban World: Cities and the rise of the consuming class”.

Total Trade Volume

(2000=100)

6

70 90 110 130 150 170 190 210 230 250 270 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Emerging and Developing Economies Advanced Economies Source: World Bank.

• 2

2 4 6 8 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 7

Drivers of Outperformance (1)

General Government Budget Deficit (*) (percent of GDP)

(*) General government net borrowing. Source: IMF. Emerging and Developing Economies Advanced Economies

8

Drivers of Outperformance (2)

General Government Gross Debt (percent of GDP)

60 70 80 90 100 110 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20 25 30 35 40 45 50 55

Emerging and Developing Economies (RHS) Advanced Economies (LHS) Source: IMF.

TURKISH EXPERIENCE

9

10

Before 2008:

n Fiscal adjustment n Price stability n Banking reform n Social security reform n Health care reform n Public finance reform

What Turkey Has Done

11

During the 2008-2009 Crisis:

n Entered the crisis with strong public finance and strong

banking sector

n Political stability n Strong political will n Medium Term Program (MTP) n Fiscal consolidation n Prudent monetary policy n Effective use of macro-prudential measures

What Turkey Has Done

Sharp Economic Bounce Back

GDP Growth Rate (year-on-year change, percent)

12 (*) Medium Term Program forecasts Source: TURKSTAT, Ministry of Development. 9.2 8.5 4.0 5.0 5.0 2 4 6 8 10 12 2010 2011 2012(*) 2013(*) 2014(*)

GDP (Real, 2007=100)

13

Positive Decoupling

TURKEY U.S. EU UK JAPAN

90 100 110 120 130 140 150 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IMF.

Average Growth Expected in OECD Countries (2012-2017, percent)

14 Source: OECD.

Strong Growth Prospects

%5.2

Total OECD: 2.4 percent

1 2 3 4 5 6 Turkey Chile Australia Norway Mexico Korea Estonia Slovak Rep. Poland Israel Luxembourg United States Ireland Sweden Czech Rep. New Zealand Canada Iceland Spain France Hungary Finland Switzerland U.K. Austria Belgium Netherlands Germany Greece Slovenia Denmark Japan Portugal Italy

44 45 46 47 48 49 50 51 Jan-2005 Jun-2005 Nov-2005 Apr-2006 Sep-2006 Feb-2007 Jul-2007 Dec-2007 May-2008 Oct-2008 Mar-2009 Aug-2009 Jan-2010 Jun-2010 Nov-2010 Apr-2011 Sep-2011 Feb-2012

Potential Growth: Capital Stock and Labor

Capital Stock (*) (fixed prices, 2007 = 100) Laborforce Participation Rate (*) (%)

15 (*) Natural logarithm Source: TURKSTAT, CBRT. (*) Seasonally Adjusted. Source: TURKSTAT, CBRT. Trend

50 60 70 80 90 100 110 120 130 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1

Trend

Demographic Projections

(Working Age Population*, 2011=100)

(*) Number of people between ages of 15 and 64. Source: United Nations. 16

60 70 80 90 100 110 120 130 2011 2015 2020 2025 2030 2035 2040 2045 2050 Turkey Northern Europe Western Europe Europe

Total Dependency Ratio (*)

(*) [Age 0-14 + Age 65+ ]/ Age 15-64 Source: United Nations. 17

40 50 60 70 80 90 100 2011 2015 2020 2025 2030 2035 2040 2045 2050

Western Europe Europe Northern Europe Turkey

Total Employment (seasonally adjusted)

18

Employment Growth

Source: TURKSTAT.

20,000,000 21,000,000 22,000,000 23,000,000 24,000,000 25,000,000 Jan-2008 Mar-2008 May-2008 Jul-2008 Sep-2008 Nov-2008 Jan-2009 Mar-2009 May-2009 Jul-2009 Sep-2009 Nov-2009 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012

19

Average Employment Increase (**)

(percentage, 2008-2011)

(*) IMF estimate (**) Logarithmic differences. Source: IMF, TURKSTAT, CBRT.

• 5
• 4
• 3
• 2
• 1

1 2 3 4 5

• 5
• 4
• 3
• 2
• 1

1 2 3 4 5 Ireland Spain* Greece* Portugal Japan US Italy* Czech R.* UK France Austria Sweden Canada Germany Korea* Taiwan* Switzerland Australia Israel* Turkey

• 4
• 2

2 4 6 8 10 12

Change in the Unemployment Rate

(between 2012 Q1 and 2008 Q4, percentage points)

20 Source: International Labor Organization (ILO). Turkey Spain

Youth Unemployment Rate (*)

(ages 15-24, %)

21

15.8 10 20 30 40 50 60 Greece Spain Croatia Portugal Slovakia Italy Ireland Bulgaria Latvia Hungary Lithuania Southern Cyprus Poland Romania** France Estonia Sweden UK*** Luxembourg Czech Rep. Belgium Finland Slovenia USA Turkey*** Denmark Malta Netherlands Austria Norway Germany

Euro Area (average): %22.5

(*) Seasonally Adjusted, June 2012 (**) March 2012 (***) May2012 Source: EUROSTAT.

Income Distribution Improved

P90/P10 (*)

22

18.3 13.7 13.1 12.2 13.0 11.7 12.0 11.9 14.7 14.4 9 10 11 12 13 14 15 16 17 18 19 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(*) The ratio of the average household disposable income in the highest 10% income quintile to average household disposable income in the lowest 10% income quintile. Source: TURKSTAT

Trendline

Income Distribution (*)

(Change in the Gini Coefficient, Percentage Point Change)

23

• 10
• 8
• 6
• 4
• 2

2 4 6 Turkey Mexico Chile Greece Hungary Italy New Zealand Netherlands Czech Rep. OECD-20 Japan Norway UK France USA Australia Luxemburg Germany Finland Denmark İsrael Canada Sweden (*) Difference between the late 2000s and mid-90s Source: OECD “Divided We Stand: Why Inequality Keeps Rising”.

Increase in Households’ Income

(2011-2002, Real, %)

24 Source: TURKSTAT.

Income Quintiles 60.5 43.2 36.8 36.0 34.8 34.2 29.7 27.4 21.2 5.2 10 20 30 40 50 60 70 1 2 3 4 5 6 7 8 9 10

Highest Income Quintile Lowest Income Quintile

Reduced Poverty (1)

Daily Income Below 1$ (*) (% of Total Population)

25 (*) Purchasing Power Parity Adjusted US Dollars Source: TURKSTAT. 0.2 0.01 0.02 0.01 0.05 0.1 0.15 0.2 0.25 2002 2003 2004 2005 2006 2007 2008 2009 2010

26

Reduced Poverty (2)

Daily Income Below 2.15 $ (*) (% of Total Population)

3.04 2.39 2.49 1.55 1.41 0.52 0.47 0.22 0.21 0.5 1 1.5 2 2.5 3 3.5 2002 2003 2004 2005 2006 2007 2008 2009 2010

(*) Purchasing Power Parity Adjusted US Dollars Source: TURKSTAT.

27

Reduced Poverty (3)

Daily Income Below 4.30 $ (*) (% of Total Population)

30.3 23.75 20.89 16.36 13.33 8.41 6.83 4.35 3.66 5 10 15 20 25 30 35 2002 2003 2004 2005 2006 2007 2008 2009 2010

(*) Purchasing Power Parity Adjusted US Dollars Source: TURKSTAT.

Official Development Aid

(2011, year-on-year change, percent)

28 Source: OECD

• 50
• 40
• 30
• 20
• 10

10 20 30 40 50 Turkey Italy Hungary Israel Switzerland New Zealand Sweden Slovak Rep. Germany Korea Australia Poland Czech Rep. Slovenia UK USA Denmark Portgugal Ireland Finland Canada Luxembourg France Netherlands Norway Japan Belgium Austria İceland Spain Greece

Commitment to Fiscal Discipline

Central Government Budget Deficit (percent of GDP)

29 Source: Undersecretariat of Treasury.

11.5 8.8 5.2 1.1 0.6 1.6 1.8 5.5 3.6 1.3

2 4 6 8 10 12 14 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

30

Commitment to Fiscal Discipline

EU Defined Debt Stock (percent of GDP)

Source: Undersecretariat of Treasury.

74.0 67.7 59.6 52.7 46.5 39.9 40.0 46.1 42.4 39.4 20 30 40 50 60 70 80 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Banking Sector: Capital Adequacy Ratio (2011)

31 Source: IMF, BRSA. 2 4 6 8 10 12 14 16 18 20 Greece Spain Italy S.Korea India US UK Germany Turkey Brazil Basel II Level

Household Liabilities

(percent of GDP, 2012 Q1)

32 Source: ECB, CBRT.

19.4 20 40 60 80 100 120 140 160 Denmark Netherlands Ireland UK Portugal Sweden Spain Finland Greece ¡ ¡ ¡ Germany ¡ France Austria ¡ Belgium Estonia Italy ¡ Latvia ¡ Hungary ¡ Poland Czech ¡Rep. Slovenia Bulgaria* Slovak ¡Rep. Lithuania Turkey

4.7 3.7 3.5 3.7 5.3 3.7 2.7 2.8 1 2 3 4 5 6 2005 2006 2007 2008 2009 2010 2011 Aug-12

Banking Sector: Non-Performing Loan Ratio

(percent)

Source: BRSA. 33

Inflation Rate

34 Source: CBRT.

35

Volatility in Emerging Market Currencies

(Percent, Implied for the next 12 months)

(*) Emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea and Colombia. Source: Bloomberg, CBRT.

CDS Spreads (*)

(5 year, USD denominated, basis points)

36 (*) as of 19 September 2012, Fitch credit ratings Source: Bloomberg.

1,065 470 385 372 354 321 317 318 277 175 151 143 137 110 108 106 94 87 62 56 56 47 42 34 27

200 400 600 800 1000 1200 1400

• S. Cyprus (BB+)

Portugal (WD) Slovenia (A) Hungary (BB+) Spain (BBB) Lithuania (BBB) Romania (BBB-) Italy (A-) Ireland (BBB+) Latvia (BBB-) Bulgaria (BBB-) Turkey (BB+) Slovakia (A+) Poland (A-) Belgium (AA) Estonia (A) France (AAA) Czech Rep. (A+) Austria (AAA) Netherlands (AAA) Denmark (AAA) Germany (AAA) UK (AAA) Finland (AAA) Sweden (AAA)

37

n Domestic Demand n Oil and Other Energy Prices n Non-Energy Terms of Trade n Real Exchange Rate n Domestic Saving Ratio

Key Factors Affecting Current Account Deficit

Total Domestic Demand and Imports

(percent)

Source: TURKSTAT, CBRT, BRSA. 38

• 60
• 40
• 20

20 40 60 2004 Q1 Q3 2005 Q1 Q3 2006 Q1 Q3 2007 Q1 Q3 2008 Q1 Q3 2009 Q1 Q3 2010 Q1 Q3 2011 Q1 Q3 2012 Q1

• 30
• 20
• 10

10 20 30 Import Index Excluding Energy Total Domestic Demand (rhs)

Credit Growth and Current Account Deficit

(percent)

(*)12-months cumulative current account deficit / GDP (**) Rate of annual change in credit stock / GDP Source: BRSA, CBRT. 39 2 4 6 8 10 12 Nov-2006 May-2007 Nov-2007 May-2008 Nov-2008 May-2009 Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 2 4 6 8 10 12 14 16 CAD / GDP (LHS)* Total credits / GDP** (RHS)

Current Account Balance

(Seasonally Adjusted, three months average, Million $)

Source: CBRT, TURKSTAT. 40

• 8,000
• 6,000
• 4,000
• 2,000

2,000 4,000 Dec-2003 Jun-2004 Dec-2004 Jun-2005 Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Current Account Balance Current Account Balance (excluding energy)

Improvement in the Nature of Financing

(12-months Cumulative, Billion USD)

41 (*) Short-term capital movements are sum of banking and real sectors' short term net credits and deposits in banks Source: CBRT.

• 20
• 10

10 20 30 40 50 60 70 Jan-2007 Apr-2007 Jul-2007 Oct-2007 Jan-2008 Apr-2008 Jul-2008 Oct-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009 Jan-2010 Apr-2010 Jul-2010 Oct-2010 Jan-2011 Apr-2011 Jul-2011 Oct-2011 Jan-2012 Apr-2012 Jul-2012

FDI and Long Term Portfolio and Short Term (*)

70 75 80 85 90 95 100 105 110 115 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1

Demand Rebalancing

(2008 Q1=100)

Source: TURKSTAT, CBRT. 42

Export Final Domestic Demand

n Macro Policy Measures

q Monetary policy q Macro-prudential regulations q Fiscal policy

n Structural Measures

q Increasing domestic savings q Reducing import-dependency on energy q Increasing competitiveness and product/market diversity q Improving the quality of financing q Judicial Reforms q Reforms in Education

Policy Measures

43

Increasing Domestic Savings

n Maintaining fiscal discipline n Increasing private savings

q Introducing state contribution in Private Pension System q Regulations to support insurance sector q Regulations to extend the scope and increase the operational efficiency

• f Catastrophe Insurance Scheme

q Financial literacy strategy studies q New Turkish Commercial Law q Strategy for fight against informal economy

44

Reducing Import-Dependency on Energy

n Renewable Energy

q The Share of renewable energy sources in total electricity

production to be at least 30% in 2023

n Energy Efficiency

q Significant energy saving potential in housing (~30%), industry

(~20%) and transportation (~15%)

n Nuclear Energy

q Two nuclear plants by 2023

45

Increasing Competitiveness and Product/Market Diversity

n New Investment Incentive System n Input Supply Strategy

q Preliminary studies on iron & steel, automotive, machinery, chemicals,

textiles and agriculture sectors have been completed, implementation

• f actions plans is expected to take place in 2012.

n Diversification of export markets

q Country desk strategy

n Tax Incentives to Support Services Exports n Improving the Investment Climate n R&D and Innovation Support Programs n Labor Market Reforms

46

n Incentives for long-term savings

• Differentiation of withholding tax rate based on the maturity of

Deposits

n Tax support to Business Angels n Tax support to Venture Capital Funds n Reducing the withholding tax rate to zero percent on trade of

investment funds which have more than 75% of its portfolio in the form of stocks

Improving the Quality of Financing (1)

47

n Tax exemption for portfolio investment companies established in

Turkey managing overseas funds

n Promoting equity financing n New Capital Markets Law n Istanbul Finance Center Project n Regulation on real estate sale to non-residents

Improving the Quality of Financing (2)

48

September 20, 2012

Ali BABACAN

Deputy Prime Minister Republic of Turkey

Fast Growing Economies: A Turkish Perspective