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Summary of EM STRATEGY | TURKEY DAILY - 06 February 2018

Core Content Overview

This document provides an analysis of economic and financial indicators in Turkey for the date of 06 February 2018, focusing on inflation, exchange rate, and current account deficit developments. It is produced by Turk Ekonomi Bank A.S. (TEB) and authored by H. Erkin Isik, CFA, in the context of Emerging Markets Strategy.

Key Economic Indicators

Inflation Report

• CPI Increase: The Consumer Price Index (CPI) rose by 1.0% month-on-month (m/m) in January 2018, slightly below the Bloomberg consensus of 1.2% m/m, but close to the forecast of 1.1% m/m.
• Headline Inflation: The annual headline inflation rate reached 10.3%, driven by a 1.6 percentage point (pp) decline from December, with 1.1pp attributed to lower food prices.
• Core Inflation: The core C inflation (excluding food, beverages, energy, tobacco, and gold) decreased by 0.1pp m/m to 12.2% y/y.
• Services Inflation: Services inflation declined by 0.3pp m/m to 9.2% y/y, primarily due to a drop in transport services, but rent inflation remained stable at 9.2% y/y.
• Inflation Outlook: The inflation outlook remains negative. The core C inflation trend is expected to ease slightly to 12%, while services inflation is projected to rise to 10%.

Real Effective Exchange Rate (REER)

• The REER Index is expected to increase by 1% m/m to 95.5, still 4% below the 2017 average.
• The TRY is considered to be at relatively weak levels, but has recovered by about 2% from its low in November 2017.

Current Account Deficit

• The current account deficit to GDP ratio is expected to reach 6% in January, the highest since April 2014.
• The foreign trade deficit increased by USD 4.7bn y/y to USD 9.1bn, with USD 1.9bn attributed to net gold imports.
• Intermediate goods imports (excluding gold and energy) rose by USD 2.7bn y/y, indicating strong economic activity.
• Capital goods imports increased by USD 0.6bn y/y to USD 2.7bn, suggesting recovery in real sector investments.
• Consumption goods imports rose by USD 0.5bn y/y to USD 2.0bn, indicating strengthening domestic demand.
• Current Account Deficit (CAD) is estimated to increase to USD 50.5bn in January, from USD 43.8bn in November 2017.
• CAD to GDP ratio: It is expected to rise by 0.8pp to 5.9%, with 4.7% (excluding gold) being the highest since July 2015.

Charts Mentioned

• Chart 1: Inflation trend (annualized 3m change, seasonally adjusted).
• Chart 2: Current Account Deficit (% of GDP, 12m cum.).

Strategic Contacts

Legal and Compliance Notice

• This document is non-independent research under MiFID II and is intended for marketing purposes.
• It does not constitute investment research and should not be used for investment decisions.
• No guarantees are made regarding the accuracy or completeness of the information.
• No liability is accepted for any direct or consequential losses arising from reliance on the document.
• The information is for internal use only and may not be distributed to third parties without prior written consent.
• Performance data may include back-testing simulations and is not indicative of future results.
• Options and ETFs discussed are complex and may involve significant risks.
• U.S. disclosures include restrictions on trading and compliance with securities laws.
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Conclusion

The report highlights ongoing inflationary pressures, a recovering TRY, and worsening external imbalances in Turkey. The current account deficit is expected to rise significantly, driven by strong economic activity and increased imports. While core inflation is easing, services inflation is still on an upward trend. The document serves as a strategic analysis tool for investors and is subject to legal and compliance restrictions.