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INTRODUCTION
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THE WORLD AND
TURKEY IN 2014
THE FOREIGN TRADE DEFICIT REACHED
US$ 84.5 BILLION IN 2014
There was a considerable recovery in the trade deficit
over the course of 2014, stemming from both a decrease
in imports and an increase in exports. The decline in gold
imports also played a significant role in decreasing imports
in 2014. Despite the ongoing recession in the Eurozone,
the positive impact of diversification of export markets
played a vital role in increasing export volumes during
2014. In addition, weak domestic demand also contributed
to the decline in the foreign trade deficit.
The positive effect of low oil prices on the foreign trade
deficit is expected to be offset by the increase in non-oil
related imports arising from the recovery in domestic
consumption in 2015. As a result, the annual foreign trade
deficit is forecast to come in at US$79.8 billion in 2015.
INFLATION REMAINED HIGH IN 2014
DUE TO RISING FOOD PRICES
Inflation was relatively high in 2014 compared to recent
years due in most part to rising food prices and the
decline in the value of the Turkish lira. Lower commodity
prices had a favorable impact on inflation in the last
quarter. Food prices, which are the largest item in the
price index basket, put upward pressure on inflation due
to the drought problems. Unfavorable weather conditions
also led to record increases in vegetable and fruit prices,
up to historic levels. The increase in energy and gas prices
in 2014 for the first time in two years was another factor
in the rising trend in inflation. On the other hand, the
Central Bank of Turkey’s expected inflation rate of 8.9%
in its latest report did not materialize; lower energy prices
helped to keep the inflation rate at 8.17% for the full year.
The course of oil prices, foreign exchange rates, and food
prices are expected to play a significant role in inflation in
2015. Declining inflation on an annual and monthly basis,
drops in producer prices along with the contributions of
the base effect, makes it a reasonable expectation that
the downward trend in wholesale price inflation will
resume in early 2015.
THE CURRENT ACCOUNT DEFICIT DECLINED TO
US$ 45.8 BILLION THANKS TO THE LOWER
FOREIGN TRADE DEFICIT IN 2014
The current account deficit declined to US$ 45.8 billion in
2014, down from the US$ 65 billion and 7.9% of GDP level
in 2013, driven mainly by the improvement in the foreign
trade deficit. The drop in non-monetary gold imports
contributed to the improvement in the current account
deficit. The increase in the influx of foreign currency from
tourism revenues also positively affected the current
account deficit, while the Federal Reserve’s decision to
end the asset purchase program in October 2014 limited
the increase in foreign capital inflows compared with the
previous year. The drop in oil prices, already under way
since June, accelerated after the OPEC meeting at the
end of November, which is a positive influence for oil-
importing developing countries such as Turkey. According
to forecasts, lower oil prices in the upcoming period will
have a favorable impact on the current account deficit.
However, domestic demand, which is expected to pick up
in 2015, will offset some of this gain. The current account
deficit is forecast to materialize at US$ 41 billion in 2015.
CENTRAL BANK OF TURKEY MAINTAINED
ITS TIGHT MONETARY POLICY
Following a policy of targeting price and financial stability
jointly, the Central Bank of Turkey (“CBT”) continued
to use interest rate and other primary monetary policy
tools together in 2014. Due to internal and external
developments that affected risk perceptions negatively
since the final months of 2013, the Turkish lira lost value
and risk premiums increased during 2014. In this context,
the CBT resolved to pursue a tight monetary policy and
increased policy interest rates from 4.5% to 10%. For
the first time at this meeting, the CBT used the term
“firm stance on monetary policy”, which it continued to
refer to frequently at the Monetary Policy Committee
meetings throughout 2014. The CBT kept the interest rates
unchanged and maintained its discourse on “firm stance”
until the meeting in May.
There was a significant recovery in the foreign trade
deficit in 2014 due to both a decrease in imports
and a rise in exports.
US$
45.8
BILLION
The annual current
account deficit declined
to US$ 45.8 billion
in 2014.