MINISTRY of ECONOMY ECONOMIC OUTLOOK MARCH 2015 Recent

MINISTRY of ECONOMY ECONOMIC OUTLOOK MARCH 2015 Recent Update: 24/03/2015

OUTLINE A- MACROECONOMIC OUTLOOK………………………… 4 B- FOREIGN TRADE OUTLOOK…………………………. . 19 1) MERCHANDISE……………………………. . . 20 2) SERVICES…………………………………. . 33 C- INVESTMENTS , FOREIGN CAPITAL and INCENTIVES…………………. 38 D- FREE ZONES in TURKEY……………………………… 44 E- BILATERAL, REGIONAL, PLURILATERAL and MULTILATERAL TRADE 49 March 2015 Ministry of Economy 2

A- MACROECONOMIC OUTLOOK March 2015 Ministry of Economy 3

Growth Forecasts for Selected Countries/Country Groups (%) Source: IMF, OECD, WB Ø In 2013, Turkish economy grew by 4, 1%. Ø According to the IMF, Turkish Economy is expected to grow by 3% in 2014 and %3, 4 in 2015. March 2015 Ministry of Economy 4

Forecasts for Merchandise Trade Growth (%) Source: IMF and WTO Ø According to the IMF estimates, global trade volume of merchandise and services is expected to increase by 3, 1% in 2014 and 3, 8% in 2015. Ø According to the WTO estimates, global trade volume of merchandise and services is expected to increase by 3. 1% in 2014 and 4% in 2015. March 2015 Ministry of Economy 5

Top 20 Economies (Current, PPP) Source: World Bank Ø Turkey ranks as the 17 th largest economy in the World and 6 th in Europe. March 2015 Ministry of Economy 6

Economic Targets of 2015 -2017 Medium Term Program *Actual (Medium Term Program, Ministry of Development – October 8, 2014 Ø Medium Term Program which covers 2015 -2017 period aims to increasing growth performance while continuing to reduce the current account deficit gradually and reaching the inflation target and thus strengthen macroeconomic and financial stability March 2015 Ministry of Economy 7

Real GDP Growth of Selected Countries/Country Groups (2013) Source: TURKSTAT, IMF Ø Turkish Economy expanded by 4. 1% in 2013 and 2. 8% in the first nine months of 2014. March 2015 Ministry of Economy 8

Annual Economic Growth Rates (2002 -2013) Source: TURKSTAT Ø Mean annual growth rate between 2003 and 2013 was 5%. Ø Real GDP growth for 2013 realized as 4, 1% and 2. 8 in first 9 months of 2014. March 2015 Ministry of Economy 9

GDP Per Capita Source: Dollar value is from TURKSTAT, PPP GNI value from World Bank Ø Since 2002 GDP per capita has tripled from 3, 492 USD to 10, 807 USD in 2013. According to Purchasing Power Parity (PPP) GNI per capita reached 19 thousand USD in 2013. March 2015 Ministry of Economy 10

Capacity Utilization Ratio (%) Source: CBRT Ø Capacity utilization ratio in February 2015, down percentage points, realized as 72. 8% March 2015 Ministry of Economy 0. 9 11

Industrial Production Index (2010=100) Source: TURKSTAT Ø Industrial production index decreased by 1. 8% year-over-year to 112. 3 (2010=100) in January 2015. March 2015 Ministry of Economy 12

PMI Ø PMI decreased to 49. 6 in February 2015, and fall below the previous month. March 2015 Ministry of Economy 13

Inflation (Annual Percent Change) Source: TURKSTAT Ø Inflation in February 2015 was realized as 7. 6% and 3. 1% according to CPI and PPI, respectively. March 2015 Ministry of Economy 14

Unemployment Rates (%) Source: TURKSTAT Ø In December 2014, unemployment rate was 10. 9%. In 2014, unemployment rate was 9. 9%. Ø Seasonally adjusted unemployment rate in Euro Area was 11. 2% and 9. 8% in (EU 28) in January 2015. In terms of unemployment ratio Turkey outperformed 7 EU members according to current data. Ø After Russia, Germany, England France, Turkey has the 5 th largest labor force among the European countries. (2013, World Bank) March 2015 Ministry of Economy 15

CDS Premiums (March 23 rd, 2015) Source: DB Research * Higher CDS premiums indicate higher risk levels. Ø CDS premium of Turkey indicates a medium level of risk. March 2015 Ministry of Economy 16

Central Government Budget Deficit/ GDP (%) Source: Eurostat, TUİK Ø Central government budget deficit/GDP ratio was 1. 2% in Turkey in 2013 and Turkey satisfied the Maastricht criteria of 3%. Turkey also outperformed 22 EU Countries. Ø In January-February 2015 period, central government budget surplus is 1, 4 billion TL compared to 3, 6 billion TL surplus in the same period of 2014. March 2015 Ministry of Economy 17

Government Debt / GDP (%) Source: Eurostat Ø Debt/GDP ratio of Turkey was 36. 2% in 2013 which was below the level in the Maastricht Criterion (60%). Turkey also outperformed 25 EU countries. March 2015 Ministry of Economy 18

B- FOREIGN TRADE OUTLOOK March 2015 Ministry of Economy 19

I) MERCHANDISE March 2015 Ministry of Economy 20

Targets in Merchandise Trade * Actual (Source: TURKSTAT) **Forecast: Medium Term Programme, Ministry of Development, 2015 -2017) ***The Exports Strategy of Turkey For 2023 March 2015 Ministry of Economy 21

Turkey's Share in Global Merchandise Exports (%) Ø Turkey’s share in global merchandise exports was %0. 81 in 2013. March 2015 Ministry of Economy 22

Turkey's Share in Global Merchandise Imports (%) Ø Turkey’s share in global merchandise imports was %1. 33 in 2013. March 2015 Ministry of Economy 23

Foreign Trade Developments 2013 - 2014 / January 2014 - 2015 * Energy corresponds to Chapter 27. Source: Ministry of Economy ØIn January 2015, compared to same month of 2014, exports decreased by 0. 6% and imports decreased by 13. 7% respectively. March 2015 Ministry of Economy 24

Monthly Exports/Imports ØIn January 2015 compared to same month of 2014, exports have decreased by 0. 6% and realized as 12. 3 billion dollars and imports have decreased by 13. 7% down to the level of 16. 6 billion dollars. March 2015 Ministry of Economy 25

Distribution of Foreign Trade in Broad Economic Categories EXPORT IMPORT March 2015 Ministry of Economy 26

Main Export Items * Percent change is related to the annual change in exports in 2013. Source: TURKSTAT March 2015 Ministry of Economy 27

Main Import Items * Percent change is related to the annual change in imports in 2013. Source: TURKSTAT March 2015 Ministry of Economy 28

Main Export Items (Annual) Source: TURKSTAT March 2015 Ministry of Economy 29

Main Import Items (Annual) Source: TURKSTAT March 2015 Ministry of Economy 30

Main Trade Partners (January 2015) Main Export Partners (Share, %) Main Import Partners (Share, %) Source: TURKSTAT March 2015 Ministry of Economy 31

Exports by Regions Source: TURKSTAT March 2015 Ministry of Economy 32

Imports by Regions Source: TURKSTAT March 2015 Ministry of Economy 33

2) SERVICES March 2015 Ministry of Economy 34

Targets in Services March 2015 Ministry of Economy 35

Turkey's Share in Global Services Exports (%) Source: WTO Ø Turkey’s share in global exports of services was 0. 95% in 2013. March 2015 Ministry of Economy 36

Turkey's Share in Global Services Imports (%) Source: WTO Ø Turkey’s share in global imports of services was 0. 51% in 2013. March 2015 Ministry of Economy 37

Contracting Services Abroad Contributions to the overall economic performance: Creating foreign exchange inflow, exports, employment, technology transfer; adding to the machinery stock, facilitating internationalization Regional Breakdown of Projects(%) Ø 42 out of the world’s top 250 contracting companies are Turkish. Ø Turkey ranks as the 2 nd country (following China) in terms of the number of top contracting companies. March 2015 Ministry of Economy 38

C- INVESTMENTS, FOREIGN CAPITAL and INCENTIVES March 2015 Ministry of Economy 39

Foreign Direct Investment Source: CBRT Ø FDI reached to 149. 3 billion USD in 2003 -2014 period, while it was 14. 6 billion USD in 1984 -2002 period. Ø FDI increased 1. 7 % in 2015 January with respect to previous period and reached to 1. 8 billion USD. March 2015 Ministry of Economy 40

The Sectoral Breakdown of Foreign Investments *January Breakdown of Investments in Manufacturing Industry (%) 7. 7 Food, Beverage, Tobacco 7. 7 Textile Refined Petroleum 7. 7 Chemicals and Man-made Fibers Plastics and Rubber Minerals other than Metallics 46. 2 Basic and Fabricated Metals Machinery and Equipment Electrical and Optical Equipment Vehicles Others Source: CBRT March 2015 Ministry of Economy 41

Breakdown of Foreign Investments by Country *January Source: CBRT March 2015 Ministry of Economy 42

Investment Incentive System The current investment incentive system of Turkey is structured in four sub systems: Ø General Investment Incentive System Ø Regional Investment Incentive System Ø Investment Incentive System for Big Scale Projects Ø Encouraging the Strategic Investments March 2015 Ministry of Economy 43

Investment Incentives *January Source: General Directorate of Incentive Implementation and Foreign Investment March 2015 Ministry of Economy 44

D - FREE ZONES IN TURKEY March 2015 Ministry of Economy 45

The Advantages of Free Zones for Users Ø Ø Ø Ø Tax advantages for manufacturers Medium-and long-term investment view Availability to transfer profits Commercial facilities Exemption from customs duties Acquisition of the documents relating to the free movement of goods under the scope of Customs Union with the EU Principle of equality No time restrictions Flexibility to adjust to the market needs and conditions Reliable inflation accounting Market access to domestic and foreign markets Reduced bureaucratic procedures and dynamic business management Strategic advantages Affordable and compatible infrastructure Supply chain opportunities March 2015 Ministry of Economy 46

Free Zones in Turkey Ø 61, 505 people have been employed in Free Zones of Turkey in 2014. March 2015 Ministry of Economy 47

Trade Flows of Free Zones Source: General Directorate of Free Zones, Foreign Investments and Services Ø In 2014 total trade volume of the Free Zones reached to 22, 4 billion dollars, decreasing 3. 5% annually. March 2015 Ministry of Economy 48

Concentration in Free Zones by Industries Source: General Directorate of Free Zones, Foreign Investments and Services March 2015 Ministry of Economy 49

E - BILATERAL, REGIONAL, PLURILATERAL and MULTILATERAL TRADE March 2015 Ministry of Economy 50

Trade Relationships of Turkey with Others ØBilateral Trade Relationships of Turkey Europe, Asia-Pacific, Eurasia, Middle East and North Africa, Sub-Saharan Africa, Americas ØRegional and Multiple Trade Relationships of Turkey EU, ECO, D 8, BSEC, OIC, COMCEC ØMultilateral Trade Relationships of Turkey WTO, OECD, G 20 March 2015 Ministry of Economy 51

FTA Countries 1. EFTA (Norway, Switzerland, Iceland, 11. Georgia Liechtenstein) 12. Montenegro 2. Israel 13. Serbia 3. Macedonia 14. Chile 4. Bosnia and Herzegovina 15. Jordan 5. Palestine 16. South Korea 6. Tunisia 17. Mauritius 7. Morocco 18. Lebanon* 8. Syria (**) 19. Kosovo* 9. Egypt 20. Malaysia* 10. Albania (*) Agreements that are in the approval process (**) Pending March 2015 Ministry of Economy 52

FTA Countries(On-going Negotiations) 1. Moldova* 9. Gulf Cooperation Council 2. Ghana* 10. Libya 3. Ukraine 11. MERCOSUR 4. Colombia 5. Ecuador 6. Democratic Republic of the Congo 12. Faroe Islands 13. Japan 14. Singapore 7. Cameroon 15. Peru 8. Seychelles 16. Mexico * Negotiations completed. March 2015 Ministry of Economy 53

Multilateral Trade Relationships Trade in Services Aggrement (TISA) Ø Due to the stumble of Doha Development Round ambitious targets of top services exporters, TISA negotiations which continue between countries, who makes up 70% of total world services, in order to increase liberalisation in services trade while Turkey is included in the negotiations. Non Agricultural Market Access (NAMA) Ø NAMA refering to all products not covered by the WTO-Agreement on Agriculture (manufacturing products, fuels and mining products, fish and fish products, and forestry products) targets to further liberalization on these product by both reducing tariff and non-tariff barriers. G-20 Presidency Ø The G-20 economies consisting of USA, Germany, Argentina, the European Union Australia, Brazil, China, Indonesia, France, South Africa, South Korea, India, Britain, Italy, Japan, Canada, Mexico, Russia, Saudi Arabia and Turkey represent approximately 90% of the World GDP, 80% of the world trade, and two-thirds of the world population. The presidency of the G-20 rotates annually and Turkey will assume the presidency of the G 20 in 2015. March 2015 Ministry of Economy 54

Regional Breakdown of Exports Source: TURKSTAT *January ** Except Lebanon and Kosovo In January 2015, our exports to EFTA countries increased by 319. 7% annually and EFTA became the fastest growing export destination of the regions above. March 2015 Ministry of Economy 55

Trade Representatives Abroad 179 trade representatives from the Ministry are serving in 110 countries, 160 locations and 5 trade offices abroad. March 2015 Ministry of Economy 56

Locations of Trade Representatives AMERİKA Buenos Aires New York Karakas Sao Paulo Mexico City Şikago Ottava Toronto Santiago Miami Vaşington San Francisco Houston Seattle Los Angeles AFRİKA Abuja Addis Ababa Akra Cezayir Dakar Darüsselam Hartum İskenderiye Kahire Nairobi Pretoria Rabat Trablus Tunus Kazablanka ASYA Astana Aşkabat Bangkok Bişkek Cakarta Duşanbe Hanoi İslamabad Kabil Kuala Lumpur Manila Pekin Seul Singapur GEORGETOWN Taşkent Tokyo Ulan Bator Yeni Delhi Almatı Guangzhou Hong Karaçi Mumbai Şangay Georgetown AVRUPA/KAFKASYA AB DTÖ OECD Atina Bakü Belgrad Berlin Bern Bratislava Brüksel Budapeşte Bükreş Dublin Helsinki Kiev Kişinev Kopenhag Lahey Lizbon Lefkoşa Londra Lubliyana Madrid Minsk Moskova Oslo Paris Podgorica Prag Priştine Roma Saraybosna Sofya Stokholm Tiflis Tiran Üsküp Varşova Viyana Zagreb Barselona Batum Düsseldorf Hamburg Hannover Kazan Marsilya Milano Münih Novorossisk Odessa Rotterdam Selanik St. Petersburg Stutgart Birmingham Krasnodar Novosibirsk Yekaterinbur g ORTA DOĞU Abu Dhabi Amman Bağdat Beyrut Doha Kuveyt Manama Muskat Riyad Sana Şam Tahran Tel Aviv Basra Cidde Dubai Erbil Halep Kudüs Musul Tebriz Daimi Temsilci Yardımcılığı AVUSTRALYA Sidney Melbourne March 2015 Ministry of Economy Ticaret Müşavirliği Ticaret Ataşeliği İrtibat Büroları 57