Although the outcome of the referendums in the UK and Italy attracted a negative reaction in the markets, market volatility proved short-lived.
We left behind a year marked by monetary policy decisions in developed countries, the Presidential election in the United States, Britain’s decision to exit the European Union (Brexit) and a rally in oil prices. The Central Banks of Europe and Japan maintained an expansionary policy in 2016, while the Federal Reserve Bank in the US raised interest rates by 25 basis points in December, as it did in 2015.
The US economy rounded off a year marked by the presidential elections against the backdrop of continued strength in the employment market and economic growth and inflation following a moderate course. The US economy has proven robust, which allowed the Fed to raise interest rates at the end of 2016, while members of the Fed stated their expectation of three interest rate hikes for 2017 (up from two previously). The expectation that the Fed will continue to raise interest rates gradually has helped alleviated the fallout of the Fed’s interest rate hike. The application of expansionary fiscal policies by the new administration would be expected to precipitate an increase in inflation and growth. Therefore, the extent to which the US President Donald Trump keeps to his election promises will be one of the main determining factors of the Fed’s policy normalization in 2017.
One feature of 2016 was the rise of populist movements in the Eurozone, as well as risks to the banking sector as a result of the difficulties affecting Italian banks and Deutsche Bank. Although the outcome of the referendums in the UK and Italy attracted a negative reaction in the markets, market volatility proved short-lived. While the upcoming elections in the leading European countries stand as a risk factor for the future, the decision by the European Central Bank (ECB) to extend its quantitative easing program until December 2017 limited the market impact of the political developments. The ECB continues to support economic activity by providing liquidity to the market, although it reduced monthly purchase amount from EUR 80 billion to EUR 60 billion. Following the Brexit vote in June, the Bank of England (BoE) lowered its policy rate to 0.25%, a record low, in the first rate cut since 2009. The Bank of Japan (BoJ) continued to support the economy by targeting the yield curve in monetary policy, in addition to asset purchases.
52%FOR THE FIRST TIME SINCE 2008, OPEC MEMBER AND NON-MEMBER COUNTRIES REACHED AN AGREEMENT TO LIMIT OIL PRODUCTION, SETTING THE STAGE FOR A 52% INCREASE IN OIL PRICES.
China’s economy posted a more moderate rate of growth during 2016, but its stable path limited the sensitivity of global markets to Chinese data announcements. For the first time since 2008, OPEC member and non-member countries reached an agreement to limit oil production, setting the stage for a 52% increase in oil prices. As a reflection of rising oil prices, some emerging oil exporting countries, especially Brazil and Russia, ended the year with a positive decoupling from their peers. However, in the third quarter of the year, the significant capital inflows to emerging economies gave way to capital outflows following Trump’s election. While trends in commodity prices will continue to influence the performance of commodity exporters, capital flows to developing countries will largely depend on the decisions taken by the Fed and the new US administration.
With the intensified uncertainties likely to take a back seat in the first half of 2017, the continuation of stimulatory fiscal policies and relaxation of macro-prudential measures are expected to bring about a marked improvement in economic activity when compared to 2016.
The Turkish economy exhibited some volatility during 2016 amid the fluctuations in global markets, geopolitical developments and the decisions by credit rating agencies. Although the TL suffered a steeper depreciation than the currencies of other peer group developing countries on the back of the increase in the country risk premium, the impact of these fluctuations was not permanent, thanks to the strong foundations of the Turkish economy, especially its strong public finances.
The economy recovered moderately based on fourth quarter figures, backed by supportive incentives and measures taken to stimulate the economy, which had suffered in the third quarter of the year due to the effects of domestic and global developments. With these intensified uncertainties likely to take a back seat in the first half of 2017, the continuation of stimulatory fiscal policies and relaxation of macro-prudential measures are expected to bring about a marked improvement in economic activity when compared to 2016.
8.5%IN 2016, THE COMBINED EFFECT OF THE CHANGE IN EXCHANGE RATES AND THE TREND IN ENERGY PRICES TOOK INFLATION TO 8.5%, EXCEEDING THE TURKISH CENTRAL BANK’S (CBRT) INFLATION FORECAST OF 7.5%.
In 2016, the combined effect of the change in exchange rates and the trend in energy prices took inflation to 8.5%, exceeding the Turkish Central Bank’s (CBRT) inflation forecast of 7.5%. Following a further rise in inflation in the first half of 2017, inflation is likely to converge with the forecast set out by CBRT, although this will depend on trends in aggregate demand and the direction of oil prices.
Despite the contraction in the tourism sector and the rise in oil prices, imports recorded a steeper decline than exports and the current account deficit remained broadly stable, exhibiting no deterioration when compared to 2015. The normalization in relations between Turkey and Russia is expected to have a positively reflection on both exports and tourism receipts, while the growth in total exports, especially in the automotive sector due to reviving demand from the European Union, will continue. The course of oil prices in the coming period will be one of the key factors which will determine the current account deficit.
Ziraat Bank will continue to enjoy steady growth with a focus on efficiency and by attaching weight to credit in the coming period.
250CBRT SUPPORTED THE ECONOMY IN 2016, CUTTING INTEREST RATES BY A TOTAL OF 250 BASIS POINTS AND IMPLEMENTING REQUIRED RESERVE MEASURES, WHICH WERE CARRIED OUT BETWEEN MARCH AND SEPTEMBER PERIOD.
CBRT supported the economy in 2016, cutting interest rates by a total of 250 basis points and implementing required reserve measures, which were carried out between March and September period. Most recently, a combination of domestic developments and the fallout of global developments resulted in CBRT suspending the simplification steps, with CBRT applying a tighter monetary policy to support the TL.
Despite all of the volatility, it should be noted that 2016 was a positive year for the banking sector. As the sector’s leading bank, Ziraat Bank continued to most satisfactorily meet the financial needs of both the real sector and individuals, again achieving a faster rate of credit growth than the sector. Ziraat Bank will continue to enjoy steady growth with a focus on efficiency and by attaching weight to credit in the coming period.
On behalf of myself and the Board of Directors at Ziraat Bank, I would like to thank our customers, our correspondents, business partners, employees and all other stakeholders who helped achieve our performance in 2016.
Yours respectfully,
Muharrem KARSLI
Chairman of the Board
