Cbrt: Q1 Data Point To A Relatively Weak Outlook For Economy

- Central Bank of the Republic of Turkey (CBRT) pointed out to the data showing a relatively weak outlook for economic activity, due to the slowdown in domestic demand growth and the weak external demand.

"Data released for the first quarter of 2015 point to a relatively weak outlook for economic activity" the CBRT said, in the summary of the Monetary Policy Committee (MPC) meeting held on April 23, when the MPC has decided to keep the policy rate unchanged at 7.50 percent, as expected.

Although industrial production recorded a monthly increase of 1.7 percent in February, the level of production remained unchanged from the fourth quarter of 2014 during January-February period, said in the summary. "This outlook is mostly attributed to the slowdown in domestic demand growth and the weak external demand as well as to the setbacks in the supply chain and construction activities caused by adverse weather conditions in January and February."

The weak external demand caused by the sluggish growth across European countries, the largest export market for Turkey, and geopolitical developments in neighboring countries continued to limit the growth of exports, the MPC said. "In addition to the weak external demand, the recent plunge in the value of the euro against the US dollar may have an adverse impact on firms that export in euro, but Turkey’s share in the European market remains robust."

Lingering volatility in global financial markets and the weak course of confidence indices were the risk factors that may limit the contribution of the private sector final demand to growth, according to the MPC.

The first quarter’s higher-than-projected annual consumer inflation compared to the January Inflation Report was mostly attributed to soaring food prices, the MPC stated, while oil prices and TL-denominated import prices put cost pressures on inflation. "Analyzing the assumptions and external conditions that underlie the inflation forecasts, the end-2015 inflation forecast is revised upwards in view of oil prices, TL-denominated import prices and output gap developments."

"Food prices remain as the main risk factor for the inflation forecast" the MPC stated, adding that food inflation was expected to remain high in the short term according to the baseline scenario, food prices are likely to see a notable correction upon the introduction of new-season products in the summer months.

Moreover, measures that may be proposed by the Food Committee are assessed to contribute to the decline in the food inflation in the upcoming period. However, prices of some food items are sensitive to the exchange rate and there are uncertainties over supply-side developments, which necessitate caution against food inflation.

"In sum, the uncertainty in global markets and elevated food prices necessitate maintaining the cautious stance in monetary policy, the MPC said in the summary, stating that the future monetary policy decisions would be conditional on the pace of improvements in the inflation outlook.

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