EFTA01097470

Deutsche Bank O Turkiye: Off the saddle path October 2015 a2c-itrz,:ftr PeArfb-rwt, Obilav M. OztOrk, Chief TOrkiye Economist +44 20 7545 8774 EFTA01097470 Deutsche Bank El Tiirkiye's sliding-door moment Macro outlook [MO]: on a soft patch Global threats [GT] vs. cushions [GC] = no [traditional] EM crisis China's difficult economic transition Excess leverage in some parts of EM Evaporating capital inflows... ... versus stronger fundamentals [GC] in many EM economies Which EM economies appear more vulnerable? Domestic challenges [DC] Turkish politics: from one hung parliament to another? In search of structural reforms Deutsche Bank Deutsche Bank Research EFTA01097471 Deutsche Bank MO-1. Growth remained sub-par yet still defiant in H1 2015... 10 8 6 4 2 0 -2 -4 -6 12Q1 12Q3 13Q1 13Q3 14Q1 14Q3 15Q1 —Net exports Change in stocks Investments Public consumption Private consumption —Headline real GDP (YoY%) Source: Haver Analyecs. TurkStat. and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097472 Deutsche Bank MO-2. ...while latest high-frequency indicators point to a soft landing... 70 YoY%, 3mma <100 = pessimism 85 60 50 80 40 75 30 20 \ 70 10 0 65 -10 —Vehicle sales —White goods sales -20 House sales 60 -30 Core imports —Consumer confidence (rhs) -40 55 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Haver Analybcs. TurkStat. CBT. and Deutsche Bank Deutsche Bank Deutsche Bank Research 4 EFTA01097473 Deutsche Bank El MO-3. ...as also signalled by the ongoing slowdown in loan growth and capital inflows 70 WoW%, 13ma, annualized 120 USDbn 60 100 50 80 40 30 60 20 40 10 20 0 Total credit growth (FX adjusted, Ihs) 0 -10 - —Consumer credit growth (Ihs) -20 Commercial credit growth (FX adjusted, Ihs) - -20 —Gross financing flows (12m rolling, t-6, rhs) -30 -40 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Haver Analyhcs. CBT, TurkStat. and Deutsche Sank Deutsche Bank Deutsche Bank Research EFTA01097474 Deutsche Bank El MO-4. Current account deficit is likely to improve in H2 2015 not due to the positive ToT shock yet on the back of slower growth 40 USDbn, 12m rolling 2010=100 110 20 DB Forecasts 105 0 100 -20 95 -40 90 -60 -80 85 Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 —Current account (C/A) —C/A w/o energy and gold Terms of trade (RHS) Source: Haver Anabrace. CST. TurkStat. and Deutsche Sank Deutsche Bank Deutsche Bank Research EFTA01097475 Deutsche Bank El MO-5. Despite dented commodity prices, inflation is set to remain above 7% in the coming period due to re-kindled FX pass-through 14% YoY% USD/TRY 3.6 DB Forecasts 3.4 12% Headline CPI 3.2 3.0 10% DB Forecasts 2.8 2.6 8% - 2.4 2.2 6% 2.0 DB uncertainty 4% Incertainty band 1.8 1.6 2% 1 .4 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Some: Haver Analyucs. CBT. TurkStai. and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097476 Deutsche Bank MO-6. Residents are long in FX and used to balance out movements in TRY, yet not any more since the Fed taper tantrum 170 USDbn Basket/TRY 3.4 160 3.2 —Resident FX deposits 150 3.0 Basket/TRY (rhs) 140 2.8 130 - 2.6 120 - 2.4 110 2.2 100 2.0 90 1.8 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Source: Haver Analytics. CST, and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097477 Deutsche Bank MO-7. CBT has committed to following the footsteps of the FED as part of its framework simplification... 14% - DB Forecasts 13% - Rate corridor 12% - Effective funding rate 9O/O - 8O/O 7O/O - One-week repo 6% - rate 5O/O Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Source: Haver Aralybcs. CBT. and Deutsche Bank Deutsche Bank Deutsche Bank Research 9 EFTA01097478 Deutsche Bank MO-8. ...while alternative rate paths are possible depending on which volatility regime dominates ahead DB Forecasts 2.0 High volatility & late High volatility & and partial - 2.2 simplification at simplification one-shot - 2.4 •••• USD/TRY 2.6 (rhs) Low volatility gradual simpflication 2.8 [DB basecase] 3.0 • ------- • 9O/O One-week repo *..•• •s. 3.2 rate (Ihs) ---h e 3.4 8O/O - • ******* '•..... . ......... •'' . •----- 3.6 7O/O - 3.8 6% 4.0 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Source: Haver Analyhcs. CBT. and Deutsche Bank Deutsche Bank Deutsche Bank Research 10 EFTA01097479 Deutsche Bank MO-9. CBT's FX reserves are shrinking. 150 USDbn 125 - 100 - 75 50 25 0 0 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15 r - Gold: ROM/CBT/Other [USD18.3bn] Other FX Deposits [USD2.4bn] Banks' FX Deposits: ROM/RRs [USD68.6bn] CBT: Net usable FX reserves - with public FX deposits [USD28.9bn] - --CBT: Net usable FX reserves - in purest form [USD26.1bn] — — -CBT: Gross FX reserves [USD99.6bn] Note: As of end•September. CBTs net usable FX reserves are calculated by subtracting 'Banks' FX deposits' (either in the form of ROM or FX recpired reserves) and 'Other FX deposits from the CBTs gross FX reserves. The dotted line [CBTs net usable FX reserves • in purest from (i.e. Erectly available for FX sales)) is achieved by further subtract:1g 'Public FX deposits' (i.e. held by the Treasury and other state entities). Figures in parenthesis refer to latest readings. Cars official mid-rate for USOTRYis used for conversion purposes. Source: Haver Analytics. CBT. and Deutsche Bank Deutsche Bank Deutsche Bank Research It EFTA01097480 Deutsche Bank MO-10. ...due to ongoing sales to BOTAS and markets and there is no quick fix 3 USDbn USDbn 9 2 6 1 3 0 0 -1 -2 -3 -4 -5 -6 Jun 13 Nov 13 Apr 14 Sep 14 Feb 15 Jul 15 Contribution by X credits (lhs) FX sales to BOTAS (lhs) FX sales to market (auction & intervention, Ihs) —Cumulative impact of FX sales and X credits since May '13 —Cumulative change in CBT's net usable FX reserves since May '13 Source: Haver Analybcs. CST. and Dolled. Bank Deutsche Bank Deutsche Bank Research EFTA01097481 Deutsche Bank MO-11. Fiscal balances remain under control, yet for how long? mFiscal balance: Outturn 4 `)/O of GDP 42 Primary balance: Outturn % of GDP Fiscal balance: Target 3 — Primary balance: Target —Cent Govt Debt (RHS) 2 40 38 -2 - 36 -3 - -4 34 11 12 13 14 15F 16F Source: Haver Analyfics. Ministry of Finance. and Deutsche Bank Deutsche Bank Deutsche Bank Research 13 EFTA01097482 Deutsche Bank GT-1. The potential impact of a hard landing in China Cumulative loss in output over a five year period (%) 0 2 4 6 8 10 12 14 16 ARG CHN RUS SGP MAL THA SAR IDN HKG POL -or BRZ TUR 7.3 JAP ~i CHL PHL Simulation of an investment IND led slowdown that takes GER growth in China to 3% by ITA 2017 compared with a more ZAF gradual deceleration to 6.4% MEX by 2019 FRA KOR UK AUS US CAN Source:: Guavin and RetilLard. 2015 (Banque de France worlung papar no. 562) Deutsche Bank Deutsche Bank Research 14 EFTA01097483 Deutsche Bank El GT-2a. Cheap funding has resulted in large rise in debt in some cases Change in debt since 2007 (percent GDP) -10 0 10 20 30 40 50 60 70 80 90 China Malaysia Thailand Turkey ........ Brazil Poland Russia Mexico Hungary Indonesia • Households South Africa Nonfinancial companies India Government Source. IMF end Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097484 Deutsche Bank GT-2b. Borrowing has been funded in FX in some cases 45 - Foreign currency debt of non-financial firms and households (% GDP) 40 - 35 - 1 ■ 2007 ■ 2014 r -- 30 - 25 - 1 20 - 15 - 10 - 5 - 0 Argentina Colombia India Brazil Indonesia South Russia Turkey Poland Chile Africa Source: IMF and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097485 Deutsche Bank CI GT-2c. While sovereigns have mostly avoided ramping up their dollar borrowing, foreign ownership of local currency debt has risen. 70 % of total government debt 60 Foreign-held local currency • FX 50 r 40 I 1 1 30 20 10 0 07 2014 2007 2014 2007 2014 2007 2014 I 200;1201 2007T2014 200;[2014 200712014 2007-12014 200712014 Thailand Brazil Colombia Indonesia Turkey South Romania Hungary Mexico Poland Africa Source: IMF and Deutsche Bank Deutsche Bank Deutsche Bank Research 17 EFTA01097486 Deutsche Bank El GT-3a. Capital flows to EM: down but not out 400 Net foreign purchases of EM assets (12m sum, USD bns) 350 300 • Debt • Equity 250 200 150 100 50 I 0 I 0 I I 2011 2011 2012 2013 2014 2015 Soums: IF end Deu,sche Ezni, Deutshe Bank Deutsche Bank Research 18 EFTA01097487 Deutsche Bank GT-3b. Capital outflows have been about 70-80% of the magnitude observed during the 2013 taper tantrum Days before and after reversal t-30 t+30 t+60 t+90 t+120 t+150 t+180 10 0 Current -10 Taper tantrum -20 -30 -40 Global financial -50 crisis -60 Cumulative portfolio flows to EM (USD bns) ** " Sam* of seven Err countries Source: OF and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097488 Deutsche Bank El GC-1. Foreign reserves are substantial in EM 18 EM reserves (months imports) 16 14 12 10 8 6 4 2 0 80 85 90 95 00 05 10 15 Sour.. Hawer AnaWs and Oeutscne Bank Deutsche Bank 00.00 Bank R0500,0 20 EFTA01097489 Deutsche Bank El GC-2. Government debt levels in EM well below DM 120 Government debt (% GDP) Forecast 100 80 Advanced 60 40 - Emerging 20 - 0 95 00 05 10 15 20 Source: Haver Analytics end Deutsche Bank Deutsche Bank Deutsche Bank Research 21 EFTA01097490 Deutsche Bank Finding the weakest EM: who has enough reserve cover? Foreign reserves (% external financing needs) PHL 1,384 PER 611 KOR 580 RUS 540 CHN 507 THA 394 TWN 365 ISR 325 More vulnerable BRZ 266 EGY 222 IND 191 HUN 190 IDN 177 COL 167 MEX 153 CZE 132 POL 116 CHL 112 MAL 99 ROM 89 VEN 85 ZAR 71 ARG 67 TUR 61 UKR 22 0 200 400 1000 1600 Source: Haver Anatees. World Bank Ouarterly Externe] Debt Stabstics. National Central Banks. Deutsche Bank Research Deutsche Bank Deutsche Bank Research EFTA01097491 Deutsche Bank 0 Finding the weakest EM: FX is already cheap but further adjustment may have to required to restore external balance 10 Fair value according to DB BEER model (%) 5 0 -5 - -10 - -15 - Undervalued -20 - -25 - -30 -35 COP RUB BRL CLP MYR ZAR TRY MXN POL RON IDR HUF INR TWD CZK ILS KRW THB PHL CNY Source: Deutsche Bank Research Deutsche Bank Deutsche Bank Research EFTA01097492 Deutsche Bank Finding the weakest EM: macro adjustment in major EM economies has been limited since the Fed taper tantrum India has adjusted Brazil has not... ...and nor has Turkiye Growth Growth Growth 1.0 Fiscal 1.0 Fiscal 1.0 Fiscal , Inflation Inflation balance balance / Inflation balance Public Credit Public Credit Public Credit debt growth debt growth debt growth FX Private FX Private FX Private valuation debt valuation debt valuation debt Reserve Real Reserve / ‘. Real Reserve cover rates cover rates cover N rateReals Current Current Current account account account —Current — Pre taper tantrum —Current — Pre taper tantrum —Current —Pre taper tantrum The chart show vulnerability scores for ten indicators from 0 (least vulnerable) to 1 (most vulnerable) such that a move towards the centre of the web represents a reduction in vulnerability Source: Haver Malytics and Deutsche Bank Deutsche Bank Deutsche Bank Research 24 EFTA01097493 Deutsche Bank El DC-la. AKP lost her overall majority in the June 2015 elections for the first time since 2002 400 # of MPs 367: Constitutional 350 majority (outright) 330: Constitutiona <=. 11M•11•01MIE majority (via referendum) 300 - 276: Absolute majority 1 0 250 - 258 200 -u-AKP CHP -N-MHP -E-HDP* Others** 150 - 132 100 - 80 50 - 0 2002 2007 2011 2015 Note: (1HOP .s been established in 2012. Hence. figures for 2007 a. 2011 represent former pro.Kurdish ',a.m. i.e. DTP and BDP. In 2002, HEDAP entered as a single party, but remained at 6.2.. (—I Others' inc.. smaller political parties and independent candidates. Source: YSK. TurkStat. and Deutsche Bank Deutsche Bank Deutsche Bank Research 25 EFTA01097494 Deutsche Bank DC-lb. Latest opinion polls still point to another hung parliament... 50 MHP `)/O of the national vote 18 16.5 15.8 15.4 15.3 15.3 • 16 45 AKP • • • 13.0 42.2 42.9 42.4 . .......... .......... 11.6 * 40 12 40.7 ••"" .....**** *** *********• *************** 12.5 HDP [rhs] 12.3 10 35 - 10% election 8 Others [rhs] threshold 30 4.8 6 26.7 26.4 26.9 • • • .1/ 26.2 ,A. 4 . ****** ************* ••-. * 25 - 3.5 3.5 t 3.4 25.1 3.2 2 CHP 20 0 June '15 elections Jun [2] Jul [2] Aug [7] Sep [8] Note: Results for June '15 elections refer to only domestic votes. Figures in parenthesis denotes number of pollsters available in respective month. The sample size is based on top-I0 pollsters (measured as accuracy in June 'IS elections) Much consistently release results. Source: MAK. Kends. Gezid. ORC. SONAR. Metropoll. Andy.AR. A&G. Denge. GENAR. and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097495 Deutsche Bank DC-1c. ...yet it is not a done deal as an AKP majority cannot be ruled out... 50 325 of the national vote # of MPs Average of Sep 300 1 45 41.9 Average of Sept-15 276: Absolute 40 35 I poll results Performance in the 4-----June elections 275 250 225 - majority Performance in the 30 200 June elections 26.9 Range of support 175 25 based on Sept-15 poll results 150 Range of support 10% LI based on Sept-15 20 15.3/ 125 election 138 poll results 15 12.3 threshold 100 75 10 MMMMM IMI IMI MI 50 5 132 25 0 0 AKP CHP MHP HDP Others AKP CHP MHP HDP Note: Results for June 'IS elections refer to only domestic votes. The range is based on only September cols. The sample sue is based on top.I0 pollsters (measured as accuracy in June 'IS elections) which consistently release results. Source: MAX. Konda. Geaci, ORC. SONAR. Mein:poll. Andy-AR. MG. Denge, GENAR. and Deutsche Sank Deutsche Bank Deutsche Bank Research 27 EFTA01097496 Deutsche Bank El DC-1d. ...though more reliable pollsters still say it is the other way around 1.5 pp wedge: top 10 vs. top 5 pollsters, Sep-15 ■ Mean ❑ Maximum -1.5 Minimum -2.0 AKP CHP MHP HDP Others Note: The sample size is based on top-10 poeslers (measured as accuracy in June 15 °lockets) MI. consistently release results. Top-5 pollsters are A8G. Wietropoll. Koncla. Antly.AR. and Gezico. Source: MAK. Kande. Gazici. CRC. SONAR. Metropoll. Andy-AR. MG. Denge. GENAR, and Deutsche Bank Deutsche Bank Deutsche Bank Research EFTA01097497 Deutsche Bank El DC-le. Turnout in the November elections could prove crucial... 30 # of national votes (mins) 27.3 24.3 ..* 25 - 21.8 (57.9%) . 2,1 • m.5........•••••........• • • • •••... 21.0 (51.8%) .../..." 20 - A .•• .• • • .•••‘. ' (49.8%) ........... •AL 21.4 ........... • • .. 18.9 (40.9%) ......A A ............ 20.5 (45.5%) • • •. • .• • • 19.5 15.9 ...• • ' • -A-AKP ..• 15 - • ••• • Non-AKP (including HDP) # of registered voters 12.1 who did not vote 11.3 •••••HDP Domestic voters 10 - 5- .......... 7.3 ............ 5.6 0 2010 Const. 2011 General 2014 Local 2014 Presidential 2015 General Referendum elections elections elections elections [73.3%] [83.2%] [89.3%] [74.2%] [83.9%] Note: (1HOP has been established in 2012. Hence. figures for 2007 and 2011 represent former pro-Kurdish ponies. Le. DTP and BDP. In 2002, HEDAP entered as a single party, but remained at 6.2%. (")'Others' include smaller political parties and independent candidates. Source: YSK. TurkStat. and Deutsche Bank Deutsche Bank Deutsche Bank Research 29 EFTA01097498 Deutsche Bank DC-1f. ...particularly in the Eastern Anatolia... change in # of valid votes 30 ■ AKP 25 ■ CHP 20 ■ MHP ■ HDP 15 10 r -1.111-m 5 0 -5 -10 -15 -20 -25 Southeastern Mid-eastern Northeastern Istanbul Mediterranean Western Ana. Middle Ana. [5.5] [5.5] [5.3] [4.3] [3.1] [1.8] [1.4] Note: Figures in parenthesis refer to % change in total casted vote in each region.. ranked in decreasing order. Source: Konda and Deutsche Bank Deutsche Bank Deutsche Bank Research 30 EFTA01097499 Deutsche Bank DC-1g. ...while marginal votes could again play a crucial role 400 # of MPs 367: Constitutional # of MPs 400 350 1. majority (outrign7 350 330: Constitutional majority +18 (via referendum) 300 300 1 276: Absolute majority 250 - 250 200 - • June '15 elections 200 AKP receiving 90,000 marginal votes 150 - - 150 • 100 -6 -4 - 100 258 132 50 80 - 50 80 0 0 AKP CHP MHP HDP Some: YSK TurkStat. and Deutsche Sank Deutsche Bank Deutsche Bank Research 31 EFTA01097500 Deutsche Bank DC-1h. The era of coalition governments (1991-2002) was associated with sub-par and volatile growth DYP SI IP DYPSHP (then CHP) RPDYP ANAP-DSP-DTP DSP-MHP•ANAP coal tic., u i coalition #2 coalition minority coalition coalition 1.4 MMI 1.4 1.2 - 1991 general 0 000 00 o 1.2 1.0 • 2002 general 1.0 °tendons +99 general elections 0.8 - 0.6 • - ections N N 0.8 0.6 0.4 OA 0.2 0.2 0.0 0.0 .0.2 - 4.2 •0.4 •0.4 I 1995 general •0.6 elections •0.6 •0.8 4.8 0 DYP CLIP coalition •1.0 •1.2 ANAP DYP minority coalition 1990-200P •1.2 0 Avr. GDP growth: 3.6%VoV DSP minority government Volatility: 5.3% •1.4 0 •1.6 LB Jan-90 Jan-91 Jan•92 Jan 93 Jan 94 Jan-95 Jan 96 Jan-97 Jan•98 Jan•99 Jan•00 Jan-01 Jan-02 Note: MMI refers to Macro momentum index' which is calculated for 1990-2002 period as a weighted average of normalized changes in non.oil imports. industrial production and creek extended to the private sector. Shift in color of shaded regions represents a change in the government. There was an additional minority government not shown on the chart. which was formed by DYP Wring October 1995 but failed to receive vote of confidence in the Parliament. Source: The Grand National Assembly of Turkey. TurkSlat YSK. Haver Analytics. arid Deutsche Bank Deutsche Bank Deutsche Bank Research 32 EFTA01097501 Deutsche Bank DC-2a. Whoever is at the helm needs to tackle faltering potential growth problem by implementing structural reforms... 12 Potential growth rate (%) • 2015-17 Structural score in 2013 2000-07 Singapore Hong Kong Taiwan 10 - Malaysia NMI Korea Chile • China 8 ■ Israel • Thailand ■ Poland Indonesia 6 I Peru • • r • Turkey _ 4.3. • • Youth Alfica • • • • • • .. • Philippines 4 - • 0• • • • • Hungary • f • • • • • • Mexico • • 3.3 Romania • • • • Russia 2 -• • • Brazil • Colombia • Ukraine • • Argentina 0 Venezuela XZZ.2O CC LU Z Z < CC —I CC CC (/) 0- V) 0 Z cc (/) 0 ct NO FYI IDIOO LU >- ODZI L11 > cc —0 N 0- — 0- cc y cn cc — o -2 -1 0 1 2 Note: Countries on LHS churl are ordered according to their potential growth rates in 2000-07. On the RHS chart. a structural score of zero represents the average for EM in 2007. Source: Deutsche Sank Deutsche Bank Deutsche Bank Research 33 EFTA01097502 Deutsche Bank DC-2b. ...as soon as possible as Teirkiye's working age population growth is on a declining trend (Syrian refugees a panacea?) Working age population growth (%) Demographic drag (pps) ROU 2085 PHL ARG 2075 UKR PER 2065 MEX 2055 IDN IND 2045 TWN BRA 2035 THA CHN 2025 VEN HUN 2015 KOR CHL 2005 COL HKG 1995 CZE 1985 ZAF MYS 1975 RUS SGP 1965 TUR -0.9 POL 1955 ISR -5 5 10 15 20 -1.5 -0.5 0 0.5 Nem Demographic &ag refers to cwhitution of demographic factors on average potentiel growth n 2015.17 pepod. Source: UN and Deutsche Bank Deutsche Bank Deutsche Bank Research 34 EFTA01097503 Deutsche Bank Deutsche Bank Turkiye: Macro Projections 2013 2014 2015F 2016F 2013 2014 2015F 2016F National Income External Accounts (USDbn) Nominal GDP (USD bn) 823 796 691 647 Goods Exports 161.8 168.9 156.1 166.6 Population (mn) 75.8 76.8 77.8 78.7 Goods Imports 241.7 232.5 208.1 220.0 GDP per capita (USD) 10 853 10 365 8 883 8 210 Trade balance -79.9 -63.6 -51.9 -53.4 % of GDP -9.7 -8.0 -7.5 -8.3 Real GDP (YoY%) 4.2 2.9 3.0 3.0 -64.7 -46.5 -37.7 -39.1 Current account balance Private consumption 5.1 1.4 3.7 3.4 -7.9 -5.8 -5.5 -6.1 % of GDP Government consumption 6.5 4.7 7.0 3.7 FDI (net) 8.8 5.5 7.9 7.1 Gross fixed investment 4.4 - 1.3 4.2 1.9 110.9 106.9 99.0 96.5 FX reserves (eop) Exports - 0.2 6.8 - 1.6 2.9 TRY/USD (eop) 2.14 2.32 3.15 3.41 Imports 9.0 - 0.2 1.5 4.4 Debt Indicators (% of GOP) Prices, Money and Banking (YoY%) Government debt' 37.4 35.0 36.7 36.3 CPI (eop) 7.4 8.2 8.2 8.4 Domestic 25.7 23.7 22.8 22.8 CPI (period avg) 7.5 8.9 7.6 7.8 External 11.7 11.3 13.9 13.5 Broad money (eop) 22.2 11.9 10.6 10.9 Total external debt 47.3 50.6 59.7 65.3 Bank credit (eop) 33.3 19.3 19.2 16.8 in USD bn 389 402 412 422 Fiscal Accounts (% of GDP) Short term (% of total) 33.5 33.0 30.0 27.5 Overall balance 1 -1.2 -1.3 -1.6 -2.3 General (ann. avg) Revenue 24.8 24.4 23.7 22.8 Industrial production (YoY) 3.5 3.5 2.9 2.9 Expenditure 26.0 25.7 25.3 25.1 Unemployment 9.1 10.0 11.0 11.2 Primary balance 2.0 1.6 1.3 0.5 (1) Central government Source: Deutsche Bank National Sources. Deutsche Bank Deutsche Bank Research 35 EFTA01097504 Deutsche Bank Deutsche Bank: Global Forecasts GDP growth i')/0) Key market metrics 2013 2014 2015F 2016F Current Q4-15F O4-16F Q4-17F Global 3.3 3.4 3.1 3.4 US 10Y yield (%) 2.09 1.75 2.25 2.75 US 1.5 2.4 2.4 2.5 EUR 10Y yield (%) 0.58 0.80 1.20 1.75 Eurozone -0.4 0.9 1.5 1.6 EUR/USD 1.136 1.05 0.90 0.85 Germany 0.3 1.6 1.7 1.9 USD/JPY 120 125 128 120 Japan 1.6 -0.1 0.6 1.1 S&P 500 2,017 2.050 2,300 UK 2.2 2.9 2.6 2.5 Stoxx 600 362 410 China 7.7 7.3 7.0 6.7 Gold (USD/oz) 1,164 1,125 1,085 India 6.9 7.1 7.5 7.5 Oil WTI (USD/bbl) 47.1 48.0 54.0 EM (Asia) 6.5 6.4 6.2 6.2 Oil Brent (USD/bbl) 49.9 53.0 59.0 EM (LatAm) 2.7 0.8 -0.6 0.5 Current pnces as of 12-Oct-2015 EM (CEEMEA) 2.6 2.4 0.9 1.8 EM 5.0 4.6 4.0 4.4 DM 1.0 1.7 1.9 2.1 CPI inflation, Yor (%) Central Bank policy rate (%) 2013 2014 2015F 2016F Current O4-15F O4-16F O4-17F US 1.5 1.6 0.4 2.2 US 0.125 0.125 0.625 1.625 Eurozone 1.4 0.4 0.1 1.0 Eurozone 0.05 0.05 0.05 0.05 Japan 0.4 2.7 0.8 0.8 Japan 0.10 0.10 0.10 0.10 UK 2.6 1.5 0.1 1.3 UK 0.50 0.50 1.00 2.00 China 2.6 2.0 1.7 2.7 China 1.75 1.75 1.75 2.50 India 10.7 6.7 4.8 5.1 India 6.75 6.75 6.50 6.50 Source: Deutsche Bank (The House View. October issue) Deutsche Bank Deutsche Bank Research 36 EFTA01097505 Deutsche Bank 0 APPENDIX: Deutsche Bank Tiirkiye - History and forecasts 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016F National Income Nominal GDP (USDbn) 392.2 482.7 529.3 646.4 730.6 614.4 731.5 774.7 788.6 823.0 795.9 692.0 653.7 Population (mn) 67.7 68.6 69.4 70.2 71.1 72.1 73.0 74.0 74.9 75.8 76.8 77.8 78.7 GDP per capita (USD) 5 792 7 040 7 627 9 206 10 277 8 527 10 021 10 476 10 531 10 853 10365 8899 8301 Real GDP (YoY%) 9.4 8.4 6.9 4.7 0.7 • 4.8 9.2 8.8 2.1 4.2 2.9 3.0 3.0 Private Consumption 11.0 7.9 4.6 5.5 -0.3 • 2.3 6.7 7.7 -0.5 5.1 1.4 3.7 3.4 Government consumption 6.0 2.5 8.4 6.5 1.7 7.8 2.0 4.7 6.1 6.5 4.7 7.0 3.7 Gross Fixed Investment 28.4 17.4 13.3 3.1 -6.2 - 19.0 30.5 18.0 -2.7 4.4 -1.3 4.2 1.9 Exports 11.2 7.9 6.6 7.3 2.7 • 5.0 3.4 7.9 16.3 • 0.2 6.8 -1.6 2.9 Imports 20.8 12.2 6.9 10.7 -4.1 -14.3 20.7 102 -0.4 9.0 4.2 1.5 4.4 Prices, Money and Banking (YoY%) CPI (eop) 9.4 7.7 9.7 8.4 10.1 6.5 6.4 10.4 6.2 7.4 8.2 8.6 8.2 CPI (period avg) 8.6 8.2 9.6 8.8 10.4 6.3 8.6 6.5 8.9 7.5 8.9 7.7 8.0 Broad money (eop) 22.9 23.2 242 15.7 26.7 13.0 19.1 14.8 10.2 22.2 11.9 10.7 11.1 Private Credit (eop) 56.7 55.1 40.8 27.1 22.4 9.7 44.7 34.7 18.5 33.3 19.3 191 16.8 Fiscal Accounts (% of GDP) Overall balance - 5.4 • 1.3 • 0.6 • 1.6 -1.8 • 5.5 -3.6 • 1.3 • 2.0 • 1.2 -1.3 •1.6 •2.3 Revenue 19.8 21.3 22.9 22.6 22.0 22.6 23.1 22.8 23.4 24.8 24.4 23.7 22.8 Expenditure 25.2 22.5 23.5 24.2 23.8 28.1 26.7 24.1 25.4 26.0 25.7 25.3 25.1 Primary Balance 5.5 5.1 4.6 3.6 3.5 0.1 0.8 1.9 1.4 2.0 1.6 1.3 0.5 External Accounts (USD bn) Goods Exports 68.8 78.5 93.8 115.4 140.9 109.7 121.0 142.4 161.9 161.8 168.9 155.3 167.7 Goods Imports 91.3 111.4 1342 162.2 193.8 134.5 177.3 231.6 227.3 241.7 232.5 202.9 217.3 Trade Balance - 22.4 • 32.9 • 40.9 -46.8 -52.9 • 24.8 -56.3 -89.2 -65.4 -79.9 -63.6 -47.6 -49.5 % of GDP -5.7 • 6.8 • 72 • 7.2 -7.3 • 4.0 -7.7 • 11.5 • 8.3 • 9.7 -8.0 -6.9 •7.6 Current Account Balance - 14.2 • 21.4 • 31.8 -37.8 -40.2 • 12.0 -45.3 • 75.0 -48.5 -64.7 -46.5 -33.7 •35.7 % of GDP -3.6 • 4.4 • 6.0 • 5.8 -5.7 • 2.0 -6.2 • 9.7 • 6.2 • 7.9 -5.8 -4.9 •5.5 FDI (net) 2.0 9.0 19.3 19.9 17.3 7.0 7.6 13.8 9.2 8.8 5.5 8.0 7.1 FX Reserves (eop) 36.0 50.5 60.9 73.3 71.0 70.7 80.7 78.5 99.9 110.9 106.9 98.0 95.5 USD/FX (eop) 1.35 1.35 1.42 1.17 1.51 1.51 1.55 1.91 1.79 2.14 2.32 3.14 3.39 Debt Indicators (% of GDP) Government Debt 59.2 52.3 46.1 38.8 40.0 46.3 43.1 39.9 37.6 37.4 35.0 36.5 36.2 Domestic 42.4 38.7 33.5 29.4 28.9 34.6 32.1 28.4 27.3 25.7 23.7 22.7 22.7 External 16.8 13.6 12.6 9.3 11.1 11.7 11.0 11.5 10.3 11.7 11.3 13.8 13.4 External debt 41.1 35.4 39.3 38.7 38.5 43.8 39.9 39.2 43.0 47.3 50.6 59.4 64.3 in USD bn 161 171 208 250 281 269 292 304 339 389 402.4 410.8 420.0 Short-term (% of total) 20.0 22.8 20.6 17.3 18.7 18.2 26.5 26.9 29.6 33.5 33.0 30.0 27.5 General (ann. avg) Industrial Production (YoY%) 9.8 5.4 7.3 8.6 -1.1 • 10.4 12.4 9.6 2.4 3.5 3.5 2.9 2.9 Unemployment (%) 10.3 10.3 9.1 9.2 10.0 13.0 11.2 9.2 8.4 9.1 10.0 11.0 11.2 Source: Deutsche Bank Deutsche Bank Deutsche Bank Research 37 EFTA01097506 Deutsche Bank LI Addendum-I: Economic implications of lifting sanctions on Iran 2000 2000 United Taiwan Kingdom France 5% Brazil 6% Germany 6% 7% 19% Netherlands 6% China 7% Greece 6% France Iran's top 10 import partners South 8% UAL Iran's top 10 export partners Africa 14% 7% japan Singapore 7% 13% Russia Chino Korea Italy Italy 11% 9% 9% 12t, c 11% Saudi Oman 2014 Russia 2014 Brazil Argentina Arabia 1% 2% UAE Germany Italy 2% r7' 1% Pakistan \\ Syria 3% 2% 4% 3% 2% Korea Turkey 7% 5% Korea UAE 6% 39% ndia 6 turkey St. India China 17% 33% Source: World Bank, IMF. and Deutsche Bank Deutsche Bank Deutsche Bank Research 38 EFTA01097507 Deutsche Bank El Addendum-I: Economic implications of lifting sanctions on Iran FDI inflows to Iran and arowth FDI inflows to Iran by sector 10 12 10 S 8 8 Sanctions intensified 4 0 -4 2 -8 0 2003 2004 2005 20062007 2008 21:09 2010 20112012 2013 2014 2015 -Real GDP growth, % iiimkFDI (US$ bin, RHS) ■ Oil and gas ■ Manufacturing ■ Services ■ Real estate Source: World Bank. IMF. and Deutsche Bank Deutsche Bank Deutsche Bank Research 39 EFTA01097508 Deutsche Bank El Addendum-I: Economic implications of lifting sanctions on Iran Comparing with the Iraqi case Exports toltaq as !haseol Iraq's laid impctis(%). Expects toIraq as shNed iraa'stsai impons(%',. (2012.14 average) EXpolISI011tp as hereof Iraq's total impals(%)c sanction period (1987-89 average) 25 26 4b 20 20 17.8 14.5 16 15 11.2 10 9. 92 8.5 63 7.2 5 4.9 4.9 3.6 3.6 3.5 32 I I I 3.7 3.6 2.6 21 21 0 0 /^ CC. D 0 rl t ,4 3 3 £ 3 'E . 3 4. 1 g a I' ExportstoIraq in 1987-1989 1.6 lapottsiolreq in sanction period 1.6 &pensIDIraq in 2012.2014 1.6 Turkey 3 1.4 1.4 • 1.4 O 12 u 12 b y 1.0 1.o 5 0.8 0.8 OA Turkey *II' • 06 06 • risaania 0 • Ukraine 0.4 0.4 0.4 i dl • Egypt 8 0.2 • 02 02 Turkey • 0.0 •• • 0.0 0.0 2.0 4.0 6.0 8.0 00 0.2 0.4 0.8 0.8 0.0 2.0 4.0 60 60 Share al aspen sio Iraq In total exportsMI Share ol expert ale Iraq in Iola) expect (%) shares export al o Iraq in leral export s(%) Source: IMF and Deutsch Bank Deutsche Bank Deutsche Bank Research 40 EFTA01097509 Deutsche Bank El Addendum-II: Election simulations I/1DH /411P i 4, 115 Aler Clir Muir 1101' AKP CIO^ /lur HI» 302 0 SI LI in 324 00 60 37 20 51 MIL~~1~. 15 61 ib 35/ 119 54 60 '20 in V 22 to 323 104 6e .., 21 Sli 323 04 67 62 20 60 324 89 66 71 19 35G/ 133 55 49 '29 66 v 23 315 112 60 22 20 314 100 67 6, 2, 49 319 .37 (19 71 93 344 13 / 48 n 07 v 24 48 315 123 66- 29 48 304 112 64 62 2:1 48 306 104 67 7, 2, 331 '44 09 47 i 41 CO 0 25 41 205 130 66 24 47 207 113 47 43 Sa 47 2D9 113 07 it :n 27 44 144 G9 Q 40 201 124 67 35 4C 200 131 Go GT 24 40 391 135 65 71 22 45 71 27 43 20* 136 67 37 26 45 266 IN 67 GT 25 45 305. 120 47 70 24 AKP 44 70 0 20 Gnr AKP 44 no 153 69 0 84 CHP AKP 44 27 00 AKP 44 263 »7 49 62 7, OIP AKP 44 23 CHIP 316 1614 67 0 30 1%) i%) 49 377 lea 70 0 29 154 14) 43 276 149 69 67 28 1%) O.l 43 . 27 rei 4%) 43 272 134 70 70 7%) 310 173 07 V 31 42 Pla 150 h/ 30 42 270 154 60 67 29 42 272 149 39 60 24 42 24. '44 69 71 27 41 306 lin/ 67 0 32 •I 1 ry h/ 3, 41 201 166 66 68 30 41 264 164 39 63 94 41 264 147 66 71 28 44.) 297 184 62 0 33 40 151 32 40 267 168 47 68 31 40 267 165 67 61 30 40 267 153 66 72 29 32 300 .93 47 0 34 39 In) 30 0 32 39 240 170 67 sa 32 20 200 /Ga Ca 04 31 30 240 163 67 72 30 24 4 33 36 . i »c 37 0 34 34 244 163 CO 57 33 3. 241 174 Ca 03 32 36 243 160 60 37 376 a7 MB D 34 37 35 31 2» 1103 CO 50 34 37 230 niCi 09 42 33 37 »4 176 CD 71 3 '3 HOP: 9% 11OP 10, 1101/ 1 i , IA HP 16% »HP. 1434 1411P 10, Amp opi k/ 1.57 4115P AKP CHP MHP HOP AKP CHP 1.414P HOP AKP POP LIHP 105P AKP 104P MHP HOP 51 20 61 1/3 57 SI/ 18 hl I/ 61 321 69 44 70 16 se. 31 60 20 30 317 o4 ID 50 iG 50 320 75 05 70 17 49 22 49 21 49 312 97 64 -i: 20 49 ID 49 314 ai, as 70 To 411 23 46 23 .40 »C 107 00 21 4.2 20 40 307 OD ai4 70 19 41 24 47 23 41 »i lo SI 3.• 22 47 31 47 300 97 03 70 20 26 40 24 413 23/0 121 42 23 40 22 46 296 l06 78 70 21 49 326 142 en 26 46 7 25 45 016 I» 79 b( 24 45 23 45 237 116 78 70 22 KP 44 321 .46 44 27 CHP AKP 44 3:4 141 144 tl 26 CHP AKP 44 25 042 AKP 44 24 CHP AKP 44 - 4 23 CHP 318 148 44 0 28 PM (%) 43 417 I» 05 V 27 MI 7%) 43 276 136 62 67 26 PM Hel 43 274 194 øl 61 26 tl4) »I 43 274 I» 78 69 22 »I 43 205 ICI 64 0 29 42 312 ec 0 Sil 42 142 OD Sei 27 42 370 1273 03 42 24 42 260 133 79 70 » 41 306 147 06 0 30 41 30a eG 0 22 41 261 147 44 Sei 20 41 263 143 03 43 37 41 On 136 02 70 20 40 07 0 31 40 ;07 'ti eG 0 30 40 255 104 43 Sei 29 40 356 149 03 63 30 40 256 142 02 70 27 311•2 100 In c 32 39 2» 172 im 30 247 162 03 60 20 39 250 154 04 Ga 2* 29 »3 147 03 71 20 1113 99 34 2172 103 kli ii?" 3. 3: 'P/ 240 168 1114 68 31 01 230 165 84 62 30 38 239 157 63 71 29 37 94 37 " 33 st 177 112 68 32 3/ 233 171 84 42 3! 37 23. 162 82 71 30 „ op 10% HDP 1100 1, ,, I0 114 1h (04/(/0 m i ,r 2 154 44/14/ 10, 1/1111`. 1034 61 Kr KP Cl IS SI 17 31 331 Go 97 2.t. iii 31 »4 44 100 00 IS 51 SJn 53 fei 11 14 19 60 33 317 76 ICH n Da 323 6tl Yel le 60 715 62 99 70 15 20 49 312 110 I» lie 40 312 75 101 62 I 7 49 313 70 97 70 16 44 2, 48 21/ 4-8 938 86 98 IB 4/5 310 79 100 ai IB 48 305 76 100 70 l7 4G4/ •7 47 298 38 97 20 47 302 SMI 100 60 10 47 304 77 i» 70 ,8 0 23 46 4c 292 IPS 96 57 21 46 149 94 97 Cl 20 4,3 204 97 00 To ts, 45 aa 16) 90 0 24 45 :73 5 »3 112 00 21 22 45 207 104 90 6l St 45 225 01. 07 70 20 AKP 44 215 130 DO 0 25 CHP AKP 44 24 air A Kr 44 23 CHP AKP 44 22 coup AKP 44 2 21 cHp 311 130 101 0 20 1%) 43 25 rin I. 43 269 126 Di SO 24 (%) 4%) • a 372 97 Cl 23 (14) PH 43 270 113 07 70 22 (%) 306 148 100 0 2? 42 42 261 132 99 58 25 22 264 "20 913 60 22 42 268 114 96 70 :23 41. 297 152 101 0 41 41 »B 134 100 68 26 •I 267 , 32 10/ 60 25 41 267 124 94 Be 24 45/ 391 ISS 101 0 29 40 40 261 142 942 68 27 41/ 268 .34 101 60 26 40 260 130 '00 70 26 243 164 101 0 30 39 94 243 148 PH 64 26. 246 142 101 62 27 3n 240 136 99 70 26 376 174 I 0 21 34 30 aa 236 154 101 50 20 33 240 101 41 20 34, 240 142 94 70 21 31 32 37 31 37 D34 162 100 54 30 31 231 I» 101 02 214 37 D» 140 I40 71 20 1101' 10% I TDP. 1114 MHP 4013. 14149 20 31149 20% MHP 2D.K. 713 3 CPIP_M i/9 1/3a 014/4 73 -19 »HP HOP AKO CHP 1.11413 1109 AMP /714/ 7400 in 15 61 15 61 sn 53 e le os lis 51 323 45 1 v. ipi 13 61 314 48 114 70 ,2 33 I7 60 10 60 5,0 62 112 58 ,6 60 310 5a 118 14 60 314 4. 116 70 ,3 49 IS 40 17 40 0'0 CO Il] oi 16 49 313 43 113 cl IS 40 311 53 116 70 T4 43 ID 40 l• •O 304 11• 17 40 .205 0* 114 cl 16 40 305 43 113 CO IS 41 30 47 ID 47 2247 wi 112 ta 10 47 303 73 113 c: 17 47 -Azha 150 114 CO ID 0 .31.15 1C0 0 21 46 20 46 242 60 I ;3 ta 19 44 »1 63 112 ci la 44 2415 72 114 CO 17 45 iiliT V .72 46 21 45 702 89 112 bi 20 e5 200 BH 114 0: I9 46 22.6 69 113 99 ,8 AKP 44 311 126 114 0 23 CHP AKP 44 22 CHP AKP 42 e n ni 2, CHP AKP 44 '1 4' 20 MP AKP 44 19 CH4 300 133 114 0 24 pi.4) OM 49 29 044 i%) 43 266 114 112 68 22 1%) MI 43 270 105 113 62 21 (141 1%) 43 273 97 . I, en 5. 154) 297 136 117 0 25 42 24 42 267 .22 113 60 23 A2 263 , 14 112 61 22 42 »I 106 116 40 21 41 201 141 116 0 .04 ai as 4i 250 120 Ila 50 24 41 254 123 ill 43 33 266 114 Il 00 22 40 394 144 120 0 x/ 40 24 40 244 134 I44 50 25 40 244 131 114 41 24 40 343 132 I10 40 23 22 • >11 39 27 »2 134 I TG 50 X. 30 339 13 4 HG 41 25 30 230 130 I13 40 24 44 273 150 116 0 39 34 24 An 236 140 110 54, 27 30 335 134 110 42 20 30 233 133 11.3 CO .25 37 268 166 II7 0 30 37 Ltat_usi_sta_o_i se 37 229 146 117 69 93 37 228 142 116 84 27 37 229 194 Ile BO 26 Hor, ey. HOP. 941. 14091 104. 1409, 1I% HOP 12% AKP with 454.030 malet10 make euirmin can 414.111011•1 changn AKP with 46 4.4211 mais lo i MG con Cluilonst amma ment• te mlemcdum AKP onani, 10016 10/ sa 910 pany 11410 botna 101 404141101107i01 Oh V1000 AKP04010cl 93414 101 • 9.0 14 62/171010 Source: Deutsche Bank Note: Votes for 'Other parties' are assumed at 5% unilormly across al scenarios considered above. Hence. seat distrtution is based on 95% of votes. and assumed to be disnibuted only among AKP. CHP. MHP. and HOP (i.e. no independent MPs). This is for illustrative purposes only and prone ro estimateDninncenainly errors. Deutsche Bank Deutsche Bank Research 41 EFTA01097510 Deutsche Bank El Appendix 1 — Important Disclosures Additional information Available Upon Request For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at tato:Bum dh comTherklisclosiire/DisclosureDirectory ensr Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. 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