Deutsche Bank

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 Public consumption Source: Haver Analyecs. TurkStat. and Deutsche Bank Change in stocks Private consumption Investments —Headline real GDP (YoY%) Deutsche Bank Deutsche Bank Research EFTA01097472 Deutsche Bank MO-2. ...while latest high-frequency indicators point to a soft landing... 70 60 50 40 30 20 10 0 -10 -20 -30 -40 YoY%, 3m ma <100 = pessimism 85 80 75 \ 70 65 —Vehicle sales —White goods sales House sales Core imports —Consumer confidence (rhs) Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Haver Analybcs. TurkStat. CBT. and Deutsche Bank 60 55 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 60 50 40 30 20 10 0 -10 - -20 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 USDbn Total credit growth (FX adjusted, Ihs) —Consumer credit growth (Ihs) Commercial credit growth (FX adjusted, Ihs) —Gross financing flows (12m rolling, t-6, rhs) Source: Haver Analyhcs. CBT, TurkStat. and Deutsche Sank 120 100 80 60 40 20 0 - -20 -40 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 20 0 -20 -40 -60 -80 Jan-07 Jul-08 Jan-10 Jul-11 —Current account (C/A) Source: Haver Anabrace. CST. TurkStat. and Deutsche Sank Jan-13 Jul-14 20100 110 DB Forecasts 105 Jan-16 —C/A w/o energy and gold Terms of trade (RHS) 100 95 90 85 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% 12% 10% 8% - 6% 4% 2% Jan-11 Headline CPI Some: Haver Analyucs. CBT. TurkStai. and Deutsche Bank Deutsche Bank Deutsche Bank Research Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Incertainty USD/TRY DB Forecasts DB Forecasts DB uncertainty band 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1 .4 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 160 150 140 130 - 120 110 100 90 Jan 11 —Resident FX deposits Basket/TRY (rhs) Source: Haver Analytics. CST, and Deutsche Bank Jan 12 Deutsche Bank Deutsche Bank Research Jan 13 Jan 14 Basket/TRY 3.4 3.2 3.0 2.8 2.6 - 2.4 2.2 2.0 1.8 Jan 15 EFTA01097477 Deutsche Bank MO-7. CBT has committed to following the footsteps of the FED as part of its framework simplification... 14% - 13% - Rate corridor 12% - 9O/O - 8O/O 6% - 5O/O 7O/O - Jan 14 Jul 14 One-week repo rate Jan 15 Jul 15 Effective funding rate Jan 16 DB Forecasts 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 9O/O 8O/O - 7O/O - 6% Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Source: Haver Analyhcs. CBT. and Deutsche Bank USD/TRY (rhs) High volatility & simplification at one-shot DB Forecasts High volatility & late and partial simplification ---h e Low volatility gradual simpflication [DB basecase] - [repeated 7 times] • • One-week repo rate (Ihs) s. •• • 2.0 - 2.2 - 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 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 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] Oct 14 Apr 15 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 Feb 15 Jul 15 Jun 13 Nov 13 Apr 14 Sep 14 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? 4 `)/O of GDP 3 2 -2 - -3 - -4 11 12 13 14 15F 16F mFiscal balance: Outturn Primary balance: Outturn Fiscal balance: Target — Primary balance: Target —Cent Govt Debt (RHS) % of GDP 42 40 38 36 34 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 ARG CHN RUS SGP MAL THA SAR IDN HKG POL BRZ TUR JAP CHL PHL IND GER ITA ZAF MEX FRA KOR UK AUS US CAN 0 Cumulative loss in output over a five year period (%) 2 4 6 8 10 12 14 16 investment takes to 3% by with a more to 6.4% Simulation of an led slowdown that growth in China 2017 compared gradual deceleration by 2019 -or 7.3 ~i 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 South Africa India Source. IMF end Deutsche Bank • Households Nonfinancial companies Government Deutsche Bank Deutsche Bank Research EFTA01097484 Deutsche Bank GT-2b. Borrowing has been funded in FX in some cases 45 - 40 - 35 - 30 - 25 - 20 - 15 - 10 - 5 - 0 Foreign currency debt of non-financial firms and households (% GDP) ■ 2007 ■ 2014 1 Argentina Colombia India Brazil Indonesia South Russia Africa r -- 1 Turkey Poland Chile 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 50 40 30 20 10 0 Foreign-held local currency • FX 1 07 2014 2007 2014 2007 2014 2007 2014 Thailand Brazil Colombia Indonesia Source: IMF and Deutsche Bank r I 200;1201 2007T2014 200; [2014 20071 2014 2007-12014 200712014 Turkey South Romania Hungary Mexico Poland Africa 1 I 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 0 50 I 0 I I I 2011 Soums: IF end Deu,sche Ezni, Deutshe Bank Deutscc he Bank Research 2011 2012 2013 2014 2015 18 EFTA01097487 Deutsche Bank GT-3b. Capital outflows have been about 70-80% of the magnitude observed during the 2013 taper tantrum t-30 10 0 -10 -20 -30 -40 -50 Days before and after reversal t+30 t+60 t+90 t+120 t+150 t+180 Current -60 Cumulative portfolio flows to EM (USD bns) ** " Sam* of seven Err countries Source: OF and Deutsche Bank Taper tantrum Global financial crisis Deutsche Bank Deutsche Bank Research EFTA01097488 Deutsche Bank El GC-1. Foreign reserves are substantial in EM 18 16 14 12 10 8 6 4 2 0 EM reserves (months imports) 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) 100 80 60 40 - 20 - 0 Advanced Emerging Forecast 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) More vulnerable PHL PER KOR 580 RUS 540 CHN 507 THA 394 TWN ISR BRZ EGY 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 0 266 222 325 365 611 1,384 200 400 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 - -20 - -25 - -30 -35 Undervalued 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 Fiscal balance Public debt FX valuation Reserve cover Growth 1.0 Current account Inflation Real rates Credit growth Private debt Brazil has not... ...and nor has Turkiye Growth Fiscal 1.0 Fiscal , Inflation Inflation balance balance / Growth 1.0 Public debt g C ro re wt di h t Public Credit debt growth FX Private FX Private valuation debt valuation debt cover rates cover N rateReals Reserve / ‘. Real Reserve Current account Current 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 400 350 300 - # of MPs 330: Constitutiona majority (via referendum) 276: Absolute 367: Constitutional majority (outright) <=. 11M•11•01MIE 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: (1 HOP .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 16.5 15.8 MHP `)/O of the national vote 18 45 • AKP 13.0 42.2 . 15.4 • 42.9 • 15.3 42.4 15.3 • 16 40 40.7 ••"" 11.6 * HDP [rhs] 12.3 12 10 35 - 10% election 8 Others [rhs] threshold 30 4.8 6 25 - • 26.2 3.5 25.1 26.7 * 3.5 26.4 t 3.2 26.9 3.4 4 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 45 40 35 30 25 20 15 10 5 0 325 of the national vote 41.9 Average of Sept-15 300 I poll results 275 Performance in the 250 4-----June elections 225 - 200 26.9 Range of support based on Sept-15 175 poll results 150 election 125 12.3 threshold 100 75 15.3/ 10% IMI IMI MI AKP CHP MHP HDP Others 50 25 0 # of MPs Average of Sep 1 276: Absolute Performance in the June elections LI 138 132 majority Range of support based on Sept-15 poll results 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.I 0 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 -1.5 -2.0 AKP CHP MHP HDP ■ Mean K Maximum Minimum 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 25 - 20 - 15 - 10 - 5- 0 # of national votes (mins) 24.3 27.3 21.8 (57.9%) A . 2,1m.5 • 21.0 (51.8%) .../..." .. ' A .. ... .. ....... 18.9 (40.9%) 15.9 ...• • ' 20.5 (45.5%) • -A-AKP 19.5 • ••• • Non-AKP (including HDP) •••••HDP Domestic voters 11.3 .•• .• • • 21.4 (49.8%) 5.6 . [repeated 12 times] 12.1 # of registered voters who did not vote . [repeated 10 times] 7.3 2010 Const. 2011 General 2014 Local 2014 Presidential 2015 General Referendum elections [repeated 4 times] [73.3%] [83.2%] [89.3%] [74.2%] [83.9%] Note: (1 HOP 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... 30 25 20 15 10 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 change in # of valid votes r-1.111-m ■ AKP ■ CHP ■ MHP ■ HDP Deutsche Bank Deutsche Bank Research 30 EFTA01097499 Deutsche Bank DC-1 g. ...while marginal votes could again play a crucial role 400 # of MPs 367: Constitutional 350 1. 300 250 - 200 - 150 - 100 50 0 +18 • 258 AKP Some: YSK TurkStat. and Deutsche Sank 1 majority (outrign7 # of MPs 400 330: Constitutional majority (via referendum) 276: Absolute 132 CHP majority • June '15 elections AKP receiving 90,000 marginal votes -6 80 MHP -4 80 HDP 350 300 250 200 - 150 - 100 - 50 0 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 1.4 1.2 - 1.0 • 0.8 - 0.6 • 0.4 0.2 0.0 .0.2 - •0.4 •0.6 •0.8 •1.2 •1.6 MMI 1991 general °tendons 0 [repeated 3 times] DYP SI IP DYPSHP (then CHP) RPDYP ANAP-DSP-DTP DSP-MHP•ANAP coal tic., u i coalition #2 coalition minority coalition coalition 0 000 00 o DYP CLIP coalition ANAP DYP minority coalition DSP minority government Jan-90 Jan-91 Jan•92 Jan 93 Jan 94 Jan-95 I 1995 general elections Jan 96 +99 general - ections N 2002 general elections N 1990-200P Avr. GDP growth: 3.6%VoV Volatility: 5.3% Jan-97 Jan•98 Jan•99 Jan•00 Jan-01 Jan-02 1.4 1.2 1.0 0.8 0.6 OA 0.2 0.0 4.2 •0.4 •0.6 4.8 •1.0 •1.2 •1.4 LB 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 10 - 8 6 4 - 2 - 0 Potential growth rate (%) • [repeated 3 times] 4.3. • • • • f 3.3 • [repeated 8 times] • 2015-17 2000-07 • [repeated 3 times] XZZ.2O CC LU Z Z < CC —I CC CC (/) 0- V) 0 Z cc (/) 0 ct NO FYI IDIOO LU >- ODZI > cc — 0 N 0- — 0- cc y cn cc — o • L11 -2 r Structural score in 2013 NMI I ■ -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 Singapore Hong Kong Taiwan Malaysia Korea Chile China Israel Thailand Poland Indonesia Peru Turkey _ Youth Alfica Philippines Hungary Mexico Romania Russia Brazil Colombia Ukraine Argentina Venezuela 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?) 2085 2075 2065 2055 2045 2035 2025 2015 2005 1995 1985 1975 1965 1955 -5 Working age population growth (%) 5 10 Demographic drag (pps) ROU PHL ARG UKR PER MEX IDN IND TWN BRA THA CHN VEN HUN KOR CHL COL HKG CZE ZAF MYS RUS SGP TUR -0.9 POL ISR 15 20 -1.5 Nem Demographic &ag refers to cwhitution of demographic factors on average potentiel growth n 2015.17 pepod. Source: UN and Deutsche Bank -0.5 0 0.5 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 Current account balance -64.7 -46.5 -37.7 -39.1 Private consumption 5.1 1.4 3.7 3.4 % of GDP -7.9 -5.8 -5.5 -6.1 Government consumption 6.5 4.7 7.0 3.7 FDI (net) 8.8 5.5 7.9 7.1 Gross fixed investment Exports Imports 4.4 - 0.2 9.0 - 1.3 6.8 - 0.2 4.2 - 1.6 1.5 1.9 2.9 4.4 FX reserves (eop) TRY/USD (eop) 110.9 2.14 106.9 2.32 99.0 3.15 96.5 3.41 Debt Indicators (% of GOP) Prices, Money and Banking (YoY%) CPI (eop) 7.4 CPI (period avg) 7.5 Broad money (eop) 22.2 8.2 8.9 11.9 8.2 7.6 10.6 8.4 7.8 10.9 Government debt' Domestic External 37.4 25.7 11.7 35.0 23.7 11.3 36.7 22.8 13.9 36.3 22.8 13.5 Bank credit (eop) 33.3 19.3 19.2 16.8 Total external debt 47.3 50.6 59.7 65.3 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 Revenue Expenditure Primary balance 24.8 26.0 2.0 24.4 25.7 1.6 23.7 25.3 1.3 22.8 25.1 0.5 General (ann. avg) Industrial production (YoY) Unemployment 3.5 9.1 3.5 10.0 2.9 11.0 2.9 11.2 (1) Central government Source: Deutsche Bank National Sources. Deutsche Bank Deutsche Bank Research 35 EFTA01097504 Deutsche Bank: Global Forecasts GDP growth i')/0) Key market metrics Deutsche Bank 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 [repeated 4 times] Japan 0.4 2.7 0.8 0.8 Japan 0.10 [repeated 4 times] 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 [repeated 3 times] 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 APPENDIX: Deutsche Bank Tiirkiye - History and forecasts 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Deutsche Bank 0 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 Iran's top 10 export partners 2000 2000 France 6% Netherlands 6% Greece 6% South Africa 7% Singapore 7% 9% 2014 Taiwan 5% Chino Saudi Arabia Pakistan 2% \\ Syria 3% 3% Korea 7% turkey St.. Italy 12t,c Oman 1% UAE 2% 13% India 17% Iran's top 10 import partners United Kingdom Brazil 6% Germany 7% 19% China 7% France 8% japan Korea 9% 2014 Russia Italy 11% 11% Brazil Russia Argentina Germany Italy 2% r7' 1% 4% Turkey 5% Korea 6% ndia 6 2% China 33% UAL 14% UAE 39% 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 12 10 8 4 0 -4 -8 -Real GDP growth, % iiimkFDI (US$ bin, RHS) 10 S 8 2 0 FDI inflows to Iran by sector Sanctions intensified 2003 2004 2005 20062007 2008 21:09 2010 2011 2012 2013 2014 2015 ■ 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 EXpolISI011tp as hereof Iraq's total impals(%)c (1987-89 average) 25 26 20 20 1 15 6 11.2 10 92 5 9.4b 4.9 4.9 3.6 3.6 3.5 32 7.2 0 t ,4 3 'E . 3 [repeated 3 times] 4. 1 g a £ I' 1.6 1.4 0.8 0 i 0.4 8 0.2 0.0 0 Expects to Iraq as sh Ned iraa'stsai impons(%',. sanction period 17.8 0 14.5 8.5 63 I I I 3.7 3.6 2.6 21 21 /^ CC D. rl Exports toltaq as !haseol Iraq's laid impctis(%). (2012.14 average) ExportstoIraq in 1987-1989 3 O 1.6 1.4 lapottsiolreq in sanction period 1.6 1.4 &pens ID Iraq in 2012.2014 Turkey • 12 u by 12 1 1.o 5 .0 0.8 OA Turkey *II' • 06 0 6 • risaania • Ukraine • dl 0.4 02 0.4 02 • Egypt • Turkey • 0.0 •• 0.0 2.0 4.0 6.0 8.0 2.0 4.0 60 60 0 0 0.2 0.4 0.8 0.8 0.0 Share al aspen sio Iraq In total exports MI 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/1 DH 302 35/ 119 54 35G/ 133 55 344 13 / 331 '44 09 0 SI 60 49 48 47 27 44 45 AKP 44 70 0 20 Gnr AKP 44 316 1614 67 0 30 1%) i%) 49 310 173 07 V 31 42 41 306 lin/ 67 0 32 •I 44.) 297 184 62 0 33 40 32 300 .93 47 0 34 39 24 4 33 36 37 376 a7 MB D 34 37 51 se. 49 411 41 49 KP 44 43 41 40 37 1113 44 4G4 / 45 AKP 44 41. 45/ 31 IA HP 16% Amp opi k/ 1.57 4115P 326 142 en 321 .46 44 318 148 44 0 205 ICI 64 0 306 147 06 0 07 0 311•2 100 In c 0 aa 16) 90 0 215 130 DO 0 311 130 101 0 306 148 100 0 297 152 101 0 391 ISS 101 0 243 164 101 0 376 174 I 0 MHP 4013. 7133 CPIP_M i/9 1/3a in 15 61 15 33 I7 60 10 49 IS 40 17 43 ID 40 l• 41 30 47 ID 4 0 .31.15 1C0 0 21 46 20 5 iiliT V .72 46 21 AKP 44 311 126 114 0 23 CHP AKP 44 22 CHP 300 133 114 0 24 pi.4) OM 49 29 044 297 136 117 0 25 42 24 41 201 141 116 0 .04 ai as 40 394 144 120 0 x/ 40 24 22 • >11 39 27 44 273 150 116 0 39 34 24 37 268 166 II7 0 30 37 Ltat_usi_sta_o_i se Hor, ey. HOP. 941. 115 '20 in V '29 66 v n 07 v i 41 CO 0 144 G9 Q 71 no 153 69 0 377 lea 70 0 Pla 150 h/ 1 ry h/ 151 In) 30 0 . i »c 37 0 HOP: 9% LI 22 23 24 25 27 84 CHP 29 154 30 3, 32 32 34 35 »HP. 1434 AKP CHP MHP HOP 20 61 1/3 31 60 20 22 49 21 23 46 23 24 47 23 26 40 24 26 46 7 25 27 CHP AKP 44 3:4 141 144 tl 26 CHP 28 PM (%) 43 417 I» 05 V 27 MI 29 42 312 ec 0 Sil 30 41 30a 'ti eG 0 22 31 40 ;07 eG 0 30 32 39 2» 99 34 172 im 2172 103 kli ii?" 3.3: 94 37 " 33 IS SI 19 60 20 49 2, 48 •7 23 46 24 45 25 CHP AKP 44 20 1%) 43 2? 42 41 29 40 30 39 21 34 32 37 14149 20 17 21/ :73 24 air 25 rin 30 31 Aler Clir Muir 1101' /411P i 4, AKP CIO^ /lur HI» in 324 00 60 37 20 51 MIL~~1~. 15 61 ib to 323 104 6e .., 21 Sli 323 04 67 62 20 60 324 89 66 71 19 315 112 60 22 20 314 100 67 6 , 2, 49 319 .37 (19 71 93 48 315 123 66- 29 48 304 112 64 62 2:1 48 306 104 67 7, 2, 41 205 130 66 24 47 207 113 47 43 Sa 47 2D9 113 07 it :n 40 201 124 67 35 4C 200 131 Go GT 24 40 391 135 65 71 22 43 20* 136 67 37 26 45 266 IN 67 GT 25 45 305. 120 47 70 24 AKP 44 27 00 AKP 44 263 »7 49 62 7, OIP AKP 44 23 CHIP 14) 43 276 149 69 67 28 1% O ) .l 43 . 27 rei 4%) 43 272 134 70 70 7%) 42 270 154 60 67 29 42 272 149 39 60 24 42 24. '44 69 71 27 41 201 166 66 68 30 41 264 164 39 63 94 41 264 147 66 71 28 40 267 168 47 68 31 40 267 165 67 61 30 40 267 153 66 72 29 39 240 170 67 sa 32 20 200 /Ga Ca 04 31 30 240 163 67 72 30 34 244 163 CO 57 33 31 2» 1103 CO 50 34 3. 241 174 Ca 03 32 37 230 niCi 09 42 33 36 243 160 60 37 »4 176 CD 71 333' 11OP 10, AKP CHP 1.414P HOP 57 18 30 ID 49 20 .40 21 41 22 413 23 45 24 AKP 44 25 7%) 43 26 42 27 41 20 40 29 30 20 'P/ 31 st 32 I0 114 1 h (04/(/0 m i ,r 154 Kr 276 261 255 247 240 136 142 147 104 162 168 177 „ op 10% 62 67 OD Sei 44 Sei 43 Sei 03 60 1114 68 112 68 1101/ 1 i , AKP POP LIHP 105P hl I/ 50 i G 49 ID 4.2 20 47 31 40 22 45 23 042 AKP 44 24 CHP AKP PM Hel 43 274 194 øl 61 26 tl4) »I 42 370 1273 03 42 24 41 263 143 03 43 37 40 356 149 03 63 30 39 250 154 04 Ga 2* 01 230 165 84 62 30 3/ 233 171 84 42 3! HDP 44/14/ 10, 31 331 Go 97 2.t. iii 31 33 317 76 ICH n Da 312 110 I» lie 40 4-8 938 86 98 IB 4/5 47 298 38 97 20 47 4c 292 IPS 96 57 21 46 5 »3 112 00 21 22 45 A Kr 44 23 CHP AKP 44 I. 43 269 126 Di SO 24 (%) 4%) • a 42 261 132 99 58 25 22 41 »B 134 100 68 26 •I 40 261 142 942 68 27 41/ 94 243 148 PH 64 26. aa 236 154 101 50 20 33 37 D34 162 100 54 30 31 1101' 10% 31149 20% 014/4 73 -19 »HP HOP KP »4 44 100 00 323 6tl Yel 312 75 101 62 310 79 100 ai 302 SMI 100 60 149 94 97 Cl 207 104 90 6l 372 264 267 268 246 240 231 "20 , 32 .34 142 I» I TDP. 1114 97 913 10/ 101 [repeated 4 times] Cl 60 [repeated 3 times] 62 41 02 1411P 10, AKP 104P MHP HOP 61 321 69 44 70 16 50 320 75 05 70 17 49 314 ai, as 70 To 40 307 OD ai4 70 19 47 300 97 03 70 20 46 296 l06 78 70 21 45 237 116 78 70 22 44 - 4 23 CHP 43 274 I» 78 69 22 »I 42 260 133 79 70 » 41 On 136 02 70 20 40 256 142 02 70 27 29 »3 147 03 71 20 38 239 157 63 71 29 37 23. 162 82 71 30 1100 1, ,, 1/1111`. 1034 Cl IS 51 SJn 53 fei 11 14 le 60 715 62 99 70 15 I 7 49 313 70 97 70 16 IB 48 305 76 100 70 l7 10 47 304 77 i» 70 , 8 20 4,3 204 97 00 To ts, St 45 225 01. 07 70 20 22 coup AKP 44 2 21 cHp 23 (14) PH 43 270 113 07 70 22 (%) 22 42 268 114 96 70 :23 25 41 267 124 94 Be 24 26 40 260 130 '00 70 26 27 3n 240 136 99 70 26 20 34, 240 142 94 70 21 214 37 D» 140 I40 71 20 MHP 2D.K. AKO CHP 1.11413 1109 61 sn 53 e le os lis 51 323 45 1 v. ipi 13 61 314 48 114 70 , 2 60 5,0 62 112 58 , 6 60 310 5a 118 14 60 314 4. 116 70 , 3 40 0'0 CO Il] oi 16 49 313 43 113 cl IS 40 311 53 116 70 T4 •O 304 11• 17 40 .205 0* 114 cl 16 40 305 43 113 CO IS 47 2247 wi 112 ta 10 47 303 73 113 c: 17 47 -Azha 150 114 CO ID 46 242 60 I ;3 ta 19 44 »1 63 112 c i la 44 2415 72 114 CO 17 45 702 89 112 bi 20 e5 200 BH 114 0: I9 46 22.6 69 113 99 , 8 AKP 42 e n ni 2, CHP AKP 44 '1 4' 20 MP AKP 44 19 CH4 i%) 43 266 114 112 68 22 1%) MI 43 270 105 113 62 21 (141 1%) 43 273 97 . I , en 5. 154) 42 267 .22 113 60 23 A2 263 , 14 112 61 22 42 »I 106 116 40 21 4i 250 120 Ila 50 24 41 254 123 ill 43 33 266 114 Il 00 22 40 244 134 I44 50 25 40 244 131 114 41 24 40 343 132 I10 40 23 »2 134 I TG 50 X. 30 339 13 4 HG 41 25 30 230 130 I13 40 24 An 236 140 110 54, 27 30 335 134 110 42 20 30 233 133 11.3 CO .25 37 229 146 117 69 93 37 228 142 116 84 27 37 229 194 Ile BO 26 14091 104. 1409, 1I% HOP 12% AKP with 454.030 malet10 make euirmin can 414.111011•1 changn AKP onani, 10016 10/ sa 910 pany 11410 botna 101 404141101107i01 Oh V1000 AMP /714/ 7400 AKP with 46 4.4211 mais lo i MG con Cluilonst amma ment• te mlemcdum AKP04010cl 93414 101 • 9.0 14 62/171010 2 61 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 SI/ 317 o4 312 97 64 -i: »C 107 00 »i lo SI 3.• 23/0 121 42 016 I» 79 b( 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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