We are about to complete a very challenging 2014 due to global and regional financial and political developments. In an environment which was very unproductive for global economy in terms of growth and where no promising growth forecasts for 2015 are expected, after a record-breaking growth in 2010 and 2011, the Turkish Economy Management has made significant efforts to bring the risk of price stability, in other words inflation, and the risk of financial stability, in other words the current deficit, to acceptable levels upon completion of the period of 2012-2014 with a more controlled growth performance. If there had been no regional political tension, the contribution of the net export alone in the growth might have been around 4% as with 2012. Even if there had been no contribution from the domestic demand in real terms, the growth for 2014 would have easily reached 4%. However, the contribution of the net export in growth may remain between a score of 2.4 and 2.7 due to global and regional tension, and if the contribution of the total domestic demand remains at a score of 0.5, the Turkish economy completes 2014 with a growth score of 2.9 to 3.2. If the contribution of the total domestic demand remains at -0.5, in this case, 2014 growth may remain much below 3%. Consequently, the Turkish Economy Management must control two significant risks, one of which is the risk of price stability, in other words inflation, and the other is the risk of financial stability, in other words the current deficit. Both should be brought to 5%. In other words, we need to reduce the annualized end-year headline inflation to 5% and the ratio of current deficit to the national income to 5% again. We are therefore experiencing controlled growth, as the phrase goes “by pumping the brake pedal”, in 2014 as in 2012. Unfortunately, the drought and frost disaster also contributed to the depression in growth and inflation. WE CAN SEGMENT TURKEY IN A POSITIVE WAY THANKS TO CONTROLLED GROWTH In a picture where expected economic growth for 2014 is 3.3% worldwide, 1.8% in developed countries, 0.2% in Russia, 2.7% in developing Eastern European countries and 1.3% in Latin America, it would be better not to bother too much about the Turkish Economy’s completion of 2014 at a rate slightly above 3%. Following the record-breaking growth of the Turkish Economy in 2010 by 9.2% and in 2011 by 8.8%, we made a transition to an era of “controlled growth” with the “soft landing” method due to the growth dynamics based on domestic demand. After achieving a growth by 2.2% in 2012 and 4.1% in 2013, the Turkish economy appears to grow around 3% in 2014 as a natural consequence of the controlled growth. The basic goal can be summarized as reducing annual inflation to 6% and below and the ratio of current deficit to national income around 5%. These two basic macroeconomic indicators are important with regard to positioning and credibility of Turkey in the global economy. If we continue to control the annualized headline inflation which is expected to normalize until mid-2015 in addition to the current deficit, just like Fitch, the global rating agency, Moody’s will also have to improve Turkey’s status and the pressure on these agencies to improve our rating will increase. In an era when many developed and developing economies, primarily Russia, face the risk of reduction in economic status and ratings, maintaining and improving Turkey’s status and rating will undoubtedly segment Turkey in a positive way. COMMODITY PRICES MAY SUPPORT OUR GROWTH IN 2015 Another factor which strengthens Turkey’s hand for the last quarter of 2014 and all of 2015 is the course of raw material prices, a global commodity. When we examine the global commodity prices index calculated by regarding 2004 prices of the World Bank as 100%, the index increased up to 126.3 before the global crisis in mid-2008. It corresponds to the level at which the price of oil was about USD 147 per barrel. Following the global crisis, the index reduced to 50.6 and then increased to 125.8 once again. It corresponds to the level at which the price of gold was pushing USD 2,000 per ounce. The index reduced to 88.2 last July. Back then, the price of oil was around USD 110, which now seems to float around USD 80. The international reports state that Turkey will be one of the top countries most positively affected by the fall and moderation in global commodity prices. If Turkey’s current deficit improves by USD 8 billion with a reduction in global commodity prices, it might be -7.2% in 2015 but a current deficit remaining at -5.2% means improvement of the ratio of investment expenditures to the national income from 17% to 19%. This guarantees for us a growth by 4% as a minimum in 2015. US DOLLAR ONCE AGAIN HEADING FOR THE TOP AFTER 4.5 YEARS One of the most critical headlines of the last 15 days is the level of the US Dollar Index showing the status/position of the US Dollar against the top six foreign currencies of the world. As a refresher, the US Dollar Index, which was as high as 88.708 in day trading and 88.405 in closing on 7 June 2010 within last 5 years, was 88.267 in day trading yesterday, namely 14 November, Friday. This situation indicates that it would not be so difficult for the US dollar to once again contest for top place among the leading foreign currencies after 4.5 years. After its bold moves in money policy, the ability of the United States above other countries to protect its economy from the effects of global crisis (when the Euro Zone is compared to Japan) and, accordingly, the perception of U.S. bonds as a “safe harbor” directly affect the value of the dollar. It should be reminded that the US Dollar Index which was around 88 in 1997 tested 115 to 122 with a continuous raise in the period of 2000-2001 while the euro-dollar parity was around USD 0.82 after reaching the lowest level of USD 0.78 at some point. It also happened to fall continuously from such levels to 80 until 2005, then tested 92 in 2006 and remained below 70 at the start of the global crisis in 2008. AMERICAN EXPORTERS MAY BE ANNOYED The experts indicate a congestion around 88-90 in the US Dollar Index. In this case, if the US dollar continues to gain value and breaks 90 in the US Dollar Index, this may mean a new trend. However, it will mean that the United States, which has managed to exceed Germany in global commodity export since 2011 and developed a liking for export, will lose its export advantage quickly. While the internal economic balances of the US economy are not fully settled and the US companies are pleased of exploiting their exports, it may be annoying for the US dollar to gain so much value. For this reason, moderation of such increase in the value of the US dollar somehow would be appreciated in the United States. The Federal Reserve System (Fed) brought the value of the US dollar to a competitive level with three quantitative easing (QE) procedures and the export commodities of the US benefited exceedingly from this opportunity. As a natural consequence of this situation, while China with exports of USD 2,209 billion is the leading merchandise exporter followed by the US with exports of USD 1,580 billion and Germany with exports of USD 1,453. With the contribution of Japan in fourth place, annual export volume falls to USD 715 billion. Benefiting from this advantage in the last global crisis, the US companies would naturally not wish to lose this position in global commodity export. TURKEY SHOULD OBSERVE THE BALANCE VERY CAREFULLY The balance of payments for September announced this week indicated that the current deficit for a period of one month remained at USD 2.2 billion although it was expected to be USD 2.6 billion and that the current deficit improved by USD 15 billion compared to a nine-month period of last year. Turkey’s ability to maintain its growth at the level of 3%, to show a better growth performance than most of the developing countries and the Euro Zone and to continue to improve its current deficit contributes to the positive perception regarding the Turkish economy. As a matter of fact, Nomura, the world-renowned and top financial institution of Japan, stated in its report that Turkey provides investors with more reasons to buy Turkish Lira and that the TRY is one of the foreign exchanges with the highest return worldwide by resisting expectations of falling. The report underlines that the TRY gained value while 21 out of 23 foreign exchanges decreased. The experts anticipate that the TRY could move in the band of TRY 2.18- 2.22 in the first quarter of 2015. With regard to global perception of the Turkish Economy, while the US dollar beats all other foreign exchanges and pessimistic scenarios are on the agenda for 2015, due to the possible interest rate hike of the US Federal Reserve Bank, strengthening Turkey’s hand by improving the current deficit and inflation, public financial discipline and good status of banking would protect us from the ‘adrenaline-filled’ environment in 2015. However, if this situation causes the TRY to gain ‘too much’ value, then the contribution of net export in the growth would be difficult. The balances should therefore be observed carefully in 2015.