MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 46 / Financial Status When GDP contributors are examined, total added value of agriculture and industry sectors grew by 1.3% and 1.1% respectively, while added value of the construction sector declined by 1.9% in 2018, based on chain volume index. The total value added by services composing of trade, transportation, hospitality and food and beverage activities increased by 5.6%. Inflation increased compared to the previous year. As at December of 2018, consumer price index decreased by 0.40% compared to the previous month, however it increased by 20.30% compared to the same month of previous year and by 16.33% according to the averages of twelve months. Main expenditure groups that displayed high increases were various goods and services with 28.80% of increase, food and non-alcoholic beverages with 25.11%, housing with 23.73% and culture and entertainment with 20.86%. In December 2018, domestic-producer price index (D-PPI) decreased by 2.22% compared to the previous month and increased by 33.64% compared to the same period of last year and by 27.01% according to the averages of twelve months. The main determinant of the increase in the inflation rate in 2018 compared to the previous year was the adverse developments in foreign exchange rate, while price adjustments on energy costs for both consumers and producers caused an increased pressure. During the period, tax adjustments contributed to a downward movement in inflation. The strong economic performance prevailing during the second quarter of the year caused demand-pull inflation to rise while the deterioration of expectancies and disorder in pricing behaviour strengthened the resistance in inflation. During the last quarter of the year, the weakening observed in the total demand supported the decline in the inflation. The rate of exports meeting imports rose to 83.8%. According to the foreign trade figures of TUIK (Turkish Statistical Institute), exports amounted to USD 168 billion with a growth rate of 7%, and imports dropped by 4.6% and was recorded as USD 223 billion in 2018. The rate of exports meeting imports rose to 83.8% in December of 2018, from 60% of December 2017. In 2018, Germany was Turkey’s main export destination, followed by UK, Italy and Iraq. In terms of import, Russia was the top trading partner followed by Germany, China and the USA. The recovery trend in current account balance continued with higher momentum The recovery trend in current account balance which started during the third quarter of the year continued with higher momentum in the last quarter, as a result of strong export performance as well as the improved tourism revenues. Reaching up to USD 58.2 billion in May, 12-month current account deficit narrowed down to 33.9 billion USD as of November. Stripping out the impact of energy and gold trade, current account balance had a surplus of circa USD 4,514 million in November while it had a deficit of USD 898 million in the same period of last year. The main contributor of the decline in current account deficit was the contraction in imports. The downward movement in real exchange rates and the domestic demand as well as the slowdown in loan growth rates limited not only the total import level but also the imports of the consumption and investment goods. ECONOMIC OUTLOOK The recovery trend in current account balance which started during the third quarter of the year continued with higher momentum in the last quarter, as a result of strong export performance as well as the improved tourism revenues.