MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 Financial Status / 47 Source: IMF World Economic Outlook (International Monetary Fund Global Economic Outlook Report - January 2018, Turkish Statistical Institute, CBT, Ministry of Treasury and Finance Exchange rates and market interest rates declined at the end of the year. Besides the volatility prevailing in the global financial conditions, the expectations that the normalization of developed country monetary policies would lose momentum and the modest weakening of USD led to limited appreciation of emerging country currencies. With the help of CBT’s tighter monetary policy position and the recovery in the inflation outlook, Turkish Lira positively differentiated from other emerging market currencies at the end of 2018. In the third quarter of 2018, a period in which both short and long term interest rates of emerging countries showed modest levels of decline, Turkey’s short and medium term interest rates shrank as a result of cautious monetary policy stance and the recovery in the inflation rate. CBT decided to continue its tight monetary policy in 2019. The recent data highlight that real economic adaptation is in progress and economic equilibrium process became evident. It is expected that the weakening in demand will reinforce the decline in inflation rate during 2019, however, many factors like volatility in the exchange rate and the deferred cost pressures still keep the upside risks on the inflation outlook alive. In case of an excessive volatility in the markets caused by fluctuations in global liquidity conditions and risk perception, CBT will take measures in order to provide the necessary foreign currency market liquidity in a timely, controlled and effective manner. As many risks keep threatening price stabilization despite the partial economic recovery observed in the recent months, CBT decided to continue its tight monetary policy until a significant recovery in the inflation rate is achieved. In the short term, main determinant of monetary policy decisions will be a permanent downward trend in inflation outlook. Fiscal policy according to CBT’s medium term projections, in line with the New Economic Programme emphasises a position focusing on macroeconomic balancing while fighting against inflation in coordination with its monetary policy. With the guidance of New Economic Programme announced in September 2018 and in line with the soft landing scenario, all market players are confident that economic growth will be achieved in 2019. It is expected that economic balancing will carry on during the first half of the year while recovery will be more prominent in the second half of the year with the contribution of the base effect and the tourism industry. 83.8% 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.