First of all, I would like to express my condolences to our citizens who lost their lives due to the earthquake disaster we experienced on February 6, 2023, and to their relatives and our nation. I would like to underline that we will continue the support, which we have shown from the first moments, also in the process of redevelopment of the region.
The global economy faced various shocks in 2022. The war between Russia and Ukraine worsened the supply-side problems that emerged with the pandemic. While inflation reached the highest levels of decades globally, the tightening in financial conditions, disruptions in energy supply, and the decline in the purchasing power of individuals slowed down the economy in many countries, particularly in Europe. The Zero-COVID Policy in China has also created downward pressure on the global economic outlook.
While the global economy is estimated to have grown by about 3% in 2022 despite the slowdown that became evident in the second half of the year, the growth expectations regarding 2023 indicate that the slowdown trend will continue, although it is not as sharp as initially thought. It is expected that developed economies will have relatively weaker performance and emerging market economies, especially China and India, will perform better.
While Central Banks try to reduce inflationary pressures through interest rate increases, governments support households affected by rising food and energy bills by way of fiscal policies. Fed increased its policy interest rate by a total of 450 basis points to the range of 4.50 - 4.75% from March 2022. European Central Bank (ECB) has increased its short-term interest rates by a total of 300 basis points since July 2022, and the Bank of England has increased its policy rate by a total of 390 basis points since December 2021. Central banks of developed countries are expected to continue to increase their interest rates.
While central banks continue to increase interest rates rapidly to reduce inflation to the targeted levels, discussions on whether there will be a soft drop continue. In addition, increasing indebtedness and climate change, as well as geopolitical developments are considered medium and long-term challenges for the global economy.
Domestically, while a slowdown arising from foreign demand is observed in economic activity in the second half of the year, domestic demand continues to be the main driver of growth led by private consumption. Despite the strong course in tourism, the contribution of net exports to growth turned negative due to the impacts of the slowdown in foreign demand on goods exports and the increase in gold imports. Despite the loss of momentum in the last quarter, economic growth is expected to take place above the Medium-Term Program target (5%) throughout the year.
In 2022, the foreign trade deficit was realized at about the level of USD 109.5 billion due to the increase in international commodity prices, the high course of gold imports, the drop in the euro/dollar parity, and the weakening foreign demand. The strong course in service revenues, especially travel revenues, restricted the reflection of the foreign trade deficit to the current account deficit. In this way, the current account deficit was USD 48.8 billion, slightly above the MTP forecast (USD 47.3 billion), in 2022. We consider that the foreign trade deficit due to weakening global growth and international prices and gold demand may also progress high in 2023.
The annual consumer inflation peaked at 85.5% in October and subsequently finished the year 2022 at the level of 64.3% with a slowdown in the main trend and the base effect. We envisage that in the first half of 2023, annual inflation will continue its downward trend due to weakening import cost pressures and strong base effects, while factors like high minimum wage increases and managed price adjustments, and policy incentives during the election period may keep the main trend of inflation high.
The CBRT stated that the fact that financial conditions are supportive is important in terms of maintaining the acceleration in industrial production and the increasing trend in employment in a period of uncertainties concerning global growth and increased geopolitical risks and reduced the policy rate by 500 basis points to 9% in the August-November period.
In 2022, the budget deficit was realized as 139 billion TL as a result of the increase in the budget revenues above the expenditures, clearly below the end-year budget deficit predicted as 461 billion TL in the Medium-Term Program. The primary balance yielded a surplus of 171.8 billion TL.
Loans in the banking sector continue to be strong. According to the last February 3 data announced by the BRSA, the amount in the currency-protected deposit system has a 29% share in TL deposits with 1,456 billion TL. It is aimed to increase TL deposits through the macroprudential measures announced recently. The non-performing loan ratio in the banking sector has progressed at a low level of 2.1% as of December. With 19.46%, the capital adequacy ratio is high above the legal limit.
Abroad, the monetary policies of the central banks of developed countries and the course of the global economic outlook in 2023 about it and geopolitical developments will be followed closely. Domestically, there are uncertainties due to the upcoming elections. Moreover, the loss of life caused by the earthquake that took place on February 6, its devastating impacts on the region's production, export, and tourism income generation capacity, and the reflections of the additional financing needed for the reconstruction of the region on the macroeconomic balance will be closely monitored.
Suzan Sabancı Dinçer
Chairman of the Board of Directors