The Euro Zone is out of recession.
The Euro Zone economy registered growth in the second half
of 2013 and pulled out of recession, ending a sequence of six
quarters of contraction. However, the weak course of economic
activity throughout the region has been continuing.
Thus, the European Central Bank (ECB) cut its policy rates twice
during 2013 in order to support the economy and underlined
that policy rates would be kept low for a sustained period of
time. Furthermore, the ECB added that unconventional policies
might be implemented if necessary, in addition to policy rate
cuts.
Loss of momentum in developing markets
The deceleration in the economic growth of developing markets
continued in 2013. The uncertainty about the future course
of the Fed’s asset purchase program increased volatility of
capital flows to developing markets, leading to a depreciation
of local currencies against the USD. Pressures on inflation and
external financing conditions increased as a result of these
developments and interest rates were raised in some of these
countries.
Future expectations
The recovery in global economic activity remained below
expectations in 2013. In this framework, developed countries
posted economic growth rates in parallel to the expectations,
while the growth rate of developing markets was weaker
relative to previous years. In fact, the significant divergence
among the economic performances of developed and
developing markets began to disappear by the year 2013.
The gradual recovery in developed countries and the tendency
of slowing down in developing markets point out a more
balanced outlook for the global economy in terms of growth. It
is expected that the gradual recovery in developed countries
will have positive impacts on the developing markets via foreign
trade channel. Accordingly the IMF expects the global growth
to increase to 3.7% in 2014, after the growth of 3% recorded in
2013.
As a result of the disagreements over the U.S. budget
discussions arose in October 2013, the compromise could not
be maintained. Therefore, the Government was not authorized
for spending due to the disapproval of the new budget law
and it caused partial disruptions on government spending for
16 days. In order to prevent recurrence of this incident, a new
budget lawwas drafted, which was approved towards the end
of 2013, easing the risk over the sustainability of government
spending.
In the Euro Zone, where economic activity remains under
pressure, it is expected that gradual recovery will continue in
the coming period. The steps taken to establish a banking union
in the Euro Zone would reduce risk perceptions regarding the
Euro Zone economy.
In 2014, fluctuations in capital flows depending on the Fed’s
monetary policy stance will be influential on the performances
of developing markets.
In brief
Economic activity in developed
economies started to recover
in 2013.
The Fed’s tapering decision
caused volatility in capital
flows to developing markets.
The economic conjuncture in
2014 suggests a narrowing
in the gap between rates of
growth in developed countries
and developing markets.
Activities
23
İşbank
Annual Report 2013
