MACROECONOMIC OVERVIEW

MACROECONOMIC OVERVIEW MAY 20 Koç Holding

CONTENTS Global Economy... 3 Global Financial Markets... 3 Global Economic Growth Forecasts... 3 Turkey Macroeconomic Indicators... Economic Growth... Industrial Production... Inflation... Foreign Exchange Rates... Interest Rates... Central Government Budget... Foreign Trade... Balance of Payments... Macroeconomic Estimation & Projections... 2 /

GLOBAL ECONOMY GLOBAL FINANCIAL MARKETS Emerging Markets, World 100 1300 00 10 00 00 00 00 MSCI Indices 03.01. 2.01. 1.02. 13.03. 0.0. 2.0. 21.0. 13.0. 0.0. 2.0. 21.0. 13.0. 0.. 2.. 21.. 1.. 0.01. 2.01. 21.02. 1.03. 0.0. 30.0. Emerging Markets World Turkey 10 0 00 0 00 0 00 0 00 0 00 Turkey Following a rather upbeat first quarter, global financial markets took off to a much slower start to the second quarter of 20. The first reasons behind this development is that the macro data flow from developed countries, especially those of from the US, have lost their positive surprise effect as they have become more erratic and been disseminating mixed signals. The second reason is that the FED and ECB seem to be less reluctant in increasing their support to the markets. Finally, increasing concerns regarding Spain have started to take its toll on the global market sentiment. Eventually, MSCI world index declined by 1.% in April, and MSCI emerging markets index fell by 1.%. Thanks to the strong performance in the first quarter of the year, these indices are up by.% and %, respectively, in comparison to end. 20 20 220 200 10 10 10 0 0 0 01.20 IMF International Commodity Prices 200=0 03.20 0.20 0.20 0.20.20 01. 03. 0. 0. 0.. 01.20 Agriculture Metals Oil 03.20 Due to the slowdown in the global economic activity, most of the commodities have been trading within a narrow price range since the last quarter of. The main exception to this trend is the surge in oil prices on the back of rising geo political concerns in the Middele East, namely conflict in Syria and likelihood of a military campaign against Iran s nuclear facilities. However, as the probability of an intervention in Iran has declined in the last couple of weeks, oil prices have retreated below USD 0 per barrel. Still, rising commodity prices pose one of the most important challenges to the emerging markets that see their inflation rates increasing at a time when the economy is slowing down, rendering it quite difficult for the policy makers to cut interest rates to support growth. GLOBAL ECONOMIC GROWTH FORECASTS World Economic Outlook Projections (IMF, April 20) 20 2013 WORLD OUTPUT(%) 3. 3..1 Advanced Economies 1. 1. 2.0 USA 1. 2.1 2. Euro Zone 1. 0.3 0. Japan 0. 2.0 1. Emerging Economies.2..0 Central & Eastern Europe.3 1. 2. China.2.2. Turkey. 2.3 3.2 IMF revised its global growth projections in April. Acknowledging the improvement in global sentiment in the first quarter of 20 on the back of further injection of liquidity to the markets by the central banks, and better than expected macro data flows in developed countries, the IMF revised 20 growth forecasts slightly upwards compared to January numbers. Accordingly, the IMF increased its global growth forecast for 20 by 0.2 points to 3.%. The IMF now believes that the US economy will do better in 20 as evidenced by a 0.3 points increase in 20 growth forecast to 2.1%. Although still expecting a contraction, the IMF also raised the GDP growth forecast for Eurozone to 0.3%. 3 /

TURKEY MACROECONOMIC INDICATORS Macroeconomic Overview ECONOMIC GROWTH %.0.0 0.0.0.0 1.0 1 200 2 200 3 200 GDP Growth (Quarterly. %) 200 1 200 2 200 3 200 200 1 20 2 20 3 20 20 1 2 GDP Growth (oya, %) GDP (Seasonally Adjusted) 3.2 30.0 2.0 2.0 2.0 22.0 20.0 1.0 1.0 Billion TL Real Growth, % 20 Q1 Q2 Q3 Q GDP.2..1..2. Agriculture 2....2.2.3 Manufacturing 13. 1..1.2.2. Construction 1.3 1.3 13.0.2.0.2 Trade 13. 1.3 1.2. 3.. GDP grew by.% in, broadly in line with market expectations. As it was the case in 20, private consumption and private investment expenditures were the driving forces behind the robust growth in the first quarter of. Meanwhile, seasonally adjusted figures revealed that in the last quarter of economy grew by 0.% over a quarter ago, representing th consecutive quarterly growth since the economy bottomed in the first quarter of 200. INDUSTRIAL PRODUCTION 2 20 1 0 1 20 2 Industrial Production 200 1 2 3 20 1 2 3 1 2 3 20 1 2 YoY % Change. Seasonally Adjusted Series (rhs) 13 YoY, % Oct Nov Dec Jan Feb Industrial Production.. 3.. 1.. Industrial production rose by.% in February, confirming the moderate slowdown taking place in the economy. Meanwhile, following a 3% monthly decline in January, seasonally adjusted industrial production data increased by 0.% in February over a month ago. Harsh winter conditions in the first two months of 20 have led to a significant volatility in macro data, making it difficult to extract meaningful information regarding the trends in the economy. Still, industrial production figures signal that growth in 20 will be much weaker when compared to the last two years. INFLATION 1 1 2 0 Inflation (%).1. 01.20 02.20 03.20 0.20 0.20 0.20 0.20 0.20 0.20.20.20.20 01. 02. 03. 0. 0. 0. 0. 0. 0.... 01.20 02.20 03.20 0.20 CPI PPI Electricity and natural gas price hikess in April has pushed inflation to.1%, highest level since October 200. Indeed, previous round of utility price increases back in October, tax hikes in some selected goods, weakness in TL and increases in oil prices already had damaged inflation outlook in 20. However, as the depreciation of the TL has come to an end, increase in oil prices halted and most of the delayed utility price increases already made, inflation will likely remain subdued in the rest of the year. Meanwhile, according to the producer price index, agricultural prices remained almost flat in the first four months of 20, another factor that would very much likely help inflation to decline in the upcoming period. /

FOREIGN EXCHANGE RATES 2.0 Exchange Rates (vs TL) Exchange Rates 30/0/ 31/03/ 31// Change (%) MoM YtD 2.0 2.20 2.00 1.0 1.0 1.0 03.01. 2.01. 1.02. 13.03. 0.0. 2.0. 21.0. 13.0. 0.0. 2.0. 21.0. US$ 13.0. 0.. 2.. Euro 21.. 1.. 0.01. 2.01. 21.02. 1.03. 0.0. 30.0. US$ 1. 1.2 1. -1. -. Euro 2.3132 2.3 2.3-2.2 -.3 FX Basket 2.03 2.0 2.1-1. -.2 Tight TL liquidity policy of the Central Bank in Turkey combined with relatively supportive global market sentiment has led to a slight appreciation in the TL in the first four months of 20. Central Bank seems to be quite determined to keep exchange rates under control in their bid to bring down inflation rates back to single digit levels. Therefore, it is plausible to expect a rather stable outlook for the exchange rates in the short run. INTEREST RATES Interest Rates (ly Compounded. %) % Dec Jan Feb Mar Apr Real Interest Rates (Ex ante) 3..2 2. 2. 2..30.2 03.01. 2.01. 1.02. 13.03. 0.0. 2.0. 21.0. 13.0. 0.0. 2.0. 21.0. 13.0. 0.. 2.. 21.. 1.. 0.01. 2.01. 21.02. 1.03. 0.0. 30.0. CBT Policy Rate (Weekly Repo) Benchmark Bond In the first four months of 20, the Central Bank continued to implement a tight TL liquidity policy that was launched back in November in a bid to tame inflation. Meanwhile, Central Bank also continued to use an interest rate corridor (of which the lower end is % and upper and is.%) instead of a single interest rate as its main policy tool, leading to a significant amount of uncertainty in the market in regard to the future course of TL funding costs. Delibaretly creating ambiguity in the TL market, Central Bank succeeded in keeping interest rates on loans elevated in the first half of 20, leading to a much slower loan growth when compared to the last two years. Improvement in the global sentiment combined with Central Bank s renewed focus on fighting inflation has led to a rally in local bond prices, bringing down the yield on benchmark bond to.3% at the end of April from as high as.% at the start of the year. CENTRAL GOVERNMENT BUDGET January March (TLBillion) 20 % Change Revenues... Tax Revenues...2 Indirect Taxes 3.2 1.2.0 Non tax Revenues.3. 1. Expenditures 2. 3. 1.1 Primary Expenditures.. 13.0 Social Security 20.2 20.2 0.1 Interest Expenditures 1.0 1.3 2.0 Budget Balance.1.. Primary Balance... Central Government budget ran a deficit of TL. billion in the first quarter of 20, up by about % in comparison to the same period of last year. This increase is mostly explained by the surge in interest expenditures in the first quarter of this year due to the busy redemption schedule. Non interest expenditures grew by 13% over a year ago, indicating that expenditure discipline has not been violated significantly. The slowdown in economic activity started to take its toll on budget revenues as the indirect taxes grew only by % in the first quarter, leading to a meager.2% in total tax revenues. Meanwhile, primary balance surplus increased by.%, indicating that there is no need for an immediate concern in public finances. /

FOREIGN TRADE March 20 Last Months $ Billion Chg. $ Billion Chg. Exports 13.3.2% 13. 1.% Imports 20..% 20. 1.% Trade Balance.3 2.3% 1. 21.3% Turkey s exports grew by.% in the first quarter of 20, performing better than the market expectations. Imports, on the other hand, have declined by 0.% despite increase in oil prices. Weakness in the European markets has been reflected on Turkey s export figures as well. Accordingly, since March, the share of exports to the EU in total exports declined by pp to 2.3%. Fastest growing export markets so far this year are African countries and the MENA region. BALANCE OF PAYMENTS 0 - -20-30 -0-0 -0-0 -0-0 01.200 03.200 0.200 ized Current Account Balance (Bln US$) 0.200 0.200.200 01.20 03.20 0.20 0.20 0.20.20 01. 03. 0. 0. 0.. 01.20.3 Thanks to the decline in the foreign trade deficit, current account balance started to improve more visibly in 20. Accordingly, in February annualized current account deficit came down to USD.3 billion from USD.1 billion a month ago. Further reduction in the current account deficit in the rest of the year is expected due to the slowdown in domestic demand. Despite concerns of delevering in the European banking system, Turkish companies did not face any material constarint in tapping global financial markets in the first two months of 20. However, as a very important part of the current account deficit is still being financed through debt creating channels, Turkey remains vulnerable against downturns in global financial market sentiment. Financing of C/A Deficit ($mn) 20 Feb Feb 20 February February C/A Balance.2 3.1.21.03 Capital Flows(net) 2....3 FDI (net) 1.2.32 Portfolio Inv. (net) 1.0 20. 2.2 Other Investment (net) 2. 3. 3.1 2.1 Net Errors & Omission.3 3.1 1.3 Change in Official Reserves* 1.1 1.13 1.3 3 * ( ) sign indicates an increase in reserves /

MACROECONOMIC ESTIMATION & PROJECTIONS 20 Koç Holding 20 Government GDP ($billion) 1 22 Growth (GDP, %)..0.0 Inflation (CPI, year end, %)... USD/TL (year end) 1. 1. USD/TL (average) 1.1 1. 1. EUR/TL (year end) 2.3 2.3 Exports ($billion) 13.0 1.0 1. Imports ($billion) 20. 23.0 2. C/A Balance (Ratio to GDP, %).0..0 Budget Balance (Ratio to GDP, %) 1.3 1. 1. /