1. MINISTRY of ECONOMY ECONOMIC OUTLOOK DECEMBER 2012 Economic Outlook is revized in the 1st and the 3rd weeks of the month. Recent Update: 04/12/2012 December 2012 Ministry of Economy 1

2. A- MACROECONOMIC OUTLOOK B- FOREIGN TRADE OUTLOOK 1) MERCHANDISE 2) SERVICES C- INVESTMENTS, FOREIGN CAPITAL and INCENTIVES D- FREE ZONES in TURKEY E- BILATERAL, REGIONAL, PLURILATERAL and MULTILATERAL TRADE OUTLINE December 2012 Ministry of Economy 2

3. A- MACROECONOMIC OUTLOOK December 2012 Ministry of Economy 3

4. Growth Forecasts for Selected Countries/Country Groups (%)  According to the IMF, Turkish Economy is expected to grow by 3% in 2012.  In the first two quarters of 2012, Turkish economy grew by 3,2% and 2,9% respectively, resulting in an average growth of 3,05% in the first half of 2012 Source: IMF, OECD, UN, WB December 2012 Ministry of Economy 4

5.  According to the IMF estimates, global trade volume of merchandise and services is expected to increase by 3.2% in 2012 and 4,5% in 2013.  According to the WTO estimates, global trade volume of merchandise and services is expected to increase by 3.7% in 2012 and 5.6% in 2013. Forecasts for Merchandise and Services Trade Growth (%) Source: IMF and WTO December 2012 Ministry of Economy 5

6. Economic Targets of 2013-2015 Medium Term Programme *Forecast (Medium Term Programme, Ministry of Development – October 9, 2012)  Medium Term Programme which covers 2013-2015 period aims to strengthen macroeconomic and financial stability by reaching potential economic growth rate, decreasing the current account deficit further, reducing inflation and improving public fiscal balances. December 2012 Ministry of Economy 6

7. Real GDP Growth of Selected Countries/Country Groups (2011)  Turkish Economy expanded by 8.5% in 2011, which was well beyond the expectations of the IMF (7.5%). Source: TURKSTAT, IMF December 2012 Ministry of Economy 7

8. Annual Economic Growth Rates (2002-2011) Source:TURKSTAT  Turkey has recovered fast from the global financial crisis and amongst those countries affected less from current global economic uncertainties.  Turkey has the fastest economic growth rates in Europe.  Mean annual growth rate between 2002 and 2011 was 6%.  Real GDP growth for 2011 realized as 8.5%.  Turkey grows 3.05% in first the half of 2012. December 2012 Ministry of Economy 8

9. GDP Per Capita Source: TURKSTAT, Worldbank  GDP per capita has tripled in the last 10 years from 3,492 USD to 10,444 USD. According to Purchasing Power Parity (PPP),GDP per capita surpassed 16 thousand USD. December 2012 Ministry of Economy 9

10. Capacity Utilization Ratio (%) Source: TURKSTAT  Capacity utilization ratio realized as 74 % in November 2012. December 2012 Ministry of Economy 10

11. Industrial Production Index Source: TURKSTAT  Industrial production index increased by 6.2% year-over-year in September 2012 up to 135.47. December 2012 Ministry of Economy 11

12. Inflation (Annual Percent Change)  Annual inflation in 2011 realized as 10.4%.  Monthly CPI change in November 2012 realized as 6.37%. Source: TURKSTAT December 2012 Ministry of Economy 12

13. Real Effective Foreign Exchange Rate (2003=100)  As of November 2012, Turkish Lira has appreciated by 1,6% monthly in terms of the CPI-based real effective exchange rate.  The level of appreciation is 2,9% in terms of the PPI-based real effective exchange rate. Source: CBRT December 2012 Ministry of Economy 13

14. Total Credits and Consumer Credits (Billion TL)  Credits and specifically consumer credits increased to 187 billion Dollar in parallel to the growing domestic demand.  Total credits increased to 771,8 billion Dollar on a monthly basis in October 2012. December 2012 Ministry of Economy Source: BRSA 14

15. CDS Premiums (Dec 4th, 2012) Source: DB Research * Higher CDS premiums indicate higher risk levels.  CDS premium of Turkey is significantly low compared to most of the European countries. December 2012 Ministry of Economy 15

16. Financial Markets  Total assets of the banking sector increased by 7.8% and reached 1.308 trillion TL in September 2012.  Capital Adequacy Ratio of Turkish Banking Sector is 16.49% in September 2012. December 2012 Ministry of Economy Source: BRSA 16

17. EU Defined Budget Deficit/ GDP (%)  EU defined general government budget deficit/GDP ratio was 2.6% in Turkey in 2011 and Turkey satisfied the Maastricht criteria of 3%. Turkey also outperformed 18 EU Countries.  Central government budget deficit/GDP ratio was 1.3% in Turkey in 2011 and Turkey outperformed 23 EU Countries.  In January-October 2012, central government budget deficit has increased to 18.8 billion dollars. 2011 December 2012 Ministry of Economy 17

18. Government Debt / GDP (%)  Debt/GDP ratio of Turkey was 39.4% in 2011, which was below the level in 21 EU Countries and the Maastricht Criteria (60%). December 2012 Ministry of Economy Source:Eurostat 18

19. Unemployment Rates (%)  In August 2012, the unemployment rate was 8.8 %. Seasonally adjusted unemployment rate was 9.2 %.  Seasonally adjusted unemployment rate in Euro Area was 11.7% and 10.7% in (EU27) in October 2012. In terms of unemployment ratio Turkey outperformed 14 EU countries according to current data.  After Russia, Germany, England and France, Turkey has the 5th largest labor force among the European countries. (2010, World Bank) Source: TURKSTAT December 2012 Ministry of Economy 19

20. Potential of Population (2010) Source: World Bank  Turkey has a population of 74.7 million in which half of the population is under the age of 29.7.  Growth rate of population is 1.36% in Turkey, 0.28% in EU Countries and -0.24% in Germany. December 2012 Ministry of Economy 20

21.  Cell phone penetration rate in households: 93.2%  Internet access rate in households: 47.2%  Internet access rate in enterprises: 92.5%  PC penetration rate in households: 31.8%  Laptop penetration rate in households: 27.1%  Digital camera penetration rate in households: 27.1%  Printer penetration rate in households: 14.0%  1 of each 5 people owns a vehicle. Growing Dynamism in Turkey's Domestic Market December 2012 Ministry of Economy 21

22. B- FOREIGN TRADE OUTLOOK December 2012 Ministry of Economy 22

23. I) MERCHANDISE December 2012 Ministry of Economy 23

24. Targets in Merchandise Trade * Actual (Source: TURKSTAT) **Forecast: Medium Term Programme, Ministry of Development- 10/09/2012) December 2012 Ministry of Economy 24

25. Turkey's Share in Global Merchandise Exports (%)  Turkey’s share in global merchandise exports was %0.74 in 2011. December 2012 Ministry of Economy Source: WTO 25

26. Foreign Trade Volume/GDP (%)  The ratio of foreign trade volume/GDP was 48,7% in 2011.  Turkey’s integration to the international trade system is eminent. December 2012 Ministry of Economy Source: TURKSTAT 26

27. Foreign Trade Developments  In January- October 2012, compared to the same period of the previous year, exports increased by %13,4 and imports decreased by %2,9 respectively. Source: Ministry of Economy December 2012 Ministry of Economy 2010 - 2011 / 2011-2012 January-October * Energy corresponds to Chapter 27. 27

28. Monthly Exports/Imports December 2012 Ministry of Economy  In October 2012 compared to October 2011 exports have increased by 11,6% and reached to the level of 13,3 billion dollar and imports have decreased by 5,6%, to the level of 18,8 billion dollar. 28

29. Distribution of Foreign Trade in Broad Economic Categories EXPORT IMPORT December 2012 Ministry of Economy 29 Source: TURKSTAT

30. Main Export Items Source: TURKSTAT * Percent change is related to the annual change in exports in 2012. December 2012 Ministry of Economy 30

31. Main Import Items Source: TURKSTAT * Percent change is related to the annual change in imports in 2012 December 2012 Ministry of Economy 31

32. Main Export Partners (Share,%) Main Trade Partners (January-October 2012) Main Import Partners (Share,%) Source: TURKSTAT December 2012 Ministry of Economy 32

33. Exports by Regions Source: TURKSTAT December 2012 Ministry of Economy 33

34. Imports by Regions Source: TURKSTAT December 2012 Ministry of Economy 34

35. Tariff Rates Source: WTO Tariff Profiles, 2011 December 2012 Ministry of Economy 35

36. 2) SERVICES December 2012 Ministry of Economy 36

37.  Tourism: Besides increasing the number of tourist arrivals, creating a structure that improves service quality, targets high-income groups by diversifying marketing channels, preserves natural capital and sustainability, and stimulates those types of tourism where Turkey has comparative advantages  Construction, Engineering-Architecture, Technical Consultancy and Contracting Services: Establishing a structure that fits Turkey’s economic and social needs, that is compatible with high technology and international rules, that is sensitive to environment, that creates high value added, high foreign exchange inflow and high employment, that grants high service quality, and that relies on qualified human and physical capital.  Commercial Services: Increasing productivity and commercial trade volume in a competitive way, and to encourage technology and innovation. Targets in Services December 2012 Ministry of Economy 37

38. Turkey's Share in Global Services Exports (%) Source: WTO, CBRT  Turkey’s share in global exports of services was 0.92% in 2011. December 2012 Ministry of Economy 38

39. Balance of Payments - Services *January-September Source: CBRT December 2012 Ministry of Economy 39

40. Tourism Statistics (Quarterly, 1000) December 2012 Ministry of Economy Tourists visited, Source: TURKSTAT  Turkey ranks as the 6th in the world and the 4th in Europe among the most favourite tourism destinations.  Turkey’s income per tourist increased by 18% in 2010 and 1% in 2011. 40

41. Contracting Services Abroad  31 out of the world’s top 225 contracting companies are Turkish.  Turkey ranks as the 2nd country (following China) in terms of the number of top contracting companies. Contributions to the overall economic performance: Creating foreign exchange inflow, exports, employment, technology transfer; adding to the machinery stock, facilitating internationalization December 2012 Ministry of Economy 41

42. Logistics  Europe’s biggest truck fleet  (45 thousands trucks and 1,420 companies)  Almost 1 million flights in 2011  (2.3 million tonnes freight and 117 million passengers)  25. biggest fleet in the world  45 airports and 51 ports  Total length of divided highways will reach 15 thousand kilometers.  High-speed railway projects are carried out rapidly. December 2012 Ministry of Economy 42

43. Energy  Turkey is an energy hub between energy producer and consumer regions December 2012 Ministry of Economy 43

44. C- INVESTMENTS, FOREIGN CAPITAL and INCENTIVES December 2012 Ministry of Economy 44

45. Investment Climate in Turkey December 2012 Ministry of Economy 45

46. Time Required to Start a Business  The required time to start a business is 6 days in Turkey. Source: Invest In Turkey December 2012 Ministry of Economy 46

47. Skilled Labour Availability  Scoring is between 0 and 10. Source: Invest In Turkey December 2012 Ministry of Economy 47

48. Transparency in Finance Sector Source: Invest In Turkey  Scoring is between 0 and 10. December 2012 Ministry of Economy 48

49. The Sectoral Breakdown of Foreign Investments Source: CBRT * January - September December 2012 Ministry of Economy 49

50. Breakdown of Foreign Investments by Country Source: CBRT December 2012 Ministry of Economy * January – September 50

51. Investment Incentive System The current investment incentive system of Turkey is structured in four sub systems:  General Investment Incentive System  Regional Investment Incentive System  Investment Incentive System for Big Scale Projects  Encouraging the Strategic Investments December 2012 Ministry of Economy 51

52. Investment Incentives (January-October) Source: General Directorate of Incentive Implementation and Foreign Investment December 2012 Ministry of Economy *January-October 52

53. D - FREE ZONES IN TURKEY December 2012 Ministry of Economy 53

54.  Tax advantages for manufacturers  Medium-and long-term investment view  Availability to transfer profits  Commercial facilities  Exemptiın from customs duties  Acquisition of the documents relating to the free movement of goods under the scope of Customs Union with the EU  Principle of equality  No time restrictions  Flexibility to adjust to the market needs and conditions  Reliable inflation accounting  Market access to domestic and foreign markets  Reduced bureaucratic procedures and dynamic business management  Strategic advantages.  Affordable and compatible infrastructure  Supply chain opportunities The Advantages of Free Zones for Users December 2012 Ministry of Economy 54

55. Free Zones in Turkey  54,022 people have been employed in Free Zones of Turkey in 2011. December 2012 Ministry of Economy 55

56. Trade Flows of Free Zones  In January-September 2012 total trade volume of the Free Zones reached to 16.9 billion dollars, decreasing 0.45% annually. Source: General Directorate of Free Zones, Foreign Investments and Services *January-September December 2012 Ministry of Economy 56

57. Concentration in Free Zones by Industries Source: General Directorate of Free Zones, Foreign Investments and Services December 2012 Ministry of Economy 57

58. E - BILATERAL, REGIONAL, PLURILATERAL and MULTILATERAL TRADE December 2012 Ministry of Economy 58

59. Trade Relationships of Turkey with Others  Bilateral Trade Relationships of Turkey Europe, Asia-Pacific, Eurasia, Middle East and North Africa, Sub-Saharan Africa, Americas  Regional and Multiple Trade Relationships of Turkey EU, ECO, D8, BSEC, OIC, COMCEC  Multilateral Trade Relationships of Turkey WTO, OECD, ACTA December 2012 Ministry of Economy 59

60. Regional Breakdown of Exports Source: TURKSTAT * January-October ** Except Lebanon and Mauritius In January-October period of 2012, our exports to EFTA countries increased 58.3% and our exports to FTA countries increased 7.7% annually. The annual increase of our exports to ECO countries in the same period was 94.9% and ECO countries became the fastest growing export destination of the regions above. December 2012 Ministry of Economy 60

61. Chronological Evolution of the Relationship between Turkey and the EU  12 September 1963: Ankara Agreement  13 November 1970: The signing of the Additional Protocol  1 January 1973: Additional Protocol to come into force  14 April 1987: Turkey’s Application for Membership  5 March 1995: The Association Council Decision Establishing the Customs Union  10-11 December 1999: Recognition of the Candidate Status of Turkey at the Helsinki Summit  8 March 2001: The first Accession Partnership Document issued  17 December 2004: European Council decision to start Negotiations with Turkey in Brussels Summit  3 October 2005: Start of the Negotiations between Turkey and the EU  20 October 2005: Start of the Screening Process  13 October 2006: End of the Screening Process December 2012 Ministry of Economy 61

62. The process of Accession Negotiations between Turkey and the EU Negotiations for 1 chapter were temporarily opened and closed afterwards. – Science and Research Negotiations for 12 chapter were opened but closure criteria to all those negotiations were imposed bt the EU. – Business and Industry Policy, – Statistics, – Financial Control, – Consumer and Health Protection, – Trans-European Networks, – Intellectual Property Law, – Company Law, – Free Movement of Capital, – Information Society and Media, – Taxation, – Environment, – Food Safety, Veterinary and Plant Health Position papers of Turkey for 2 negotiations were forwarded to the EU. EU Common Position Paper is expected to be announced. – Education and Culture, – Economic and Monetary Policy For the opening of 8 chapters opening criterias of the EU have to be met by Turkey. In all other chapters, Screening Reports are expected to be announced by the EU. December 2012 Ministry of Economy 62

63. Trade between Turkey and the EU *January-October Source: Data Source of the Ministry of Economy December 2012 Ministry of Economy 63

64. 1.EFTA (Norway, Switzerland, Iceland, Liechtenstein) 2.Israel 3.Macedonia 4.Croatia 5.Bosnia and Herzegovina 6.Palestine 7.Tunisia 8.Morocco 9.Syria FTA Countries 10.Egypt 11.Albania 12.Georgia 13.Montenegro 14.Serbia 15.Chile 16.Jordan 17.Lebanon* 18.Mauritius* 19.South Korea* (*) Agreements that are in the approval process December 2012 Ministry of Economy 64

65.  Our exports to FTA Countries increased %7,2 in 2011.  The share of FTA Countries in total exports reached 10,5%.  Turkey recorded a trade surplus of 1,4 billion USD in 2011 with FTA Countries, while there was a trade deficit of 1.5 billion USD in 2002. Trade with FTA Countries December 2012 Ministry of Economy 65

66. Trade Representatives Abroad 232 trade representatives from the Ministry are serving in 105 locations and 6 offices abroad. December 2012 Ministry of Economy 66

67. Daimi Temsilci Yardımcılığı Ticaret Müşavirliği Ticaret Ataşeliği İrtibat Büroları AFRİKA Kahire Nairobi Pretoria Rabat Trablus Tunus Kazablanka ASYA Astana Aşkabat Bangkok Bişkek Cakarta Duşanbe Hanoi İslamabad Kabil Kuala Lumpur Manila Pekin Seul Singapur AVRUPA/KAFKASYA AB DTÖ OECD Atina Bakü Belgrad Berlin Bern Bratislava Brüksel Budapeşte Bükreş Dublin Helsinki Kiev Kişinev Kopenhag Lahey Lizbon Lefkoşa Londra Lubliyana Madrid Minsk Moskova Oslo Paris Podgorica Prag Priştine Roma Saraybosna Sofya Stokholm Tiflis Tiran Üsküp Varşova Viyana Zagreb Barselona Batum Düsseldorf Hamburg Hannover Kazan Marsilya Milano Münih Novorossisk Odessa Rotterdam Selanik St. Petersburg Stutgart Birmingham Krasnodar Novosibirsk Yekaterinbur g Taşkent Tokyo Ulan Bator Yeni Delhi Almatı Guangzhou Hong Kong Karaçi Mumbai Şangay Georgetown Abuja Addis Ababa Akra Cezayir Dakar Darüsselam Hartum İskenderiye Buenos Aires Karakas Mexico City Ottava Santiago Vaşington Houston Los Angeles AMERİKA ORTA DOĞU Abu Dhabi Amman Bağdat Beyrut Doha Kuveyt Manama Muskat Riyad Sana Şam Tahran Tel Aviv Basra Cidde Dubai Erbil Halep Kudüs Musul Tebriz Sidney Melbourne AVUSTRALYA New York Sao Paulo Şikago Toronto Miami San Francisco Seattle GEORGETOWN Locations of Trade Representatives December 2012 Ministry of Economy 67

68. Export Oriented Production Strategy and Input Supply Strategy Market Access Strategy Supporting Exports Trade Remedies Restructuring the Incentive System Improving the Investment Climate Trade Agreements Next-Generation Free Zones Trade in Services and Turkish Investments Abroad Market Surveillance and Inspection Strengthening the Organization Abroad Projects with Future Prospects December 2012 Ministry of Economy 68