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VAKIFBANK
2011
ANNUAL REPORT
48
The world economy left behind a
year of increased uncertainty
In 2011, the world economy
continued to grapple with the
previous year’s legacy of high
sovereign debt levels in the Euro
Area and the deteriorating growth
rates of developed economies, the
group most impacted by the crisis.
At the beginning of 2012, global
economic growth is expected to
slow further and the Euro Area’s
troubles will continue to aggravate
the current uncertainties.
2011 started out with expectations
for moderate global economic
growth; however, the USA’s leading
indicators and growth rate caused
disappointment.
The Euro Area’s growth was anemic
in 2011, as expected. In March,
Japan suffered the most devastating
earthquake in its history and
teetered on the brink of nuclear
catastrophe.
However, the phenomenon that
most clearly left its mark on 2011
was the economic fragility caused
by the widening budget deficits and
soaring borrowing requirements
of developed countries. Euro Area
nations Greece, Spain, Portugal,
Ireland and Italy, whose borrowing
costs had already been rising since
late 2009 due to high budget deficits
and government debt levels, saw
their country risks climb further;
as a result, their borrowing costs
reached record heights in 2011.
The credit ratings of these countries
were downgraded one after the
other. The possibility of contagion,
spreading their problems to the
relatively more sound nations of
the Euro Area through the financial
system and wreaking economic and
financial turmoil, became a real
risk. Talks were held throughout
the year to discuss the measures
to be introduced by EU and IMF to
alleviate the systemic risk. However,
the discussions failed to yield clear
results; in fact, such undesirable
possibilities included an eventual
exclusion of the troubled economies
from the Euro Area or even the
dissolution of European Monetary
Union was put on the table. As a
result, concerns about the possible
impacts of Euro Area-related
problems on the world economy
continue to loom large in the outlook
for 2012.
In the final months of 2011, the US
economy started to show mildly
encouraging signs. However, one
of the hottest topics of discussion
regarding the world’s largest
economy was the sharp rise in its
budget deficit due to the global
crisis, and the country’s high level
of government debt. Based on
these concerns, the credit rating
agency S&P downgraded the USA’s
long-term credit rating from AAA
to AA in August. The US, which lost
the ability to use fiscal policy to
stimulate the economy, maintained
its loose monetary policy. The FED’s
quantitative easing policy that was
adopted in the last months of 2008
was followed by a second round in
the final quarter of 2010. In QE2, the
FED swapped the short-term bonds
on its balance sheet with long-term
bonds in order to influence long-
term borrowing rates in the market.
2011 in the World and in Turkey
2011 started out with expectations
for moderate global economic
growth; however, the USA’s leading
indicators and growth rate caused
disappointment
10.45%
Turkey’s Consumer Price
Index (CPI) closed 2011 at
10.45%