​​2017 was a period when the global economic expansion gained pace, and developed countries maintained their supportive monetary policies as inflation remained below target. The USD stayed weak due to limited volatility in global markets and various geopolitical developments, prompting the highest fund inflow to developing countries of the last three years. US equity markets set new records, while emerging markets posted significant increases as a result of positive risk appetite. In 2017, demand for digital currencies was on the rise. In Turkey, economic activity gained momentum owing to government incentives aimed at target sectors and support from the Credit Guarantee Fund (CGF); double-digit growth was recorded in the third quarter. We expect that the global economy will pick up pace even more in 2018.

As US economic growth maintained its strong upward trajectory, the Fed raised interest rates three times in 2017, bringing its policy rate up to 1.50%. The Fed also pursued balance sheet normalization starting in October. In 2018, the US economy is expected to maintain its strong growth performance with additional impetus from tax cuts. Developments on the inflation side will be important for normalizing interest rates and determining the foreign exchange rate's trajectory. The Fed plans to execute three more rate hikes in 2018.

With the Euro zone showing a strong widespread expansion, the ECB revised its growth forecasts upward based on the positive outlook. Meanwhile, inflation is still below target and this tendency is expected to continue in the medium term. The ECB maintains a negative interest policy in the face of these developments. It plans to continue bond purchases, albeit on a smaller scale, at least until end-September. We expect that the ECB will not implement an interest rate hike before the second half of 2019.

Economic growth follows a favorable course in Japan as well; however, inflation remains below target there despite a slight uptick. The Bank of Japan's (BoJ) supportive monetary policy is expected to continue until the inflation target is attained. However, BOJ reduced the amount of its long-term bond purchases at the beginning of 2018, and is widely expected to continue doing so in the coming months.

Turkey recorded double-digit growth figures in third quarter 2017. We believe the year will close with overall growth at about 7% due to the positive trend in economic activity. In 2018, we expect that the economy will expand around 5% as a result of Credit Guarantee Fund (CGF) support, strong private consumption, and partial realization of postponed investments.

Looking at foreign trade in 2017, a high current account deficit resulted from increased gold and energy imports, as well as significantly higher economic activity in the second half of the year. Tourism revenue, which had remained weak in 2016 due to geopolitical tensions, picked up in 2017 thanks to normalized relations with Russia, narrowing the current account gap to some extent. Although the uptrend in oil prices in 2018 may push the current account deficit higher, we expect that gold imports will return to normal levels, tourism revenue will continue to improve and exports will rise with the strong recovery in the EU. We forecast that the current account to GDP ratio will remain around 5% in 2018.

Inflation closed the year at 11.92% due to rising oil prices, devaluation of the Turkish lira, and robust domestic demand. In 2018, food, energy prices, tax adjustments and foreign exchange-related developments will continue to determine the course of inflation. We expect that inflation will come in at about 9.5% for the year. The Central Bank of Turkey (CBRT) will maintain its tight stance due to the inflation outlook and volatility in the foreign exchange rate.

The government's budget deficit for 2017 was TL 47.4 billion, below the target set in the revised Medium Term Program (MTP). This represents around 1.5% of GDP. The program forecasts a budget deficit to GDP ratio at a level of 1.9% in 2018.

In 2017, the banking industry continued its strong performance. With the positive impact of the CGF incentives, TL-denominated commercial loans jumped 33% year-onyear and total loans rose 21%. The industry's NPL ratio was a rather low 3.0% as of December 2017. The sector-wide capital adequacy ratio came in at 16.87% as of December, remaining strong throughout the year.

In 2018, possible monetary normalization measures implemented by central banks in advanced economies and various geopolitical risks could hamper capital flows into emerging markets. The banking industry plans to continue providing support for our economy's advancement.