Against this background, the gradual recovery in  domestic demand is expected to continue into the first quarter (Figure 27). However, I would also like to emphasize that the achievement of a two-digit annual growth rate is highly probable in the first quarter of 2010 due to the low base of the same period last year. The weak course of external demand continues to restrain economic activity and employment growth through its impact on industrial production. As a matter of fact, despite the recent partial recovery, indicators such as per capita hours worked across industries and capacity utilization rates of firms oriented towards export markets suggest that resource utilization remains low throughout the economy (Figure 26). The recovery in the labor market that started in the third quarter of 2009 continued into the fourth quarter, albeit at a slower pace. Unemployment declined in seasonally adjusted terms, but still remains elevated (Figure 28). Given that ample slack would continue to be a drag on investment and employment, signs of improvement in employment data during the second half of 2009 are not expected to turn into a robust recovery, suggesting that the unemployment rate will likely remain elevated for an extended period. Therefore, unit labor costs would continue to support disinflation (Figure 29). Overall, recent data releases suggest that the economic recovery has become more robust. Domestic demand would continue to recover, while the weak outlook for global growth would dampen economic activity and employment in the tradable sector for sometime.

Then, I will outline the Central Bank’s inflation forecasts presented in the Inflation Report that will be posted on our website shortly. In the first quarter of 2010, as perceptions regarding recovery in the global economy became more pronounced, the trend of increase in risk appetite in global financial markets continued. Accordingly, as had been the case since the second half of 2009, emerging markets attracted more capital through increased portfolio movements. On the other hand, risk premium indicators in most developing countries remained below those of pre-crisis levels. In  this period, Turkey’s risk premium indicators continued their positive trend and did not differentiate from the general trend except for short periods when developments specific to our country were pronounced (Figure 21). The improvement in global risk perceptions in the first quarter led the currency of many developing countries to appreciate. In terms of changes in currency values, the Turkish lira did not significantly differ from currencies of other emerging markets in this period and the relatively stable course of the Turkish lira in the crisis period continued throughout the postcrisis process as well (Figure 22). National income data of the last quarter of 2009 were consistent with the outlook we presented in the January Inflation Report. In this period, while the mild recovery in private sector demand continued, public sector consumption expenditures increased more than envisaged due to temporary factors. Meanwhile, persisting problems in the global economy restricted foreign demand, whereas stock accumulation started, albeit slowly, along with the improvement in domestic demand.