The number of vaccine doses administered has exceeded 99 million, with 50 million people getting at least one dose. Despite the recent increase in social mobility following the reopening, the number of cases remains relatively low thanks to the performance of the vaccination rollout. The widespread vaccination of the population has a positive impact on the economic activity, employment and the current account balance. As for Turkey’s macroeconomic outlook, consistent with our projections, national income has grown by 21.7% annually in the second quarter on the back of the base effects. Looking at quarterly growth figures excluding the base effects, we see a 0.9% increase in national income compared to the first quarter, with contributions from both domestic and external demand. In the second quarter of the year, many European countries recorded high rates of growth due also to the base effects. In this period, Turkey’s growth outperformed many European countries, and the Turkish economy recorded the second-highest rate of growth after the UK. Consumption and machinery-equipment investments were the main drivers of annual growth. The positive outlook in vaccination in Europe is affecting our economy via tourism and external demand channels. In this context, net exports also continue to contribute positively to growth. Leading indicators show that domestic economic activity remains strong in the third quarter, with the help of robust external demand. Survey-based indicators point to a strong upward movement in both domestic and export orders. 5  High-frequency data show a rapid recovery in the pandemic-stricken subsectors of services amid increased mobility.

We forecast that the temporary factors that are affecting the inflation outlook in the short term will lose their effect and inflation will assume a downward trend in the last quarter. We also expect that inflation excluding food prices will continue to be lower than headline inflation in the rest of the year. 7  When talking about the recent inflation dynamics, food prices require special attention. In food prices, we see a global increase reflecting unfavorable weather conditions, drought, particular restrictions on food exports in some countries, and an increase in stockpiling. In this respect, central banks and policy makers monitor the developments in food prices, core inflation and the effect of increasing inflation on inflation expectations. Indeed, in the recent update of the World Economic Outlook, the IMF noted that central banks should analyze price dynamics and take into account whether movements in inflation are transitory or not. In Turkey as well, food prices are on the rise, and food inflation hovered significantly above historical averages and non-food inflation in July and August. Another important issue regarding inflation dynamics is the difference between PPI and CPI inflation. Producer prices are high in advanced and emerging economies, as is the case in Turkey. This is driven by the increase in commodity prices as well as supply constraints arising from production failing to match the rapidly increasing demand. Another factor driving producer prices up are rising international freight costs and extended delivery times.