Apart from this perspective, however, we should also concentrate on the Turkey's opportunities in the coming year. In our view, provided that the current world economic situation is well managed -- so that it does not develop into a long-lasting malaise -- a permanent mild global economic contraction in terms of growth rates would benefit the Turkish economy. In this event, current pressures on the Turkish lira would be eased and it would bring some competitive strength to Turkish manufacturing and exports. The current account deficit would thereby be lowered at a time when the financial market is becoming more unfavorable. Moreover, as the price of energy, oil and other major commodities would fall parallel to a global economic slow down, this would also significantly help with closing the current account deficit as well. Secondly, the same process in domestic as well as global markets would help Turkey's consumer inflation to continue declining in 2008 toward the target rate of 4 percent. January has been the first month to test the relevance of our hypothesis. January inflation and export data have already been explained, and although it is still quite early, it can be said that initial data has strongly confirmed our expectations.
Let's start with the inflation data. Producer and consumer inflation rates for January were lower than analysts' expectations. According to the Turkish Statistics Institute (TurkStat), the inflation rate in January was 0.8 percent in the consumer price index (CPI) and 0.42 percent in the producer price index (PPI). To remind you, CPI inflation was 1.76 percent points higher last year in January while PPI inflation was 2.93 points higher. Based on this data, year-on-year inflation as of the end of January was at 8.17 percent in the CPI and 6.44 percent in the PPI.
As will be recalled, the central bank inflation report projects that current disinflation trends will continue in the medium and long term. Therefore, the central bank will likely cut key interest rates a further 0.25 basis points after the announced inflation rates. Negative contribution to the CPI came from recent tax surges, high oil and energy prices and the price of unprocessed foods and cigarettes. Recent campaigns in the textile sector also seem to have reduced the overall inflation rate.
The second important test of our hypothesis came from export figures. Turkey's exports surged 49.3 percent in January to $9.82 billion over the same month last year, marking the biggest such increase in Turkey's history. The 12-month figures reached $109.2 billion -- the largest sum ever attained by Turkish exporters. By sector, the largest monthly increase came in the export of agricultural products. The industrial sector recorded $8.4 billion in sales to foreign countries last month. This sector's total exports over 12 months reached $94.67 billion. The export of vehicles brought in $2.15 billion, while the textile industry made $1.45 billion from sales abroad. As can be observed from the given table below, in addition to the textile and clothing industry, parallel to the continued investments and quality improvements, the automobile industry has moved toward positive net exports, bringing net currency gain to the economy. The same big capacity lies in the machinery industry for the near future, provided that the sector becomes the primary actor in the generation of new technology in the country. In fact, in 2007 the machinery field made $9 billion in exports, a 37 percent increase over the previous year, whereas machinery imports increased by only 19 percent. That means the sector started gradually bridging the gap between imports and exports.
Let's finish by noting one positive observation and a couple of negative ones on the future performance of the export industry. The good news is that Turkey's export performance has become quite independent of exchange rate volatilities. A surge in productivity, recent innovations, an increased pace in research and development activities, an intensified search for new markets, the flexible characteristics of the export industry and Turkey's geographical proximity to the major world markets are all to Turkey's advantage.
The bad news, on the other hand, is that due to a lack of financial resources and unfavorable exchange rates, Turkish industrialists are being forced to cut their costs by reducing the labor force and reducing wages. This is obviously a problem for Turkey's long-term-development objectives.
Moreover, the lack of resources for the financing of new machinery purchases is forcing local industrialists to turn to imports. As foreign companies can extend payments to five to seven years with installments, the same credit mechanism should be provided by domestic companies as well.
Another problem in the export-oriented sectors is the fragmented structure of the industries. There are too many firms operating in the market without having the required optimal scale. This requires serious efforts for consolidation, mergers and acquisitions within these industries to overcome cut-throat competition.
