Inflation and monetary policy outlook  Having summarized the Central Bank’s monetary policy stance as well as the effects of this stance on the markets, I would like to share with you the economic outlook underlying our revised forecasts. The first-quarter data on the GDP were largely consistent with the outlook presented in the April Inflation Report. Accordingly, the GDP expanded by 11.7 percent year-on-year during the first quarter of 2010 (Figure 23). This increase was driven by the low level in the same quarter of 2009. Meanwhile, in seasonally adjusted terms, the GDP followed a nearlyhorizontal course by growing by 0.1 percent quarter-on-quarter (Figure 24). BIS Review 133/2010  9  The weak global economy continued to weigh on economic activity and employment in external demand-oriented sectors. The recovery in the private sector gained stability in line with our forecasts. In this respect, the largest contributors to growth in the first quarter became private consumption expenditures and the change in stocks. This was also affected by the low base in the same quarter of 2009 (Figure 25). Meanwhile, public expenditures contributed to growth by –0.8 points (Figure 26). Recent domestic demand indicators show that private consumption demand continues to grow and it will run above pre-crisis levels in the second quarter. Meanwhile, despite the rebound in the first quarter, investments remain below pre-crisis levels. These developments indicate that the total final domestic demand continued to grow in the second quarter (Figure 27).
BIS Review 133/2010  11  When assessing the external demand outlook, it is important to consider our trading partner’s headline growth forecasts as well as the composition of growth. In this respect, it is noteworthy that the latest Consensus Forecasts release indicates a noticeable change in the composition of the euro area 2011 growth forecasts. More specifically, along with the depreciation of the euro owing to financial distress and the weaker growth outlook, euro area private consumption and investment forecasts have been revised downwards, thereby emerging as a potential factor to affect our external demand prospects adversely (Table 2). In other words, despite the absence of a major revision in euro area growth forecasts, the change in the composition of GDP growth indicates a weaker external demand outlook for Turkey compared to the previous Report. Although weak external demand restrained recovery in industrial employment, the steady recovery in the labor market continued in the last period and non-farm employment posted a significant rise in the last one-year period fuelled by the steady increase in employment in construction and services sectors (Figure 30). The continued rise in labor force participation rates in the first quarter of 2010 curbed further decline in unemployment rates. Unemployment rates fell markedly in April amid increased employment and reduced labor force participation (Figure 31). Leading indicators imply that the recovery in non-farm employment will continue, albeit slower.