Esteemed Guests, GDP data for the fourth-quarter of 2010 have been in line with the outlook presented in the January Inflation Report. The third-quarter slowdown turned out to be temporary as expected and economic activity expanded at a remarkable pace in the last quarter. Domestic demand became the main determinant of growth in the said period (Chart 10). Thus, the post-crisis divergence between domestic and external demand growth became more pronounced in this period, confirming the adoption of the new policy mix (Chart 11). Chart 10. Contributions Components  Chart 11. to  GDP  Growth  by  Demand  Exports and Imports of Goods and Services (Seasonally Adjusted, 1998 Prices, Billion TL)  (Percentage Points)  Source: TurkStat. * Estimate. Source: TurkStat, CBRT. BIS central bankers’ speeches  5  In line with the robust course of economic activity, non-farm employment also maintained its upward trend; while unemployment rates displayed a notable decline (Chart 12). Leading indicators signal an ongoing recovery in employment conditions. Chart 12. Unemployment Rates (Seasonally Adjusted, Percent)  * As of January. Source: TurkStat, CBRT. Data for the first quarter of 2011 indicate that economic activity, driven by domestic demand, is more robust than expected. Accordingly, our revised forecasts are based on the assumption that aggregate demand conditions would provide less support for disinflation compared to the previous period.
However, taking into account the stronger-than-expected effects of the monetary tightening implemented in the first quarter, the output gap is expected to close at a slower pace compared to the previous period. In sum, due to developments beyond the monetary policy control such as the significant surge in oil and other imports prices as well as the renewed tariffs, we have revised our inflation expectations upwards (Chart 17). In addition, I would like to remind you that we will not respond to first round effects of rising oil and other commodity prices, but second round effects will be closely monitored and deterioration in the pricing behavior will not be tolerated. It should be emphasized that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding the monetary policy outlook underlying our inflation forecasts should not be perceived as a commitment on behalf of the CBRT. 3. Risks and monetary policy  In the last part of my speech, I would like to mention risks regarding inflation outlook in the upcoming period and prospective monetary policy strategies to be implemented should these risks materialize. BIS central bankers’ speeches  9  We envision that the impact of the ongoing monetary tightening on loans and domestic demand will be more apparent starting from the second quarter. However, the extent and the timing of the impact may vary depending on developments beyond the control of monetary policy.