Nordic Outlook: No smooth recovery
(Thomson Reuters ONE) - In many respects, the global economic recovery has strengthened in recentmonths. Crisis policies have fulfilled their task: stabilising economic andfinancial systems. But now that the world is permitted to lift its gaze, notunexpectedly there are mounting worries about how government finances will berestored to an even keel quickly enough, and how changes in the global creditmarket will affect access to capital and cost of capital. Our conclusion is thesame as previously: growth will be hampered. We expect GDP in the OECD countriesto grow at close to trend levels in 2010-2011, which will suffice in order tostabilise the job market in many countries. Yet there is a great risk thatunemployment will get stuck at higher levels.China will remain a driving force in the world economy. The country willadmittedly need to tighten its credit market in order to counteract bubbletendencies in asset prices, but there is hardly any danger of inflation andoverheating. China has the tools to dodge imbalances and will thus serve as astabilising force for its region and for the world.Generally speaking, the risk of inflation in the world economy is small. Sincefiscal policies must be tightened and the credit situation is expected to betough, interest rate policy will remain gentle in many countries; the US FederalReserve (Fed) and the European Central Bank (ECB) will not hike their keyinterest rates until around the end of 2010. In the euro zone, collaboration isbeing thoroughly tested in an environment of high unemployment, where a numberof countries no longer have access to effective economic policy instruments. Theeuro will continue to weaken.Sweden stands well equipped when other countries are forced to undergorestoration of sound central government finances. In some respects, we can thankthe lessons and the methods used to combat the 1990s economic crisis for thissituation. GDP growth will be 3.1 per cent in 2010 and 2.7 per cent in 2011 (2.8and 2.7, respectively, in calendar-adjusted terms). Household consumptioncapacity will benefit from fiscal expansion (SEK 15 billion more in the 2011government budget), great sensitivity to interest rates and unusually highsavings. In addition, Sweden's industrial structure should prove to be anadvantage during the international recovery phase. Unemployment will peak at9.5 per cent during the second quarter of 2010, half a percentage point lowerthan our November forecast. Collective pay agreements will end up at around 2per cent for the year and pose no threat to inflation; productivity willrebound. The Riksbank will raise its repo rate during the second half of 2010,starting in July. The Swedish central bank's key rate will reach 1.5 per cent inDecember and 3.0 per cent in December 2011."Of course it is hardly news that many countries are caught in a troublesomefiscal situation," saysRobert Bergqvist, SEB's Chief Economist. "In the case ofvarious euro zone countries, for example, there is now little room for economicpolicy manoeuvring if growth curves should begin pointing downward wheninterest, currency and fiscal policy measures are not available. This worriesmany financial market players.""The recovery is surrounded by storm clouds, but there is still growth momentum.Interest rate policies will remain expansionary as long as there are risks ofreversals, and depressed production levels in manufacturing represent apotential for rapid increases," saysH?n Fris? SEB's Head of EconomicResearch and editor in chief of Nordic Outlook. "Labour market weakening hasbeen milder than expected. This is encouraging, since it reduces the risks oflong-term damage to the economy. Meanwhile it is likely to take time before wesee unemployment falling to more reasonable levels."Nordic Outlook is sticking to its assessment that internal and external forceswill affect the global banking/credit systems in a way that will have monetarypolicy consequences."It is difficult to quantify effects, but it is highly probable that newfinancial regulations and requirements will hamper the general credit situation,through lower supply and higher cost of capital," saysTomas Lindstr?monetarypolicy analyst at SEB Economic Research. "This, and low core inflation, willgive central banks room to maintain lower key interest rates on average in aslightly longer perspective. As we know, the Riksbank has now lowered itsforecast of a neutral key interest rate, as foreseen in our assessment lastautumn."The US economy is under heavy strains, especially from the weak labour market."It looks as if there will be strong growth figures in the United States during2010, but the economy will lose momentum late in the year as inventory effectsand the impact of fiscal stimulus measures fade," saysMattias Bru? US analystat SEB Economic Research. "We expect unemployment to remain stuck at a bit above9 per cent in 2011. Spare capacity will keep inflation down, and only inDecember 2010 will the Fed move its key interest rate cautiously upward."For the first time in years, SEB is raising itsBaltic GDP forecasts: for Estoniaand Lithuania, where the recession is now expected to end in 2010."The worst seems to be over in the Baltic countries. Bottoming-out trends thatwe pointed out in our autumn reports strengthened during the winter. Exportprospects have improved further, and Estonian membership of the euro zone in2011 looks increasingly likely, which is boosting investments. Meanwhile thereis some lingering uncertainty as to whether the three governments will have thestamina to fully implement their painful belt-tightening policies. This riskapplies especially to Latvia, which is holding an election this coming autumn,"saysMikael Johansson, Baltic and Eastern European analyst at SEB EconomicResearch.Swedish exports and private consumption may provide upside surprises during2010-2011, butSweden is of course dependent on continued international economicgrowth without reversals."The Nordic countries stand out in a positive way when it comes to strongfundamentals," saysDaniel Bergvall, government finance analyst at SEB EconomicResearch. "Swedish central government finances have resisted the recessionsurprisingly well. The budget deficit will be less than 2 per cent of GDP in2010 and 2011, and central government debt will climb to 'only' 36 per cent ofGDP. A change of government after the September 2010 election would not affectthese figures so much in the short term, though we would expect fiscal policyunder a new, more leftist government to have more of a demand-side profile."Consumer Price Index (CPI) inflation in Sweden is moving upward as a directconsequence of the disappearance of earlier energy price and interest ratedeclines from the 12-month figures. Looking ahead, the Riksbank is expected tohike its key interest rate. Core inflation, which is somewhat higher than inmany other countries, is nevertheless on its way down. Rising productivity and astronger Swedish krona will soften inflation pressure."Unlike its peers in most other countries, the Riksbank cannot count on fiscalpolicy to be tightened in the next couple of years. We thus expect the bank tohike its key interest rate in July. The repo rate will stand at 3 per cent latein 2011 ? a higher level than the Fed and ECB key rates, for example," H?nFris?says. "Given a continued rapid increase in lending to households and arenewed upturn in home prices, the Riksbank will face a dilemma earlier thanmany other central banks. It remains to be seen whether the Riksbank, or someother government agency, will be granted clearer authority to influenceloan-to-value ratios and rates of loan principal repayment."The Group of 20 economies is continuing to build the "new world economic order"aimed at achieving more balanced, stable global economic and financial marketperformance in the future."We believe that the work under way in the G20, backed by the InternationalMonetary Find, may be of very great importance," says Robert Bergqvist. "Whenthe G20 'reach their goal' in South Korea late this year, we may have acompletely new way of thinking about both global cooperation and economic policybenchmarks. This is of course highly interesting to Sweden, given ourinternational dependence. The final outcome may be something positive, but weshould also have realistic expectations."Key figures: International and Swedish economy+--------------------------------------------------+-----+-----+----+----+|International economy. GDP, year-on-year change, %|2008 |2009 |2010|2011|+--------------------------------------------------+-----+-----+----+----+|United States | 0.4 |-2.4 |3.4 |2.2 |+--------------------------------------------------+-----+-----+----+----+|Euro zone | 0.5 |-3.9 |1.7 |2.0 |+--------------------------------------------------+-----+-----+----+----+|Japan |-1.2 |-5.0 |1.5 |1.8 |+--------------------------------------------------+-----+-----+----+----+|OECD countries | 0.6 |-3.5 |2.4 |2.3 |+--------------------------------------------------+-----+-----+----+----+|China | 9.6 | 8.7 |10.5|9.0 |+--------------------------------------------------+-----+-----+----+----+|Baltic countries |-1.0 |-15.9|-0.1|4.2 |+--------------------------------------------------+-----+-----+----+----+|The world (purchasing power parties, PPP) | 3.0 |-0.7 |4.5 |4.3 |+--------------------------------------------------+-----+-----+----+----+|Swedish economy. Year-on-year changes, % |2008 |2009 |2010|2011|+--------------------------------------------------+-----+-----+----+----+|GDP, working day corrected |-0.5 |-4.4 |2.8 |2.7 |+--------------------------------------------------+-----+-----+----+----+|GDP, actual |-0.2 |-4.5 |3.1 |2.7 |+--------------------------------------------------+-----+-----+----+----+|Unemployment, % (EU definition) | 6.2 | 8.3 |9.3 |9.2 |+--------------------------------------------------+-----+-----+----+----+|Consumer Price Index (CPI) inflation | 3.4 |-0.3 |1.3 |2.4 |+--------------------------------------------------+-----+-----+----+----+|Government net lending (% of GDP) | 2.5 |-1.6 |-1.9|-1.9|+--------------------------------------------------+-----+-----+----+----+|Repo rate (December) |2.00 |0.25 |1.50|3.00|+--------------------------------------------------+-----+-----+----+----+|Exchange rate, EUR/SEK (December) |10.92|10.24|9.50|9.20|+--------------------------------------------------+-----+-----+----+----+SEB is a Northern European financial group serving some 400,000 corporatecustomers and institutions and five million private individuals. SEB offersuniversal banking services in Sweden, Germany and the three Baltic countries ?Estonia, Latvia and Lithuania. It also has a local presence in the other Nordiccountries, Ukraine and Russia and a global presence through its internationalnetwork in leading financial centres. On December 31, 2009, the Group's totalassets amounted to SEK 2,308 billion and its assets under management totalledSEK 1,356 billion. The SEB Group has about 20,000 employees. Read more about SEBatwww.sebgroup.com
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Datum: 16.02.2010 - 10:04 Uhr
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