Nordic Outlook: Shift in crisis strategy and bail-out for Spain
(Thomson Reuters ONE) -
The world economy has lost some momentum this spring. Growth is not self-
perpetuating but is instead vulnerable to reversals. Emerging economies -
together with a cautious stabilisation in the United States - are sustaining the
world economy but are not enough to lift it. This situation is logical, in light
of the ongoing debt and credit contraction in the Western world as well as
questions about the future of the euro project. New bail-out programmes are
needed, and old ones must continue, in order to maintain modest global growth.
Less belt-tightening and more growth-oriented policies in the European Union
represent a change in crisis strategy and thus the beginning of a watering-down
of the EU's recently agreed fiscal pact. The Gross Domestic Product (GDP) in the
34 industrialised OECD countries will grow by 1.6 per cent in 2012 and by 2.1
per cent in 2013. This anaemic growth will push down inflation. Despite a
dramatic winter and early spring, our forecast implies only minor revisions
compared to our assessments in February and last November. However, the risk
that growth will be slower than in our main scenario has increased somewhat, due
to the euro zone crisis and high oil prices.
We expect Spain to receive a bail-out loan of about EUR 150 billion soon in
order to reform/recapitalise Spanish banks. Meanwhile the European Investment
Bank (EIB) will receive a capital infusion of EUR 50 billion in order to create
a lending capacity of EUR 300 billion for growth-oriented structural projects
around Europe. This EIB capital also has an important political purpose: to
address growing criticism in individual euro zone countries and among the Group
of 20 countries (G20) against excessively one-sided belt-tightening policies and
the lack of structural growth policies. Unfortunately, the euro zone crisis has
thus also become a pawn in an ongoing power game in the International Monetary
Fund (IMF) and the G20. Meanwhile, political tensions have escalated in Greece
after last weekend's election. The outcome will make it difficult to form a
government that will support the country's austerity programme. This has
increased uncertainty about Greece's future in the euro zone.
The change in crisis strategy towards promotion of growth involves risks,
however. The contribution of central banks to the new strategy will be to
continue near-zero interest rates, let their balance sheets grow a little more
and be on stand-by to provide new loans in order to guarantee the liquidity of
the financial system. However, fewer demands for fiscal consolidation, combined
with central banks that buy government securities and other assets, run a risk
of fuelling inflation expectations and rising interest rates. One vital but
difficult question is what the European Central Bank (ECB), Germany and others
are prepared to do in terms of easing belt-tightening requirements on crisis-
plagued countries. At present it is also difficult to determine to what extent
the ECB is prepared to loosen its strict inflation target and how it will react,
for example, to the IMF's proposal that the euro zone inflation target should be
doubled.
Despite monetary convergence (a single key interest rate, a single currency),
euro zone countries will continue to demonstrate increasing economic and
structural divergence during the next couple of years, for example in terms of
growth and worryingly high unemployment. Three criteria must be met if the euro
zone is to stay together: first, Germany must commit itslef more whole-heartedly
to the euro project; second, the policies of the crisis-hit countries must show
sustainable results; and third, economic and political power must be centralised
and institutionalised. Elections and public opnion polls in Europe are showing
that political systems are being squeezed and that they risk facing a decline in
democratic legitimacy. We expect euro zone growth of -0.6 per cent in 2012 and
0.8 per cent in 2013. The ECB will leave its refi rate unchanged at 1.0 per cent
during our forecast period.
We expect the US economy to grow by 2.5 per cent in 2012 and 2.7 per cent in
2013. Households are still being squeezed by an excessively high debt level.
Meanwhile the housing market has not yet stabilised. Macroeconomic statistics
during the spring have also caused some concerns. The underlying growth dynamic
is nevertheless sufficient to avoid a recession, but not until 2015 will
household debt be what can be called "normal". Although the November
presidential election is blocking concrete decisions on federal government
finances, agreements to extend tax cuts and postpone automatic cutbacks must be
reached before year-end 2012 in order to avoid substantially lower growth in
2013. The Federal Reserve will keep its key interest rate at 0-0.25 per cent
until 2015. We also expect the Fed to carry out a third round of quantitative
easing (QE3), focused on purchasing mortgage-backed securities.
Emerging economies, led by China, will avoid a hard landing. During the second
half of 2012, the growth outlook will improve in China and falling inflation
will make room for economic stimulus policies. GDP growth in China will average
8.5 per cent in 2012 and 8.7 per cent in 2013. Inflation and home prices are
manageable in China. In most other Asian economies, we believe that GDP growth
has already begun to accelerate. We expect India's GDP growth to reach 7.0 per
cent in 2012 and 7.3 per cent in 2013.
Sweden is in an economic slowdown, with GDP growth of only 0.7 per cent this
year and 1.9 per cent in 2013. Unnecessarily tight fiscal policy - we foresee
only SEK 15 billion worth of stimulus measures in this autumn's budget for 2013
- will hold back growth. Because of the euro zone crisis, exports will stagnate
this year and then increase by 3 per cent in 2013. Stronger growth will thus be
dependent on household consumption and corporate capital spending. Real wage and
salary increases of 1-1.5 per cent will give households purchasing power, while
strong company balance sheets will create the potential for fixed investments,
but turbulence elsewhere in Europe will lower the capital spending outlook. We
are sticking to our forecast that home prices will fall by 10-15 per cent from
their peak, although indicators are currently pointing towards a stabilisation
and even rising home prices. Given expected unemployment of more than 8 per cent
in 2013 and inflation of around 1-1.5 per cent, there is room for the Riksbank
to lower its key interest rate. We are thus forecasting a further Riksbank rate
cut to 1.25 per cent in September. The repo rate will then remain at this level
throughout 2013 as well. If the trend towards a renewed upturn in home prices
persists, however, we expect the Riksbank to abstain from further key rate cuts.
The krona will appreciate against the euro (EUR/SEK exchange rate of 8.40 at the
end of 2013) but weaken somewhat against the US dollar (USD/SEK rate of 7.00 at
end-2013). There is potential for even stronger krona appreciation, among other
things due to the continued international search for AAA-rated government
securities as well as the growing foreign currency assets and limited currency
hedging of Swedish companies. If the EUR/SEK exchange rate moves below 8.00,
this would create deflationary pressure that would be difficult for the Riksbank
to manage by using conventional monetary policy, while it would push down long-
term bond yields further.
Historically low yields on Swedish sovereign debt securities, combined with low
public sector debt, give the Alliance government room to spend more, but we
expect a continued cautious and weakly expansionary fiscal policy. Under the
prevailing economic conditions, we see it as more suitable for fiscal policy,
not monetary policy, to shoulder the task of generating growth and strengthening
Sweden's economy in the short term and its competitiveness in the long term.
Unemployment of 8 per cent shows a need for both structural and cyclical
measures. The lack of demand-side measures seems to be the most obvious reason
why unemployment is persistently high. By abstaining from stimulus measures in a
low-growth environment, the government risks not being able to test its "work
principle" and other supply-side reforms in practice. This may hurt its chances
of winning the 2014 parliamentary election.
We expect growth in Denmark and Finland to end up in the same vicinity as in
Sweden (around half a per cent growth this year and less than 2 per cent in
2013). The outlook in Denmark is clouded by lingering problems in the real
estate market, while we expect the Finnish export sector to benefit from a
stronger Swedish krona against the euro. Good Nordic fundamentals have created
more stable performance than was the case during earlier international crises.
Norway's GDP growth stands out in a Nordic perspective. This growth, which we
expect to be 2.3 per cent in 2012 and 2.6 per cent in 2013, is being sustained
by low interest rates, which further complicate an already high-priced housing
market. Norges Bank has a clear focus on keeping the Norwegian krone weak, but
we expect the central bank to begin hiking its key interest rate in the course
of 2013.
We foresee GDP growth in Latvia and Lithuania of 2.5-3.0 per cent in 2012 and
3.5-4.0 per cent in 2013, helped by slightly stronger private consumption, which
had been squeezed earlier by harsh austerity policies. Due to heavy export-
dependence, combined with the weaker economic climate in northern Europe, growth
in Estonia will be 1.5-2.5 percentage points lower than in the other two Baltic
countries. The underlying balance in the Baltic economies has improved, but some
inflation problems persist in Estonia, for example, while labour market
structural problems have worsened. Despite the euro zone crisis, our forecast is
that Latvia will introduce the euro as planned in 2014; Lithuania's transition
to the euro will be delayed until 2015.
Key figures: International and Swedish economy
+---------------------------------------------------+----+----+----+----+
|International economy. GDP, year-on-year changes, %|2010|2011|2012|2013|
+---------------------------------------------------+----+----+----+----+
|United States |3.0 |1.7 |2.5 |2.7 |
+---------------------------------------------------+----+----+----+----+
|Euro zone |1.9 |1.5 |-0.6|0.8 |
+---------------------------------------------------+----+----+----+----+
|Japan |4.5 |-0.7|2.2 |1.7 |
+---------------------------------------------------+----+----+----+----+
|OECD |3.1 |1.7 |1.6 |2.1 |
+---------------------------------------------------+----+----+----+----+
|China |10.4|9.3 |8.5 |8.7 |
+---------------------------------------------------+----+----+----+----+
|Nordic countries |2.7 |2.5 |1.1 |2.0 |
+---------------------------------------------------+----+----+----+----+
|Baltic countries |1.1 |6.2 |2.5 |3.4 |
+---------------------------------------------------+----+----+----+----+
|The world (purchasing power parities, PPP) |5.3 |3.9 |3.6 |4.1 |
+---------------------------------------------------+----+----+----+----+
|Swedish economy. Year-on-year changes, % | | | | |
+---------------------------------------------------+----+----+----+----+
|GDP, actual |6.1 |3.9 |0.7 |1.9 |
+---------------------------------------------------+----+----+----+----+
|GDP, working day corrected |5.9 |4.0 |1.0 |1.9 |
+---------------------------------------------------+----+----+----+----+
|Unemployment, % (EU definition) |8.4 |7.5 |7.5 |7.9 |
+---------------------------------------------------+----+----+----+----+
|Consumer Price Index (CPI) inflation |1.2 |3.0 |1.2 |1.2 |
+---------------------------------------------------+----+----+----+----+
|Government net lending (% of GDP) |-0.1|0.1 |-0.5|-0.1|
+---------------------------------------------------+----+----+----+----+
|Repo rate (December) |1.25|1.75|1.25|1.25|
+---------------------------------------------------+----+----+----+----+
|Exchange rate, EUR/SEK (December) |8.98|8.91|8.50|8.40|
+---------------------------------------------------+----+----+----+----+
For further information, please Press contact
contact Elisabeth Lennhede, Press & PR
Robert Bergqvist, +46 70 445 1404 +46 70 763 9916
Håkan Frisén, +46 70 763 8067 elisabeth.lennhede(at)seb.se
Daniel Bergvall, +46 8 763 8594
Mattias Bruér, +46 8 763 8506
Olle Holmgren, +46 8 763 8079
Mikael Johansson, +46 8 763 8093
Andreas Johnson, +46 8 763 8032
-------------------------------------------------------------------------------
SEB is a leading Nordic financial services group. As a relationship bank, SEB
in Sweden and the Baltic countries offers financial advice and a wide range of
financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The
international nature of SEB's business is reflected in its presence in some
20 countries worldwide. On March 31, 2012, the Group's total assets amounted
to SEK 2,331 billion while its assets under management totalled SEK 1,317
billion. The Group has about 17,000 employees. Read more about SEB at
www.sebgroup.com.
Press release (PDF):
http://hugin.info/1208/R/1609724/511375.pdf
Nordic Outlook:
http://hugin.info/1208/R/1609724/511378.pdf
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: SEB via Thomson Reuters ONE
[HUG#1609724]
Unternehmensinformation / Kurzprofil:
Datum: 08.05.2012 - 10:01 Uhr
Sprache: Deutsch
News-ID 143643
Anzahl Zeichen: 15785
contact information:
Town:
STOCKHOLM
Kategorie:
Business News
Diese Pressemitteilung wurde bisher 223 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"Nordic Outlook: Shift in crisis strategy and bail-out for Spain"
steht unter der journalistisch-redaktionellen Verantwortung von
SEB (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
