SEB: Nordic Outlook: Increased monetary stimulus is reducing downside risks
(Thomson Reuters ONE) -
In recent months the global growth outlook has deteriorated, with a slowing
trend that is more synchronised than in 2010 and 2011. Even emerging economies
such as China have decelerated. Uncertainty about the euro and about American
fiscal policy will weigh down economic growth this autumn. Global growth is not
self-perpetuating, but is instead is heavily dependent on continued monetary
stimulus. Since the world economy is unable to take off on its own, central
banks are being forced into increasingly drastic stimulus measures. For example,
we expect the US Federal Reserve to deliver a new round of quantitative easing
this autumn, while the European Central Bank (ECB) has signalled that it is
prepared to expand its efforts to save the euro, thereby testing the limits of
its mandate. Among other things, we expect the ECB to buy government securities
after Spain and Italy have accepted the EU's conditions. We are further assuming
that the Spanish government will apply for a financial bail-out and that Greece
will receive a new debt write-down.
The world's central banks are testing new ground when it comes to unconventional
monetary policy, among other things by guaranteeing historically low interest
rates throughout our forecast period. This will ease the impact of ongoing debt
delveraging and create political manoeuvring room for fiscal consolidation and
restructuring policies. A corporate sector with strong balance sheets is also
being stimulated into increasing its capital spending. During the next couple of
years, growth will be lacklustre, but the risks of a deep recession have
diminished. In the United States, the economy will be hampered during 2013 by
high unemployment, federal fiscal tightening and a stronger dollar, but the
downside risks have decreased there as well. We foresee stable US growth
prospects as the housing market bottoms out and as household debts approach a
new equilibrium level. In 2014 we therefore expect a clearer US recovery.
Overall, Gross Domestic Product (GDP) in the 34 countries of the Organisation
for Economic Cooperation and Development (OECD) will grow by 1.4 per cent in
2012, 1.7 per cent in 2013 and 2.1 per cent in 2014. OECD inflation will remain
stable at a low 1-2 per cent. Emerging economies are entering a calmer expansion
phase, but a surprisingly rapid downturn in inflation will allow these countries
room for official economic stimulus measures which will help growth to slowly
rebound.
In the euro zone, the recession is settling in this autumn and GDP will grow by
a weak 0.2 per cent in 2013. In 2014 we expect GDP growth to accelerate to 0.9
per cent as the impact of austerity policies in southern Europe softens. Because
of the deep downturn in southern Europe, Germany is also showing clear signs of
deceleration, but a weaker euro − with the EUR/USD exchange rate expected
to move downward towards 1.15 − will help the German economy to avoid
recession. The direct effects of euro depreciation on southern European
countries growth are small, since most of their trade is with other euro zone
countries. Unemployment will continue climbing in the euro zone to 11.9 per cent
next year, which will set the stage for political and social unrest.
The ECB's unconventional stimulus measures will create breathing space and allow
greater manoeuvring room for the political process. The challenges are
formidable, however. During the next six months, the leaders of the euro zone
countries must make a number of controversial decisions about the roadmap
entitled "Towards a genuine economic and monetary union" , which conerns the
future of the euro project. These negotiations are expected to be tough, given
the prevailing difficult economic environment, and they will also include
constitutional review processes at both the EU and national levels. The future
of the euro will depend on the support of the citizenry for major changes in
European economic, financial, political and democratic structures. This also
includes accepting new revenue sharing and buffer systems, which will
collectively allocate risks and financial resources between "North" and "South"
and expand mutual responsibility among euro zone countries. At present there is
a looming risk that this new economic and monetary union (EMU) may not be
achieved.
Sweden is showing economic resilience, but growth will remain sluggish in 2013.
We expect GDP to increase by 1.3 per cent this year, 1.5 per cent in 2013 and
2.5 per cent in 2014. Sweden's geographic location in northern Europe, with its
stronger economic activity, has helped to drive growth, but the manufacturing
sector is downshifting due to weak international conditions and a Swedish krona
that is now establishing itself at a strong but reasonable level in terms of
valuations. Households can count on rising real wages and salaries thanks to low
inflation and a degree of fiscal stimulus, but consumption will be hampered by a
weakening labour market, with unemployment stuck at around 8 per cent in
2013-2014. Risks to growth related to the housing market have decreased
somewhat, but we still expect home prices to drop by a total of 10 per cent from
their peak.
Sweden is moving towards a better economic policy mix. Both fiscal and monetary
policy will become more expansionary. The strategy of the Riksbank, however, is
fairly strict compared to central banks elsewhere, which will lead to a stronger
currency. Swedish economic policy is thus also in better harmon with
international calls for countries with good government finances and foreign
trade surpluses to help decrease imbalances. The government's autumn budget for
2013 will include a dose of stimulus equivalent to SEK 25 billion focusing on
research, infrastructure and corporate taxes. In 2014 we expect the government
to boost its dose of fiscal stimulus by a further SEK 25 billion (significantly
more than announced to date), with an emphasis on tax cuts for households.
Fiscal policy will thus contribute both cyclically (by stimulating demand) and
structurally (by improving long-term production capacity). The central
government borrowing requirement will be about SEK 20 billion annually in 2012
and 2013, but as early as 2014 public sector finances will be in balance.
Central government debt will continue downward to 31 per cent of GDP in 2014.
Sweden's economic growth will also gain support, though to a smaller extent,
from two key interest rate cuts by the Riksbank − in September and
December − to 1.00 per cent. What makes these decisions easier is that
inflation is well below target and total household debt is growing more slowly.
We expect the real key interest rate to be slightly negative (0.5 per cent)
during our forecast period. Because of expansionary fiscal policy will be
combined with tight monetary policy (compared to other countries), the krona
will strength to SEK 8.00 per euro late in 2012. Looking further ahead, we
expect the EUR/SEK rate to be around 8.10. Foreign exchange market interventions
may be considered if the krona appreciates too much.
The Nordic countries as a whole will also continue to show resilience. The
Norwegian economy will follow its own path, helped by strong private
consumption. Unemployment will be stable at a low 3 per cent. Home prices are
continuing to rise. Our assessment is nevertheless that there are fundamental
reasons for these high prices, although they may still become a problem further
ahead. GDP growth in Norway will be 3.7 per cent in 2013 and 2.7 per cent in
2014. We expect Norges Bank to begin hiking its key interest rate in the spring
of 2013 from today's 1.50 per cent, and at the end of 2014 Norway's key rate
will stand at 3.25 per cent. Because of tight monetary policy compared to other
countries, the Norwegian krone will strengthen to NOK 7.00 per euro at the end
of 2014. In Denmark, economic growth will be slow but fiscal policy will serve
as an important positive force. Private consumption is being held back by high
gross debt and some uncertainty about home prices. Unemployment is on the way
up. Denmark enjoys international confidence and the foreign exchange reserve has
continued to increase sharply, causing the central bank to set a negative
deposit rate. GDP growth in Denmark will be 1.4 per cent in 2013 and 1.7 per
cent in 2014. Finnish exporters can benefit from a weaker euro, especially in
relation to the Swedish krona, yet economic growth will slow during the second
half of 2012. Public sector finances remain stable, but unemployment will remain
stuck at around 8 per cent. We expect GDP growth in Finland to be 1.6 per cent
in 2013 and 2.0 per cent in 2014.
The export-driven economic slowdown in the three Baltic countries is being
softened by continued decent domestic demand. GDP growth − which has
fallen sharply during the past year, especially in Estonia − will
gradually recover in 2013, sustained by growing private consumption and capital
spending. Our GDP forecasts for 2012 (Estonia's and Lithuania's especially for
2013) are somewhat higher than in the May issue of Nordic Outlook. GDP growth in
Estonia will be 3.0 per cent in 2012 and 4.9 per cent in 2014; in Latvia 4.0 and
4.5 per cent, respectively; and in Lithuania 4.0 and 4.0 per cent, respectively.
Overall growth in the Baltics will thus reach its potential pace of 4.0-4.5 per
cent only in 2014. This means that high unemployment will shrink slowly.
Inflation will remain low in Latvia and Lithuania but relatively high in
Estonia, where the impact of wages and later also money supply will be larger.
We expect Latvia to meet the criteria to join the euro zone in 2014.
Key figures: International and Swedish economy
+---------------------------------------------------+----+----+----+----+
|International economy. GDP, year-on-year changes, %|2011|2012|2013|2014|
+---------------------------------------------------+----+----+----+----+
|United States |1.8 |2.2 |2.2 |2.6 |
+---------------------------------------------------+----+----+----+----+
|Euro zone |1.5 |-0.4|0.2 |0.9 |
+---------------------------------------------------+----+----+----+----+
|Japan |-0.7|2.7 |1.5 |1.5 |
+---------------------------------------------------+----+----+----+----+
|OECD |1.8 |1.4 |1.7 |2.1 |
+---------------------------------------------------+----+----+----+----+
|China |9.3 |7.8 |8.0 |8.2 |
+---------------------------------------------------+----+----+----+----+
|Nordic countries |2.4 |1.7 |1.9 |2.2 |
+---------------------------------------------------+----+----+----+----+
|Baltic countries |6.2 |3.1 |3.8 |4.4 |
+---------------------------------------------------+----+----+----+----+
|The world (purchasing power parties, PPP) |3.9 |3.3 |3.6 |4.1 |
+---------------------------------------------------+----+----+----+----+
|Swedish economy. Year-on-year chages, % | | | | |
+---------------------------------------------------+----+----+----+----+
|GDP, actual |3.9 |1.3 |1.5 |2.5 |
+---------------------------------------------------+----+----+----+----+
|GDP, working day corrected |3.9 |1.6 |1.5 |2.6 |
+---------------------------------------------------+----+----+----+----+
|Unemployment, % (EU definition) |7.5 |7.5 |7.8 |7.9 |
+---------------------------------------------------+----+----+----+----+
|Consumer Price Index (CPI) inflation |3.0 |1.1 |0.8 |1.4 |
+---------------------------------------------------+----+----+----+----+
|Government net lending (% of GDP) |0.1 |-0.2|-0.3|-0.1|
+---------------------------------------------------+----+----+----+----+
|Repo rate (December) |1.75|1.0 |1.0 |1.0 |
+---------------------------------------------------+----+----+----+----+
|Exchange rate, EUR/SEK (December) |8.91|8.0 |8.10|8.10|
+---------------------------------------------------+----+----+----+----+
+----------------------------------+-------------------------------------------+
|For more information, please |Press contact |
|contact |Elisabeth Lennhede, Press & PR |
| |+46 70 7639916 |
|Robert Bergqvist, +46 70 445 1404 |elisabeth.lennhede(at)seb.se |
|Håkan Frisén, +46 70 763 8067 | |
|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|
|other 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 June 30, 2012, the Group's total assets amounted to|
|SEK 2,373 billion while its assets under management totalled SEK 1,261 |
|billion. The Group has about 17,000 employees. Read more about SEB at |
|www.sebgroup.com. |
+------------------------------------------------------------------------------+
Nordic Outlook: Increased monetary stimulus is reducing downside risks:
http://hugin.info/1208/R/1636480/525888.pdf
Nordic Outlook Report Aug 2012:
http://hugin.info/1208/R/1636480/525954.pdf
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Source: SEB via Thomson Reuters ONE
[HUG#1636480]
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Datum: 28.08.2012 - 10:01 Uhr
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