SEB: Nordic Outlook: A divergent world economy in great need of support and political resolve
(Thomson Reuters ONE) -
The global economic crisis refuses to go away. The slowdown in Europe has gained
strength since summer, with increased risks of global contagion. The desired
"recovery dynamic" is being delayed because of continued private and public
sector debt consolidation in the Western world. In addition, there are various
sources of political uncertainty connected to the euro zone crisis, fiscal
policy issues in the United States, China's leadership change and the Middle
East situation. The situation may deteriorate further unless optimism increases
in the corporate sector.
We are now seeing divergent growth rates in the world economy. On the one hand,
for example, the US economy is on firmer ground, and we believe that growth in
emerging economies including China has bottomed out. The US, with a growth rate
of 2.4 per cent in 2013 and 2.7 per cent in 2014, will help drive the global
economy and financial markets. We also expect China to be a stabilising global
force, once its growth rebounds to about 8 per cent and the reform policies of
the new Xi administration become clearer. On the other hand, a negative economic
policy dynamic is dominant in the euro zone. Growth is depressed in spite of
support from the European Central Bank (ECB) and some improvement in imbalances
related to competitiveness, current account and government finances. Gross
Domestic Product (GDP) in the 34 countries of the Organisation for Economic
Cooperation and Development (OECD) will grow by 1.3 per cent in 2012, 1.6 per
cent in 2013 and 2.1 per cent in 2014. Overall, downside risks will predominate
due to the euro zone crisis. Low resource utilisation will push down the rate of
pay increases in the OECD countries. Because of this, OECD inflation will remain
stable at a low 1-2 per cent, despite "money printing" by central banks.
The central banks in the US, Japan, the United Kingdom and the euro zone are
stepping up their efforts and setting new historical records in monetary
stimulus, among other things by purchasing government securities. The world's
biggest economic experiment is thus continuing. During the past five crisis
years, central bank balance sheets have expanded by more than USD 11 trillion,
or 20 times the GDP of Sweden. The purpose of these quantitative easing measures
is to soften the impact of public and private sector debt consolidation in order
to prevent deflationary spirals from spinning dangerously out of control, while
ensuring the supply of liquidity in the financial system. Monetary stimulus
policies are unlikely to threaten price and financial stability. The risk of
these measures is instead that they may disrupt pricing mechanisms in financial
markets, making effective resource allocation in the economy more difficult.
Another possible risk is that the impact of central bank policies may ease
pressure on the political system to implement the necessary budget measures and
restructuring policies. The differences in monetary stimulus between countries
may also contribute to undesired exchange rate shifts that will lay the
groundwork for protectionist tendencies. Overall, we expect that due to
continued weak growth, low resource utilisation and ultra-loose monetary
policies, the historically low interest rate environment will persist. Despite
problems on both sides of the Atlantic, we anticipate that because of stronger
US growth, the euro will weaken against the dollar, trading at USD 1.22 one year
from now and at USD 1.15 in two years.
Economic performance remains weak in the euro zone: GDP growth will be -0.2 per
cent in 2013 and 0.8 per cent in 2014. Unemployment will thus continue climbing,
reaching a historically high 12.4 per cent. Growth will be weak in Germany, too,
despite fiscal stimulus measures totalling more than 0.5 per cent of GDP in
2013. Meanwhile the economic policies of France are increasingly being
questioned. The broader economic slowdown is an impediment to the forces now
trying to stabilise and restore the euro system. However, the differences
between labour costs in the various euro zone countries have begun to narrow,
which will help shrink current account deficits and diminish imbalances. The
ECB's new Outright Monetary Transactions (OMT) bond purchasing programme is
necessary to prevent new government liquidity crises. We predict that Spain will
apply for a financial bail-out within a few months, after which we expect the
ECB to begin buying its sovereign bonds. The outlook for Greece is uncertain;
the country needs a debt write-down, while due to the weak parliamentary
majority in favour of fiscal belt-tightening, there is still a very large risk
of a new election and a Greek withdrawal from the euro zone.
The EU summit on December 13-14 is an imporetant crossroads for the euro
project, since a final roadmap and timetable for a euro zone political union
(EPU) will be unveiled there. Such a union inherently involves controversial
issues, including constitutional ones. The stability and future of the euro will
depend on increasing broad-based support for more federalism and centralisation.
Given the current economic crisis environment, it is likely to be difficult to
generate enthusiasm for this strategy, contributing to persistent scepticism
about the future of the euro, which in turn will continue to dampen economic
activity.
Sweden's export dependence can be both an asset and a liability. Exports are
squeezed today by weak international demand, a stronger krona and heavy
dependence on cyclically sensitive investment and intermediate goods. Overall
Swedish exports are now falling, but we still expect some recovery in the next
couple of years. GDP growth in 2013 and 2014 will depend on higher domestic
consumption. Purchasing power will be stimulated by rising real wages and a more
active fiscal policy, which especially in 2014 will focus on households.
Continued historically low mortgage rates will also provide support. We expect
GDP to grow by 0.7 per cent in 2012, 1.3 per cent in 2013 and 2.5 per cent in
2014. But the resilience of the economy is now also being severely tested by
unemployment - which is climbing faster than expected and will reach at least
8.3 per cent in 2014 - as well as by a continued risk of home price declines; we
are sticking to our forecast of a 10 per cent price drop from the 2011 peak.
Inflation pressure in the Swedish economy remains low and the Consumer Price
Index will stay below zero during the first half of 2013. The krona will
appreciate by 3 per cent during 2013 to SEK 8.30 per euro, but weaken somewhat
against the US dollar a bit further ahead. The negative effect of the krona on
exports may be partly offset by rising labour costs in countries like Germany as
part of the re-balancing efforts of euro zone countries. Because of low resource
utilisation and inflation prospects, the Riksbank will lower its key interest
rate in December and February to 0.75 per cent. The effect on economic growth
will be modest, but pressure on the krona will ease since the differences in
monetary policy compared to other countries will be less prominent. Our forecast
is that household debts as a percentage of disposable income will stabilise at
around 175 per cent. This is probably an acceptable development for a majority
of the central bank's Executive Board, opening the way for key rate cuts.
The Swedish government faces an uphill battle in terms of credibility. The
Finance Ministry's GDP forecasts for 2013-14 (in September's autumn budget) are
in great need of downward revisions, which will have adverse follow-up effects
on the labour market and public finances. We expect a budget deficit of nearly
SEK 50 billion in 2014 (1.3 per cent of GDP). This is a full SEK 80 billion
weaker than the government's latest forecast in the autumn budget. Our forecast
assumes that, in addition to about SEK 25 billion worth of stimulus measures to
be implemented in 2013, the government will allocate an additional SEK 25
billion in 2014. An expansionary fiscal policy is entirely consistent with
established stabilisation policy principles, and in the prevailing situation a
passive fiscal policy is indefensible, even if the cyclically adjusted balance
(which determines the room for reforms) will show negative figures in the next
couple of years. Despite a poorer economic outlook, we do not expect central
government debt to increase, but instead to remain at a stable level of around
33 per cent of GDP, which is low in historical and international terms.
The other Nordic countries are now clearly being affected by the international
slump, especially by the German slowdown. Aside from Sweden, the Finnish and
Danish economies are now stagnating. Norway is also feeling the effects of
international trends, but its economy has maintained a good pace of expansion.
Its recovery will be modest and in line with other countries. The Danish economy
will grow by 1.4 per cent in 2013 and 1.7 per cent in 2014, a subdued
performance affected by the negative aftermath of falling home prices and high
debt. The national bank will stick to its near-zero key interest rate (0.20 per
cent) throughout our forecast period. In Norway, however, we expect Norges Bank
to begin its rate hikes before the summer of 2013, thus standing out while other
central banks move in the opposite direction. Monetary tightening will be
necessary because of the strained resource situation and financial risks
connected to rising home prices and increased debt. The Norwegian krone will
thus appreciate to NOK 7.00 per euro during 2013. A larger appreciation than
this may mean that Norges Bank will not deliver key rate hikes according to our
forecast of 75 basis points during 2013 and 75 bps in 2014 to 3.00 per cent. In
export-dependent Finland, GDP growth will reach only 0.8 per cent in 2013 and
2.0 per cent in 2014, aided by consumption and capital spending, but exports and
fiscal tightening will have the opposite effect, even though we expect the euro
to weaken and the Swedish krona to strengthen. Finland's unemployment rate will
climb to the same level as in Sweden: 8.3 per cent.
In Estonia, Latvia and Lithuania, GDP will grow by 3.5 to 4.5 per cent (close
to potential levels) in 2013 and 2014, sustained by relatively good domestic
demand that will soften the adverse impact of exports. Real income is improving
due to gradually falling unemployment and low inflation, but Estonia is
grappling with inflation of around 4 per cent. There are more and more signs
that Latvia will join the euro zone in 2014. This implies continued tight fiscal
policies in 2013. In Lithuania, the euro zone question has become a lower
priority following the recent change of government.
Key figures: International and Swedish economy
+---------------------------------------------------+----+----+----+----+
|International economy. GDP, year-on-year changes, %|2011|2012|2013|2014|
+---------------------------------------------------+----+----+----+----+
|United States |1.8 |2.2 |2.4 |2.7 |
+---------------------------------------------------+----+----+----+----+
|Euro zone |1.4 |-0.4|-0.2|0.8 |
+---------------------------------------------------+----+----+----+----+
|Japan |-0.7|1.7 |0.8 |1.3 |
+---------------------------------------------------+----+----+----+----+
|OECD |1.8 |1.3 |1.6 |2.1 |
+---------------------------------------------------+----+----+----+----+
|China |9.2 |7.7 |8.1 |7.7 |
+---------------------------------------------------+----+----+----+----+
|Nordic countries |2.3 |1.4 |1.6 |2.2 |
+---------------------------------------------------+----+----+----+----+
|Baltic countries |6.4 |3.9 |3.8 |4.2 |
+---------------------------------------------------+----+----+----+----+
|The world (purchasing power parities, PPP) |3.8 |3.3 |3.8 |4.1 |
+---------------------------------------------------+----+----+----+----+
|Swedish economy. Year-on-year changes, % | | | | |
+---------------------------------------------------+----+----+----+----+
|GDP, actual |3.9 |0.7 |1.3 |2.5 |
+---------------------------------------------------+----+----+----+----+
|GDP, working day corrected |3.9 |1.0 |1.3 |2.6 |
+---------------------------------------------------+----+----+----+----+
|Unemployment, % (EU definition) |7.5 |7.6 |8.2 |8.2 |
+---------------------------------------------------+----+----+----+----+
|Consumer Price Index (CPI) inflation |3.0 |0.9 |0.1 |1.4 |
+---------------------------------------------------+----+----+----+----+
|Government net lending (% of GDP) |0.1 |-0.4|-0.8|-0.9|
+---------------------------------------------------+----+----+----+----+
|Repo rate (December) |1.75|1.00|0.75|0.75|
+---------------------------------------------------+----+----+----+----+
|Exchange rate, EUR/SEK (December) |8.91|8.75|8.30|8.30|
+---------------------------------------------------+----+----+----+----+
For more information, please contact Press contact
Robert Bergqvist, +46 70 445 1404 Anna Helsén, Press & PR
Håkan Frisén, +46 70 763 8067 +46 70 698 4858
Daniel Bergvall, +46 8 763 8594 anna.helsen(at)seb.se
Mattias Bruér, +46 8 763 8506
Olle Holmgren, +46 8 763 8079
Mikael Johansson, +46 8 763 8093
Andreas Johnson, +46 8 763 8032
Tomas Lindström, +46 8 763 8028
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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
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amounted to SEK 2,402 billion while its assets under management totalled
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at www.sebgroup.com.
Press release (PDF):
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Nordic Outlook:
http://hugin.info/1208/R/1659354/537207.pdf
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[HUG#1659354]
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Datum: 20.11.2012 - 11:11 Uhr
Sprache: Deutsch
News-ID 205284
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