SEB: Nordic Outlook: Strong disinflationary forces, despite rising resource utilisation
(Thomson Reuters ONE) -
Gentle Fed hikes, Chinese soft landing, persistent Grexit risk
The world economy is hesitating. Looking back at developments this spring and
summer, the lingering impression is that global growth is not really willing to
take off. One reason is still-cautious behaviour among businesses and households
in developed market (DM) countries. Low interest rates, rising asset prices and
stronger purchasing power are thus not providing the same stimulus to capital
spending and consumption that would normally have been the case. Meanwhile
uncertainty about emerging market (EM) economic performance has intensified. In
China, the stock market downturn combined with a change in currency policy
(devaluation of the yuan) is raising questions about the country's economic
stability, while countries like Brazil, Russia and Uraine are undergoing deeper
economic and political crises. The demographic and structural problems of EM
countries have become clearer as the forces of globalisation have slowed. The
growth in world trade has decelerated, compared to the pre-crisis situation.
Gentle monetary policies wll help sustain a multi-speed world economy
Yet the main features of our forecast scenario remain intact. In the United
States, the economy will soon speed up to an annual growth rate of around 3 per
cent, from nearly 2.5 per cent this year. The US manufacturing sector is being
hampered by a strong dollar, but the service sector is exuding optimism and the
housing market once again has a tailwind. American household incomes will be
sustained by rising employment and, eventually, also faster wage and salary
growth. In Japan, the first half of 2015 was dominated by weak consumption and
exports. Meanwhile Western European economic conditions have stabilised. Despite
a strong currency and tight fiscal policy, the United Kingdom is experiencing
rather fast economic expansion. The euro zone is showing good resilience to the
Greek debt crisis, and it is difficult to discern any major contagion effects.
The German economy is expanding at a healthy pace, but Spain in particular has
surprised on the upside. A weaker currency, easier credit conditions due to the
European Central Bank (ECB)'s stimulus programme and low energy prices will help
euro zone GDP growth accelerate from just over 1.5 per cent this year to more
than 2 per cent in 2016. We are also sticking to our forecast that China's
deceleration will occur gradually and in a controlled way. The recent export
downturn may indicate some competitiveness problems, but China's exports are
substantially more dependent on changes in international demand than on exchange
rates; we believe that the recent yuan devaluations should be viewed as a step
in the deregulation of the financial market. China's deceleration is mainly
driven by a weak housing market and lower capital spending, and in these areas
there are certain signs of stabilisation. Meanwhile Beijing has both the
monetary and fiscal muscles to help sustain the economy. However, the economic
situation was clouded by this summer's stock market plunge and the central
bank's currency policy reorientation. There is greater uncertainty about reform
efforts and about the risk of policy errors connected to deregulation of
financial markets. Strong expansion in India will help keep overall EM economic
growth high. Overall, we expect global GDP growth to reach 3.2 per cent this
year and 3.8 per cent in 2016, slightly lower than in May's Nordic Outlook for
both years.
Because of a tighter labour market situation, GDP growth in the US will peak in
2016 and then approach its long-term trend in 2017. Various factors suggest that
the economy will continue to expand for quite some time to come, for example a
continued upside for cyclical sectors and a very leisurely normalisation of
interest rates. In the euro zone, however, unemployment remains high and no
supply-side constraints will make themselves felt during our forecast period.
GDP growth will thus remain at roughly unchanged levels in 2017. Looking at the
34 mainly affluent countries in the Organisation for Economic Cooperation and
Development (OECD) as a whole, growth will thus decelerate a bit towards the end
of our forecast period. In the EM countries, however, growth will improve in
2017 as the situation in crisis-hit countries like Russia and Brazil stabilises,
while India will continue its rapid growth. Global GDP growth will end up at
3.9 per cent in 2017, marginally above its 2016 level.
The labour market is approaching equilibrium in many countries
Assessments of resource utilisation in the economy of different regions are
important as a basis for making forecasts about central bank policies and
financial markets. Unemployment in the three largest OECD economies (the US,
Japan and Germany) is close to equilibrium, but as yet there are few signs of
faster pay increases. Because of a global price squeeze, especially for
commodities, deflationary forces continue to dominate. Inflation and
unemployment are not following their classic inverse relationship, which is
creating headaches for the US Federal Reserve (Fed). Can we rely on inflation
and pay increases to remain low, or do we risk a "ketchup effect" once the
labour market becomes sufficiently hot? The Fed has now clearly signalled that
it is prepared to begin key interest rate hikes, indicating that it is not ready
to abandon old analytical frameworks, but it probably views the risk of
prematurely killing the recovery as greater than the risk of an overheating
scenario if the central bank should wait too long. This implies that the Fed can
be expected to proceed very cautiously with its key rate hikes. Our main
scenario is still that the first rate hike will occur in September but that the
second hike will not come until March 2016. The rate path we foresee is far more
gentle than both the historical pattern and the path signalled by the Fed
itself, reflecting our view that the Fed will encounter rather severe headwinds
in a low-inflation environment where several other leading central banks are
continuing their stimulative policies. We believe that the Bank of England (BoE)
will follow the Fed's example and begin rate hikes in February. However, the
Bank of Japan (BoJ) will expand its stimulus measures this autumn, while the ECB
continues monthly bond purchases at least until September 2016, as planned; if
anything, these purchases may be expanded. The differences between US and UK
monetary policy, on the one hand, and euro zone and Japanese policy on the
other, will drive foreign exchange (FX) trends during the coming year. We thus
anticipate that the EUR/USD exchange rate will again fall, reaching parity
(1.00) in mid-2016. Meanwhile the Fed's slow rate path is the reason for our
view that bond yields will move higher but remain historically low. Although
global economic and financial market trends seem more mixed and uncertain than
before, we are still in a phase of the economic cycle that is usually favourable
to equities. Emerging market countries are the most vulnerable to Fed rate
hikes, but history shows that EM asset prices are usually resilient to tighter
Fed policy if rate hikes are based on stronger US economic growth.
Good growth in Sweden, but major economic policy challenges
Our forecast of 3.0 per cent Swedish GDP growth this year remains unchanged, and
GDP will keep growing above trend in 2016 and 2017, partly sustained by
gradually stronger international economic conditions. Yet there has been no real
lift-off in the manufacturing sector. Merchandise exports and industrial
production rose during the first half of 2015, but forward-looking indicators do
not signal that any vigorous recovery is on the way. Better growth in Europe and
the US is being offset by deceleration in China and various other EM countries.
Service exports appear likely to climb by nearly 10 per cent, however,
contributing to a relatively rapid increase in total exports. Despite lower
trade surpluses, Sweden's current account surplus remains high due to capital
income.
The rapid population increase is affecting domestic economic performance in
various ways. Private consumption is growing at a relatively good pace, but per
capita consumption is increasing somewhat more slowly than the historical
average, since households are continuing to build up their savings. Rapid
housing construction is helping to boost overall capital spending despite
cautious businesses, but this is not enough to ease the imbalances in the
housing market. Employment is growing at a healthy pace, also partly due to
rapid population growth, and unemployment is falling very slowly.
Next year the collective agreements covering most of the Swedish labour market
will expire. Depressed inflation expectations and a long period of good real
wage increases suggest that high pay agreements are unlikely, despite labour
market tensions. The wage round this coming winter and spring will thus not
solve the Riksbank's dilemma. Inflation is climbing, partly due to a weaker
krona, but will not reach the central bank's 2 per cent target. In the short
term, the Riksbank will remain under pressure from low inflation expectations
and falling oil prices. We expect a further repo rate cut to -0.45 per cent
this autumn as the Riksbank continues its struggle to restore the credibility of
the inflation target. We expect the Riksbank eventually to pay greater attention
to the risks of rising home prices and debt, and its first key rate hike will
occur in late 2016. In the short term, one further rate cut will push down the
krona, but signs of slightly higher inflation will enable the Riksbank to lower
its guard and allow a somewhat stronger krona. The EUR/SEK exchange rate will be
9.20 at the end of 2015 and 8.80 at the end of 2016. Because of the further key
rate cut, Swedish 10-year government bond yields will probably drop below German
yields, but long-term yields will then rise faster than in Germany as the
Riksbank prepares its rate hikes. Sweden's political situation is dominated by
gridlock and a lack of constructive cooperation between the political blocs. We
expect a relatively cautious 2016 budget in September, but there is increasing
pressure to enact more aggressive policies.
Rather good outlook elsewhere in the Nordic region
The economic outlook in the other Nordic countries is mixed. In Denmark the
recovery is solid, while the Norwegian economy is being hampered by the
consequences of falling oil prices. For a long time, the Finnish economy has
been grappling with structural problems; 2015 will be a year of zero growth
after three years of falling GDP. For the region as a whole, the growth outlook
appears rather good. A weak currency and resilient households will limit the
scale of the slowdown in Norway, while Danish growth will accelerate with the
help of expansionary fiscal policy and good consumption growth. In Norway,
Norges Bank is focusing more on risks to growth and competitiveness than on
inflation, which has been in line with the central bank's target for some time.
The bank has continued to signal a high probability of a further rate cut this
autumn. We believe that Norges Bank exaggerates the risks of contagion from the
oil industry and that the next step will be a rate hike late in 2016.
Rising private consumption will continue to sustain growth in the Baltic
countries as exports and capital spending are again hampered next year by
Russia's recession and import restrictions, as well as by geopolitical uncertain
due to the Ukraine conflict. GDP growth will accelerate in all three countries
but remain moderate, reaching its potential pace only in 2017. Estonia's
strongly export-dependent economy is slowly emerging from a relatively deep
slump. Latvia seems the most resilient of the Baltics to Russian weakness and
import sanctions, while Lithuania is more adversely affected than we expected;
we are sharply lowering our GDP forecast there.
Key figures: International & Swedish economy (figures in brackets are forecasts
from the May 2015 issue of Nordic Outlook)
+--------------------------+----+-------------+------------+-------------------+
|International economy, |2014| 2015 | 2016 | 2017 |
|GDP, year-on-year changes,| | | | |
|% | | | | |
+--------------------------+----+-------------+------------+-------------------+
|United States |2.4 | 2.4 (2.7) | 3.1 (3.2) | 2.6 |
+--------------------------+----+-------------+------------+-------------------+
|Euro zone |0.8 | 1.6 (1.7) | 2.1 (2.1) | 2.0 |
+--------------------------+----+-------------+------------+-------------------+
|Japan |-0.1| 0.8 (1.1) | 1.3 (1.3) | 1.0 |
+--------------------------+----+-------------+------------+-------------------+
|OECD |1.9 | 2.2 (2.3) | 2.6 (2.7) | 2.4 |
+--------------------------+----+-------------+------------+-------------------+
|China |7.4 | 6.8 (6.8) | 6.5 (6.5) | 6.3 |
+--------------------------+----+-------------+------------+-------------------+
|Nordic countries |1.6 | 1.8 (1.8) | 2.1 (2.1) | 2.1 |
+--------------------------+----+-------------+------------+-------------------+
|Baltic countries |2.6 | 2.2 (2.5) | 2.7 (3.1) | 3.4 |
+--------------------------+----+-------------+------------+-------------------+
|The world (purchasing |3.4 | 3.2 (3.4) | 3.8 (3.9) | 3.9 |
|power parities, PPP) | | | | |
+--------------------------+----+-------------+------------+-------------------+
|Swedish economy. Year-on- | | | | |
|year changes, % | | | | |
+--------------------------+----+-------------+------------+-------------------+
|GDP, actual |2.3 | 3.0 (3.0) | 2.8 (2.7) | 2.5 |
+--------------------------+----+-------------+------------+-------------------+
|GDP, working day corrected|2.4 | 2.8 (2.8) | 2.6 (2.5) | 2.7 |
+--------------------------+----+-------------+------------+-------------------+
|Unemployment, % (EU |7.9 | 7.5 (7.6) | 7.3 (7.3) | 6.9 |
|definition) | | | | |
+--------------------------+----+-------------+------------+-------------------+
|Consumer Price Index (CPI)|-0.2| 0.1 (0.2) | 1.1 (1.2) | 2.0 |
|inflation | | | | |
+--------------------------+----+-------------+------------+-------------------+
|Government net lending (% |-1.9| -1.4 (-1.3) |-0.8 (-0.7) | -0.2 |
|of GDP) | | | | |
+--------------------------+----+-------------+------------+-------------------+
|Repo rate (December) |0.00|-0.45 (-0.40)|-0.25 (0.00)| 0.75 |
+--------------------------+----+-------------+------------+-------------------+
|Exchange rate, EUR/SEK |9.39| 9.20 (8.95) |8.80 (8.80) | 8.60 |
|(December) | | | | |
+--------------------------+----+-------------+------------+-------------------|
For more information, Press contact |
please contact Laurence Westerlund, Press & PR |
Robert Bergqvist, +46 70 763 8627 |
+46 70 445 1404 laurence.westerlund(at)seb.se |
Håkan Frisén, |
+46 70 763 8067 |
Elisabet Kopelman, |
+46 8 763 8046 |
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 |
|
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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 |
20 countries worldwide. On June 30, 2015, the Group's total assets amounted |
to SEK 2,760 billion while its assets under management totalled SEK 1,780 |
billion. The Group has about 16,000 employees. Read more about SEB at |
www.sebgroup.com. |
|
-+
Press release (PDF):
http://hugin.info/1208/R/1947242/706994.pdf
Nordic Outlook:
http://hugin.info/1208/R/1947242/707067.pdf
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Source: SEB via GlobeNewswire
[HUG#1947242]
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Datum: 25.08.2015 - 10:00 Uhr
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News-ID 415649
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