SEB: Nordic Outlook: Crucial choices for global economic policy experiments - new stimulus measures despite signs of Swedish overheating
(Thomson Reuters ONE) -
Global financial markets are proving resilient to an environment with a clearly
heightened political risk level. Monetary policymakers seem to be benefiting
from confidence in their ability to prevent share and bond price declines. But
the effectiveness of monetary policy is increasingly being questioned. There
have been various growth reversals during the first half of 2016, but more
recent economic signals have been predominantly positive.
Despite significant domestic policy uncertainty, important emerging market (EM)
economies such as Russia and Brazil are now past their worst downturns, partly
due to more stable energy and commodity prices. India is continuing its rapid
growth, while China's economy is expected to decelerate in a controlled way.
Overall, the growth outlook for 2016-2018 is not impressive and lacks clear
cyclical patterns - with risks of worse growth outcomes continuing to outweigh
upside risks. GDP growth for the mainly affluent 35 member countries of the
Organisation for Economic Cooperation and Development (OECD) will be 1.7 per
cent this year, down from 2.3 per cent in 2015. In 2017 and 2018, annual growth
in the OECD will be 2.0 per cent.
Monetary policy at end of road - ideas being tested ahead of next downturn
On the whole, monetary policy will be more expansioary over the coming year as
several central banks, such as the European Central Bank (ECB), the Bank of
Japan (BoJ) and Sweden's Riksbank, extend their bond purchasing (quantitative
easing, QE) programmes. The British, Japanese, Chinese and Norwegian central
banks will cut their key interest rates further. The United States Federal
Reserve (Fed) will move in the opposite direction, hiking its key rate this
coming December, twice in 2017 and twice in 2018 to 1.75 per cent. The low
inflation environment will be tested as output gaps in various countries now
close and policymakers increasingly intervene in wage formation, while commodity
prices stabilise at somewhat higher levels. We expect Brent crude oil prices to
be at USD 55-60 per barrel until the end of 2018, with a downside risk. The
connection between resource utilisation and inflation is unclear, however; this
connection is almost essential if the system of inflation targeting and
independent central banks is to work reasonably well. Our main scenario is that
disinflationary forces will continue to dominate the global economy.
A high propensity to save and low investment appetite are continuing to push
down real global short-term interest rates, forcing central banks to adjust
their estimates of a neutral key interest rate downward. This implies that
today's monetary policies are not quite as expansionary as previously assumed,
which in turn will slow future key rate hikes. The risks connected to further
driving up asset prices and private debts, with little or no impact on growth
and inflation, will increase the pressure for fiscal stimulus measures. In
addition, weaknesses in the banking systems in the euro zone, Japan and
elsewhere impose restrictions on monetary policy. Yet the build-up of public
sector debt in recent years limits the manoevring room of governments. Various
blockages increase the need for fresh thinking about the interactions between
fiscal and monetary policy. Automatic discretionary fiscal stimulus packages may
be a possibility, which in exceptional cases can be funded via "helicopter
money".
Brexit at least 80 per cent political - London strengthening immune system
We are maintaining our conclusion that the economic effects of the Brexit
process (United Kingdom withdrawal from the European Union) are manageable, but
the political risks are serious - for both the UK and the EU. Our main scenario,
which has a 70 per cent probability, implies that the "exit clause" in the EU's
Lisbon Treaty will be activated early in 2017. Negotiations with the EU and non-
EU countries will then occur in a constructive way, but it is highly doubtful
that the UK can leave the EU after only two years and before the next election
to the European Parliament in May 2019. The British government and the BoE are
aiming at making the UK economy "super-competitive" by means of a weaker pound
(down 17 per cent in the past year), key interest rate and corporate tax cuts,
cheap loans and infrastructure investments, which will also soften the short-
term consequences of Brexit. Contagious economic effects in the EU and elsewhere
will thus be minor. British GDP will grow by 1.7 per cent this year, 0.9 per
cent in 2017 and 2.0 per cent in 2018, but the Brexit referendum outcome makes
our forecasts especially uncertain, both in the short and long term.
The political future of Europe will be in focus during the coming year as
important elections are held in France and Germany. Euro zone economic growth
diverges from country to country but is decent overall, despite weaknesses in
banking systems and lingering questions about how banks that need fresh capital
should receive support. GDP growth in the euro zone will be 1.6 per cent in
2016, then 1.7 per cent yearly in 2017 and 2018. Our conclusion is that the EU
establishment will choose not to move in a more federalist direction. In
practice, this means that the euro project will remain without an infrastructure
and economic policy integration that can give the euro long-term stability, but
heightened political uncertainty is not expected to worse the euro zone growth
outlook perceptibly. Domestic demand will be strengthened by falling
unemployment, while capacity utilisation in a number of countries has now
reached levels where capital spending normally takes off.
Although Chinese housing market indicators have rebounded, there is lingering
uncertainty about debt and overcapacity in the economy. Beijing's 2016-2020 GDP
growth target of 6.5-7.0 per cent yearly is not credible without further
stimulus measures. We anticipate a shift in the balance between monetary and
fiscal policy; a necessary slowdown in credit growth will put heavier demands on
fiscal policymakers. China's economy will show a controlled deceleration,
growing by 6.6 per cent this year. GDP growth will slow to 6.3 per cent in 2017
and 6.0 per cent in 2018.
Rising political temperature in the US - Clinton victory our main scenario
The US economy lost momentum during the first half, affecting our full-year
2016 GDP forecast. Recent indicators - combined with underlying strong
consumption growth and clearly expansionary financial conditions - are
supporting the real economy. Our GDP growth forecast for 2016 is 1.6 per cent
(previously 1.9 per cent). Next year, growth will accelerate to 2.4 per cent
(2.5). Certain supply-side restrictions will push growth down to 2.0 per cent in
2018, in line with potential growth. Unemployment will continue to fall,
reaching 4.2 per cent by the end of 2018 compared to 4.9 per cent today. The
pace of wage and salary increases will move cautiously higher, providing the Fed
with reasons for gradually hiking its key rate. We estimate that the probability
of a Hillary Clinton victory in the November presidential election is 85 per
cent. Such an outcome would not change the US economic outlook to any great
extent, despite some protectionist elements in Clinton's campaign statements. If
Donald Trump wins, this will boost foreign and security policy uncertainty, but
the Congressional mill will largely grind down any odd economic policy
proposals.
In the Nordic economies, growth will average 2 per cent annually during our
forecast period. We expect the recovery to be moderate due to continued negative
contributions from falling oil sector investments, while houshold consumption
will be squeezed by weak real income increases. Norway's GDP growth this year
will be 0.9 per cent, then accelerate to 1.8 per cent in 2017 and 2.0 per cent
in 2018. Norges Bank will carry out one more key rate cut this autumn, and we
expect the first Norwegian rate hike in mid-2018. This will strengthen the
krone: the EUR/NOK exchange rate will be 8.85 at the end of 2018. In Finland
there are certain signs of improvement, although the economy faces continued
strong headwinds. Consumption is the most important driving force, but
construction investments are also starting to accelerate. We expect confidence
to climb, now that the country has managed to reach a consensus on measures to
strengthen its competitiveness. Finland's GDP growth this year will be 0.7 per
cent, accelerating cautiously to 1.0 per cent in 2017 and 1.2 per cent in 2018.
In Denmark, too, we expect capital spending growth to strengthen, with private
consumption as another important driver, but the recovery has been unexpectedly
slow. The government is now preparing a long-term fiscal policy plan looking
ahead towards 2025. We expect Danish GDP growth to reach 1.4 per cent this year,
increasing to 2.3 per cent annually during the following two years.
The three Baltic countries are expected to show gradually accelerating growth,
still mainly driven by private consumption. This, in turn, will be driven by
strong labour markets and good wage and salary growth. On the whole, the Baltics
have healthy economic fundamentals but are vulnerable to accelerating pay
increases, which risk lowering their competitiveness. Continued restructuring
policy measures will be needed to improve the strength of Estonia, Latvia and
Lithuania in relation to other countries and to make the region less
economically dependent on Russia, for example. The three countries will benefit
from low interest rates, but the international situation is troublesome for them
and the weakness of the Swedish krona is a challenge. Growth in the Baltics will
accelerate. By 2018, on average it is expected to be close to its potential
level of 3-3.5 per cent yearly.
Deceleration in Swedish growth during 2017-2018
In Sweden, the economic growth outlook remains good - thanks to record-level
housing construction, high public sector consumption due to large-scale refugee
arrivals especially during 2015 and a strong labour market. Both fiscal and
monetary policy will be expansionary during our forecast period. GDP growth will
reach 3.7 per cent this year (a downward adjustment from our 4.0 per cent
forecast in May). Next year, GDP will increase by 2.8 per cent and in 2018 by
2.3 per cent. The economy is split down the middle, though: domestic sectors are
showing impressive strength, while the export-oriented sector is feeling
international headwinds despite a greatly undervalued krona. Sweden's growth
deceleration will occur undramatically, however. It will be due to a declining
rate of increase in housing construction and somewhat lower government spending
pressure due to a downward revision in projected immigration, along with growing
supply-side restrictions.
Despite the slower economic growth rate the labour market will continue to
perform strongly, although the unemployment gap between Swedish- and foreign-
born people will widen. Unemployment will fall from today's 7.0 per cent to less
than 6 per cent by mid-2018. After that, slower growth and a growing labour
supply as recently arrived immigrants increasingly move into the labour market
will lead to a somewhat higher jobless rate. Wage and salary increases in 2016
appear likely to be slightly below expectations, but a new wage round is already
imminent. Our forecast is that two-year collective labour agreements will be
reached early in 2017, with contractual pay hikes averaging 2.4 per cent yearly
(0.2 percentage points higher than today's agreements). Overall pay increases
will climb from 2.5 per cent this year to 2.9 per cent in 2017 and 3.1 per cent
in 2018. This remains somewhat below the level that is compatible with the
Riksbank's 2.0 per cent inflation target. CPIF inflation (the consumer price
index excluding interest rate changes) will climb by the end of 2018 but fall
short of the target. CPI inflation, however, will end up slightly above 2 per
cent.
Halfway through its four-year term, the Social Democratic-Green Party minority
government can focus greater attention on reform policies now that the most
acute phase of the refugee crisis appears to have passed. Public sector finances
are continuing to improve, thanks to job-heavy expansion driven by such tax-rich
demand components as consumption and housing construction. Sweden's revised
official fiscal policy framework - with a budget surplus target of 0.33 per cent
of GDP and a government debt anchor of 35 per cent of GDP - is expected to
constrain reform fever ahead of the September 2018 election. As a result of the
fiscal framework, which was recently agreed upon by both the red-green bloc and
the opposition Alliance parties and takes effect in 2019 - any signs that the
framework is being violated are expected to become weapons in the election
debate on fiscal policy credibility. Public sector net lending is expected to be
a few tenths of a percentage point above zero 2016 and 2017. Because of spending
pressure in areas like migration and imbalances in the housing market, fiscal
policy will be fairly expansionary during the next couple of years.
Other countries forcing Riksbank to buy bonds - autumn 2017 rate hike
Continued loose global monetary policy is forcing the Riksbank to continue its
expansionary policies despite strong credit growth, cautiously rising inflation
and higher resource utilisation, as well as increased inflation risks ahead.
Today's bond purchasing programme will be extended by six months and SEK 30
billion, ending on June 30, 2017. This will increase the risk of liquidity
problems in the Swedish bond market. We do not expect new macroprudential tools
to be launched during our forecast period; even the politically sensitive
mortgage loan interest deduction will be left untouched. Home prices will level
off during 2017 and 2018 due to an increased market focus on the Riksbank's
coming rate hikes (starting in the autumn of 2017). As earlier, we expect the
Riksbank to make adjustments in its monetary policy framework, among other
things re-introducing the tolerance range in its inflation target and changing
its preferred inflation metric to the EU's harmonised index of consumer prices
(HICP). This will give the Riksbank a greater degree of freedom and reduce
pressure for further monetary stimulus measures. By the end of 2018, the repo
rate will stand at 0.25 per cent. In the short term, the krona is expected to
remain fairly flat, at a continued weak level. During 2017 and 2018 we expect
the krona to appreciate against the euro and the dollar, with the EUR/SEK
exchange rate reaching 8.75 and the USD/SEK rate 7.60 by the end of 2018.
Key figures: International & Swedish economy (figures in brackets are forecasts
from the May 2016 issue of Nordic Outlook)
+--------------------------+------+-------------+------------+-----------------+
|International economy, | 2015 | 2016 | 2017 | 2018 |
|GDP, year-on-year changes,| | | | |
|% | | | | |
+--------------------------+------+-------------+------------+-----------------+
|United States | 2.6 | 1.6 (1.9) | 2.4 (2.5) | 2.0 |
+--------------------------+------+-------------+------------+-----------------+
|Euro zone | 1.7 | 1.6 (1.7) | 1.7 (1.8) | 1.7 |
+--------------------------+------+-------------+------------+-----------------+
|Japan | 0.5 | 0.5 (0.5) | 0.5 (0.5) | 0.5 |
+--------------------------+------+-------------+------------+-----------------+
|OECD | 2.3 | 1.7 (1.9) | 2.0 (2.3) | 2.0 |
+--------------------------+------+-------------+------------+-----------------+
|China | 6.9 | 6.6 (6.5) | 6.3 (6.3) | 6.0 |
+--------------------------+------+-------------+------------+-----------------+
|Nordic countries | 2.2 | 2.1 (2.2) | 2.0 (2.0) | 2.0 |
+--------------------------+------+-------------+------------+-----------------+
|Baltic countries | 1.8 | 2.2 (2.6) | 2.8 (3.1) | 3.1 |
+--------------------------+------+-------------+------------+-----------------+
|The world (purchasing | 3.1 | 3.1 (3.1) | 3.5 (3.7) | 3.6 |
|power parities, PPP) | | | | |
+--------------------------+------+-------------+------------+-----------------+
|Swedish economy. Year-on- | | | | |
|year changes, % | | | | |
+--------------------------+------+-------------+------------+-----------------+
|GDP, actual | 4.2 | 3.7 (4.0 ) | 2.8 (2.8) | 2.3 |
+--------------------------+------+-------------+------------+-----------------+
|GDP, working day corrected| 4.0 | 3.4 (3.8) | 3.1 (3.0) | 2.4 |
+--------------------------+------+-------------+------------+-----------------+
|Unemployment, % (EU | 7.4 | 6.6 (6.9) | 6.0 (6.5) | 6.0 |
|definition) | | | | |
+--------------------------+------+-------------+------------+-----------------+
|Consumer Price Index (CPI)| 0.0 | 0.9 (0.9) | 1.2 (1.4) | 1.9 |
|inflation | | | | |
+--------------------------+------+-------------+------------+-----------------+
|Government net lending (% | 0.0 | 0.3 (0.4) | 0.2 (0.1) | -0.1 |
|of GDP) | | | | |
+--------------------------+------+-------------+------------+-----------------+
|Repo rate (December) |-0.35 |-0.50 (-0.50)|-0.25 (0.25)| 0.25 |
+--------------------------+------+-------------+------------+-----------------+
|Exchange rate, EUR/SEK | 9.19 | 9.30 (9.00) |8.95 (8.70) | 8.75 |
|(December) | | | | |
+--------------------------+------+-------------+------------+-----------------+
For more information, please Press contact
contact Anna Helsén, Press & PR
Robert Bergqvist, +46 70 698 4858
+46 70 445 1404 anna.helsen(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
Andreas Johnson
+46 8 763 8032
--------------------------------------------------------------------------------
SEB is a leading Nordic financial services group with a strong belief that
entrepreneurial minds and innovative companies are key in creating a better
world. SEB takes a long-term perspective and supports its customers in good
times and bad. In Sweden and the Baltic countries, SEB 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 June 30, 2016, the Group's total
assets amounted to SEK 2,677 billion while its assets under management
totalled SEK 1,657 billion. The Group has around 15,500 employees. Read more
about SEB at www.sebgroup.com
Nordic Outlook:
http://hugin.info/1208/R/2037988/759434.pdf
Press Release (PDF):
http://hugin.info/1208/R/2037988/759433.pdf
This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: SEB via GlobeNewswire
Unternehmensinformation / Kurzprofil:
Datum: 30.08.2016 - 10:00 Uhr
Sprache: Deutsch
News-ID 491685
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