SEB: Nordic Outlook: The world economic situation is improving - Growing risks of imbalances in overstimulated Swedish economy
(Thomson Reuters ONE) -
Late-cycle growth forces are lifting the global economy, which will expand
faster than the historical average throughout our 2017-2019 forecast period. But
forecasts point to a complex balancing act between dramatic political events and
classic cyclical issues such as the sustainability of growth, the resource
situation and inflationary forces, according to SEB economists writing in the
September 2017 issue of the quarterly Nordic Outlook report. So far this year,
statistics have provided renewed support for a high Swedish GDP forecast. There
are mounting risks of overheating, and Sweden's Riksbank will hike its key
interest rate twice in 2018 and three times in 2019 to 0.75 per cent.
Despite dark political clouds, activity has surprised on the upside in many
economies - for example in China, Japan and the euro zone as well as in the
Nordic and Baltic countries - driven by ever-stronger labour markets, rising
resource utilisation, increased trade and higher asset prices. Aside from
greater georpolitical risks, there are also major social challenges such as
economic inequality, ageing populations and sectoral job losses due to
digitisation and automation. GDP growth in the 35 mostly affluent countries of
the Organisation for Economic Cooperation and Development (OECD) will reach 2.1
per cent this year and in 2018, then slow to 1.9 per cent in 2019.
Central banks are encountering diminished deflation and recession risks. There
are reasons to keep pursuing expansionary monetary policy, but it is becoming
increasingly hard to justify its more extreme forms. Since 2008, central banks
have created a money surplus of about 15 trillion US dollars, equal to 20 per
cent of global stock market capitalisation. This will increase to about USD 16
trillion by the end of 2018. Monetary policy will thus maintain its expansionary
direction during our forecast period, but with steps towards continued
normalisation (US Federal Reserve), reduction/phase-out of stimulative bond
purchases (European Central Bank, Riksbank) and gradual key interest rate hikes
(ECB, Riksbank, Norges Bank, Bank of England). It is debatable whether the
Phillips curve - which posits an inverse relationship between the unemployment
level and the inflation rate - can serve as a policy anchor and communications
tool for central banks, but studies by the International Monetary Fund (IMF) and
the Bank for International Settlements (BIS), as well as our own estimates,
conclude that this relationship persists - though weakened. Inflation will thus
move slightly upward in 2017-2019 amid continued challenges to achieving
inflation targets. A combination of improved growth prospects and expansionary
monetary policies will provide continued support to stock markets.
Labour market offsetting Trump's foreign policy rhetoric and changeability
In the United States - as expected - the political turbulence surrounding
President Donald Trump's administration is not affecting the economy
significantly, and tax cuts will not be enacted in 2017. GDP growth will reach
2.2 per cent in 2017 and 2.4 per cent in 2018, then fall to 2.0 per cent in
2019 due to rising interest rates and worsening bottleneck symptoms. The federal
debt ceiling will be raised this autumn, but the White House will continue to
have difficulty in pushing through its political programme. The labour market is
strong, with job growth more than twice as fast as needed to keep up with
population growth. Unemployment will fall below 4 per cent and pay increases
will slowly move up towards 3.5 per cent yearly by the end of our forecast
period.
The Federal Reserve will hike its key rate one more time this year, three times
during 2018 and once in 2019 to 2.50 per cent, a level that is below what the
Fed now regards as normal (about 3 per cent). The Fed will gradually reduce its
monetary policy portfolio during a four-year period, which represents a cautious
monetary tightening. This will provide support for a stronger dollar, but as
other central banks begin to follow the Fed's example, the dollar will lose
ground against currencies such as the euro; at the end of 2019, the EUR/USD
exchange rate will be 1.25. A weak dollar is beneficial to many debt-burdened
emerging market (EM) economies.
Growing hopes of revived EU and euro zone integration
Euro zone growth has been the clearest exclamation point so far during 2017, and
the upturn is becoming increasingly broad-based in sectoral and geographic
terms. GDP will increase by a bit above 2 per cent in 2017 and 2018, slowing
marginally in 2019. Unemployment will fall by about 1 percentage point to
slightly above 8 per cent in 2019, which is close to its equilibrium level. A
probable victory by Chancellor Angela Merkel and her CDU/CSU in September's
German parliamentary election will confirm our scenario of a significantly more
stable political situation in the euro zone than widely feared early in this
super-election year, although the Italian election in the spring of 2018 still
adds some uncertainty. Looking ahead, however, the focus of attention will shift
from national elections to an intensive agenda of proposed European Union (EU)
and euro zone reforms. A renewed German-French leadership duo will aim at the
European Parliament election in 2019, with the ambition of launching multi-speed
EU cooperation starting in 2025. A flare-up of tensions connected to overly
zealous federalist ambitions - for example between Denmark/Sweden and core EU
countries, combined with disappointing French structural reforms - is a
potential risk.
An improved budget situation thanks to earlier austerity programmes, economic
growth and low interest rates will enable national governments to pursue weakly
expansionary fiscal policies. If the euro zone also increases its integration
and takes steps towards a fiscal policy union with Germany as "guarantor", this
will decrease pressure on the ECB to maintain negative interest rates and make
stimulative bond purchases. This autumn, the ECB will formally decide to reduce
its monthly purchases from 60 to 40 billion euros in the first half of 2018.
After that it will end the bond-buying programme and raise its deposit rate for
banks from -0.40 to -0.25 per cent. During 2019 the ECB will hike its refi rate
from 0.00 to 0.50 per cent.
The Brexit process (United Kingdom withdrawal from the EU) remains surrounded by
big questions. British households are being squeezed by loss of purchasing power
due to inflation, which has climbed as the pound has lost value. Uncertainty
will halve economic growth in 2018 to 1 per cent, compared to 2017, due to
weaker capital spending. This autumn London and Brussels must agree on future
reciprocal rights for UK and EU citizens and how much the British must pay to
leave the EU. The domestic political situation makes another UK snap election
possible.
EM economies accelerating after a period of slower growth
Growth curves are pointing upward in the emerging market sphere (accounting for
about 60 per cent of the world economy in terms of purchasing power parities,
PPP), with overall GDP in the sphere accelerating from an 4.3 per cent increase
in 2016 to around 5.0 per cent in 2017-2019. Beijing is now orchestrating a
partly credit-related deceleration, aimed at achieving a stable economy that
will make its political succession process easier. China's GDP growth will be
6.8 per cent this year, well above the official target of about 6.5 per cent,
but will fall to 6.4 per cent in 2018 and 6.1 per cent in 2019. Inflation is
expected to be lower than the informal 3 per cent target. The yuan will
appreciate during our forecast period from 6.70 to 6.40 per dollar at the end
of 2019. In India, yearly growth will accelerate to nearly 8 per cent as certain
reforms are implemented. Russia and Brazil are emerging from recessions, but GDP
will increase by only 2 per cent annually in 2017-2019; in Russia the lack of
reforms will hold back growth, while the Brazilian economy will be slowed by
political instability. Our forecast for EM economies assumes oil prices (Brent
crude) of USD 55-60 per barrel, with clear downside risks.
Positive growth signals in the Nordic and Baltic economies
The upswing in the world economy, especially in Europe, will contribute to new
growth improvements in the Nordic and Baltic countries. The Finnish economy will
expand by 2-2.5 per cent annually in 2017-2019 and will also be helped by the
more stable outlook in Russia. Household consumption will be an increasingly
important growth engine in Denmark, as previously tight credit market conditions
are eased; GDP will expand by 2-2.5 per cent yearly in 2017-2019. The situation
in Norway will also be more positive; capital spending in the oil sector will
recover, and sentiment indicators are upbeat. GDP will increase by 1.5-2.0 per
cent a year. In Estonia, exports will lift the growth rate to a high 3.6 per
cent this year, followed by a slight deceleration as inflation dampens private
consumption. Latvia's high GDP growth will eventually run into bottleneck
problems and rising wage pressure; growth will retreat from 4.1 per cent this
year to 3.1 per cent in 2019. Aside from exports, capital spending is an
important economic driver in Lithuania; the labour force is shrinking. Growth
will decelerate from 3.7 per cent this year to about 3 per cent in 2019.
Sweden is booming, but a lack of policy coordination poses major risks
Broad-based Swedish growth is being fuelled by pro-cyclical fiscal policy,
extreme monetary policy and a weak krona. We predict that GDP will increase by
3.2 per cent this year, 2.8 per cent in 2018 and 2.4 per cent in 2019.
Residential investments remain the most important driver, while private
consumption is increasing more sedately and new measurement methods indicate
stagnating public sector consumption volume despite record-high public job
growth. Increasingly serious recruitment problems, especially in construction
and the public sector, will hamper economic growth during the latter part of our
forecast period. Despite a rapidly expanding labour supply, we anticipate that
unemployment will fall below 6 per cent in 2018. The annual rate of pay
increases will climb to 3.5 per cent in 2019. An unexpectedly strong labour
supply will allow a longer period of above-trend economic growth and generate
room in the central government budget for new spending, but there are clear
signs of imbalances in the trend of home prices and household debt.
Sweden's centre-left minority government is pushing hard to win the September
2018 election amid a confused domestic political landscape. We expect the
government's autumn budget for 2018 to include SEK 30 billion in reforms and
stimulus measures. Due to a lack of tax hikes, this represents a more
expansionary and pro-cyclical fiscal policy. Yet government debt will fall to
just above 35 per cent of GDP during 2019, in line with the "debt anchor" in
Sweden's new official fiscal policy framework. A budget surplus of about 1 per
cent of GDP per year in 2017-2019 along with the Riksbank's loan repayments to
the National Debt Office will push down government debt. A shrinking supply of
government bonds will squeeze Swedish long-term yields.
Although inflation will climb somewhat, it will not reach the 2 per cent
Riksbank target on a sustained basis despite the economic boom, but given a
tightening resource situation and policy normalisation in other countries the
Riksbank will hike its key interest rate in April 2018 and then carry out
another four rate hikes during 2018-2019 to 0.75 per cent. Because monetary
policy is extremely loose amid strong expansion, there are increased risks of
major economic reversals ahead, due to pumped-up household debts and home
prices.
Today the krona is 5 per cent undervalued against the euro and US dollar. As the
Riksbank's rate hikes approach, the Swedish currency will appreciate. The
EUR/SEK exchange rate will be 9.35 at the end of 2017 and 9.00 at the end of
2018. As the euro strengthens on the global stage, the EUR/SEK rate will rebound
to 9.20 during 2019. After an upturn this autumn, we expect the USD/SEK exchange
rate to reach 8.20 at the end of 2017 but then fall to 7.50 at the end of 2018
and 7.35 at the end of 2019. The adverse effect on Swedish export companies will
be softened by stronger global economic conditions.
Key figures: International & Swedish economy (figures in brackets are forecasts
from the May 2017 issue of Nordic Outlook)
+-----------------------------------------+-----+-------------+-----------+----+
|International economy, GDP, year-on-year |2016 | 2017 | 2018 |2019|
|changes, % | | | | |
+-----------------------------------------+-----+-------------+-----------+----+
|United States | 1.5 | 2.2 (2.3) | 2.4 (2.5) |2.0 |
+-----------------------------------------+-----+-------------+-----------+----+
|Euro zone | 1.8 | 2.1 (2.0) | 2.2 (2.0) |2.0 |
+-----------------------------------------+-----+-------------+-----------+----+
|Japan | 1.0 | 1.3 (0.8) | 0.8 (0.5) |0.7 |
+-----------------------------------------+-----+-------------+-----------+----+
|OECD | 1.8 | 2.1 (2.1) | 2.1 (2.2) |1.9 |
+-----------------------------------------+-----+-------------+-----------+----+
|China | 6.7 | 6.8 (6.7) | 6.4 (6.3) |6.1 |
+-----------------------------------------+-----+-------------+-----------+----+
|Nordic countries | 2.1 | 2.5 (2.2) | 2.3 (2.1) |2.2 |
+-----------------------------------------+-----+-------------+-----------+----+
|Baltic countries | 2.0 | 3.5 (3.1) | 3.3 (3.2) |3.1 |
+-----------------------------------------+-----+-------------+-----------+----+
|The world (purchasing power parities, | 3.1 | 3.8 (3.7) | 3.8 (3.8) |3.7 |
|PPP) | | | | |
+-----------------------------------------+-----+-------------+-----------+----+
|Swedish economy. Year-on-year changes. % | | | | |
+-----------------------------------------+-----+-------------+-----------+----+
|GDP, actual | 3.2 | 3.2 (3.1) | 2.8 (2.6) |2.4 |
+-----------------------------------------+-----+-------------+-----------+----+
|GDP, working day corrected | 2.9 | 3.5 (3.4) | 2.9 (2.7) |2.5 |
+-----------------------------------------+-----+-------------+-----------+----+
|Unemployment, % (EU definition) | 6.9 | 6.5 (6.4) | 6.0 (6.1) |6.1 |
+-----------------------------------------+-----+-------------+-----------+----+
|Consumer Price Index (CPI) inflation | 1.0 | 1.8 (1.6) | 1.8 (1.6) |2.0 |
+-----------------------------------------+-----+-------------+-----------+----+
|CPIF (CPI minus interest rate changes) | 1.4 | 1.9 (1.7) | 1.7 (1.6) |1.8 |
+-----------------------------------------+-----+-------------+-----------+----+
|Government net lending (% of GDP) | 0.9 | 1.0 (0.6) | 0.9 (0.6) |0.8 |
+-----------------------------------------+-----+-------------+-----------+----+
|Repo rate (December) |-0.50|-0.50 (-0.50)|0.00 (0.00)|0.75|
+-----------------------------------------+-----+-------------+-----------+----+
|Exchange rate, EUR/SEK (December) |9.19 | 9.35 (9.30) |9.00 (8.95)|9.20|
+-----------------------------------------+-----+-------------+-----------+----+
For more information, please contact Press contact
Robert Bergqvist, +46 70 445 1404 Frank Hojem, Group Press Officer
Håkan Frisén, +46 70 763 8067 +46 70 763 9947
Elisabet Kopelman, +46 70 655 3017
Daniel Bergvall, +46 73 523 5287
Mattias Bruér, +46 8 763 8506
Olle Holmgren, +46 8 763 8079
Andreas Johnson, +46 73 523 7725
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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
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international nature of SEB's business is reflected in its presence in some 20
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Group has around 15,000 employees. Read more about SEB at
http://www.sebgroup.com.
Nordic Outlook:
http://hugin.info/1208/R/2129705/813599.pdf
Press release (PDF):
http://hugin.info/1208/R/2129705/813598.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
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Datum: 29.08.2017 - 07:00 Uhr
Sprache: Deutsch
News-ID 558027
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