Nordic Outlook: Somewhat brighter growth outloo...

The global recovery is continuing but remains a bit unsteady. On the one hand,
this autumn's economic indicators for the United States, Germany and elsewhere
have been hopeful. This has lowered the probability of a new recession. On the
other hand, the main problems are still unsolved: global imbalances persist,
debt reduction will need to continue, and the solvency of governments must be
secured. The expected second wave of the sovereign debt crisis has struck the
euro zone. We expect a third wave, probably in a couple of months. It will test
the political sustainability of already approved and upcoming austerity
measures, as well as the vulnerability of Spain. Given the general direction of
fiscal policy starting in 2011, it will no longer serve as a positive growth
force. This makes continued highly expansionary monetary policy necessary for as
long as the recovery is not completely ensured. The Group of Twenty (G20)
countries are having obvious problems working together, thereby jeopardising the
recovery. In the long term, everyone will be the loser in a currency war.

In the OECD countries, overall GDP growth will end up at 2.3 per cent in 2011
and 2.5 per cent in 2012. We have thus revised our August forecast upward by a
few tenths. But the existing imbalances are distributing growth and unemployment
unevenly across the world. Different countries need different solutions, and
given today's globalised economies, this creates political tensions. The US
Federal Reserve (Fed) and the European Central Bank (ECB) will keep their key
interest rates unchanged at extremely low levels for another 15-18 months, which
is being made possible by continued low inflation. High energy and food prices
will only have a transitory impact on inflation. Monetary stimulus, for example
the Fed's current quantitative easing programme, can be reversed when the money
supply shows normal growth.

Debt reduction in the euro zone will continue to create increased economic
divergence and political tensions. Overall GDP growth will total 1.7 per cent in
2011 and 1.5 per cent in 2012. Germany's growth will reach 2.5 per cent in 2011
but will slow down to just below 2 per cent in 2012. A number of euro zone
countries need further belt-tightening programmes. We anticipate that Portugal
will also be forced to seek financial aid from the European Union (EU) and the
International Monetary Fund (IMF). Spain's central government debt is relatively
low, but as a whole the country is one of the most indebted in the Western
world, with a net external debt of about 100 per cent of GDP. Major economic and
political sacrifices will be required if Spain is to restore its competitiveness
and regain balance. The question of whether Greece and Ireland, in particular,
are still solvent remains unanswered.

In the US, the economy recovery is moving ahead slowly, but there are several
threats to growth: the labour and housing markets are disturbingly weak, small
and medium-sized companies are still feeling a strong headwind, and the
Congressional election on November 2 has increased the risk of political
deadlock. Deflationary forces persist. The responsibility for stimulating the
economy rests with the Federal Reserve, which is pursuing a low interest rate
policy to help ensure growth. The door is not closed to further fiscal pump-
priming, but this autumn's election has weakened the ability of Congress to
reach decisions. Criticism both at home and from other countries, and smaller
effects on interest rates than desired, will persuade the Fed to abstain from
further quantitative easing.

In Asia, growth is now slowing − entirely as planned, and as a result of the
economic policy tightening that various countries are now implementing. China's
growth will fall towards about 8 per cent in 2012, reducing the risk of asset
bubbles. Upturns in home prices are being cooled off in a controlled way. China
possesses the tools to both decelerate and − via fiscal policy − stimulate the
economy if growth should slow to an undesired extent.

Global economic cooperation is not fully functional. Although there has been
progress with regard to new banking regulations, the allocation of power in the
IMF and economic policy coordination, there is disagreement about how countries
should apportion responsibility for the prevailing global problems in a fair
way. This endangers the recovery and risks leading to protectionism. Today's
top-priority issues are new tools for managing systemic financial risks and a
framework for a new international monetary system.

We are sticking to our positive forecast about the Swedish economy. GDP will
grow by 5 per cent in 2010 (4.7 in our August forecast) and then by 3.5 (2.9)
per cent in 2011 and 2.5 (2.3) per cent in 2012. Falling interest rates, lower
taxes and the absence of falling home prices − plus a rapid upturn in exports
thanks to a favourable sectoral structure and a previously weak krona − have
given exports an extra push. Unemployment will drop to 7.1 per cent by 2012.
Sweden's central government finances will strengthen, and sovereign debt will
fall to 30 per cent of GDP in 2012. We expect the recently re-elected Swedish
government to pursue a neutral, caretaker-like and cautious fiscal policy during
the next couple of years. Towards the end of its four-year term, the government
is likely to switch to a more aggressive policy direction, focusing on such
matters as corporate taxation and social welfare. Two main risks confront the
Swedish economy: exports within Europe and household debt.

The limits of Swedish economic policy will increasingly be determined by
international problems and the need for global rebalancing and debt reduction
during the next few years. A low Swedish inflation rate and low interest rates
in other countries are holding back the Riksbank's key rate hikes, among other
things due to changes in the value of the krona. Our conclusion, however, is
that the Swedish economy can cope with a further appreciation of the krona. But
this situation raises the question of how the balance between monetary and
fiscal policy should be optimised. A more expansionary, structurally oriented
fiscal policy offset by a tighter monetary policy may counter the emergence of
an excessive savings surplus and should decelerate credit growth. Although
public discourse both internationally and in Sweden is beginning to deal with
new tools for countering financial imbalances, the process seems to be moving
too slowly to ease the pressure on the Riksbank's interest rate policy.

The outlook is also generally positive in the other Nordic countries and the
Baltic countries, with GDP growth close to trend. These regions are benefiting
from strong fundamentals − central government finances and external balance −
and an export structure that is taking advantage of global recovery. Norwegian
and Danish GDP growth will end up around 2 per cent annually in 2011-2012, and
in Finland the economic growth rate will be more than 2.5 per cent. In the
Baltics, gradual export-led recovery is continuing after a period of extreme
downturn, but also following a successful internal devaluation policy. The
domestic economy is also cautiously beginning to thaw, but unemployment will
remain high and the unwinding of private debt will continue while capital
spending languishes. Growth in Estonia, Latvia and Lithuania will end up at
around 4.5-5 per cent annually. Latvia will also continue its fiscal belt-
tightening in 2011. The euro will become the currency of Estonia in 2011 and
that of Latvia and Lithuania by 2014.

Key figures: International and Swedish economy
+----------------------------------------------------+-----+----+----+----+
|International economy. GDP, year-on- year changes, %|2009 |2010|2011|2012|
+----------------------------------------------------+-----+----+----+----+
|United States                                       |-2.6 |2.7 |2.2 |3.4 |
+----------------------------------------------------+-----+----+----+----+
|Euro zone                                           |-4.0 |1.6 |1.7 |1.5 |
+----------------------------------------------------+-----+----+----+----+
|Japan                                               |-5.3 |3.1 |1.6 |1.5 |
+----------------------------------------------------+-----+----+----+----+
|OECD                                                |-3.3 |2.5 |2.3 |2.5 |
+----------------------------------------------------+-----+----+----+----+
|China                                               | 8.7 |10.2|9.0 |8.0 |
+----------------------------------------------------+-----+----+----+----+
|Nordic countries                                    |-4.5 |2.7 |2.8 |2.4 |
+----------------------------------------------------+-----+----+----+----+
|Baltic countries                                    |-15.6|0.9 |4.0 |4.5 |
+----------------------------------------------------+-----+----+----+----+
|The world (purchasing power parities, PPP)          |-0.6 |4.7 |4.1 |4.5 |
+----------------------------------------------------+-----+----+----+----+
|Swedish economy. Year-on-year changes, %            |2009 |2010|2011|2012|
+----------------------------------------------------+-----+----+----+----+
|GDP, working day corrected                          |-5.0 |4.7 |3.5 |2.9 |
+----------------------------------------------------+-----+----+----+----+
|GDP, actual                                         |-5.1 |5.0 |3.5 |2.5 |
+----------------------------------------------------+-----+----+----+----+
|Unemployment, % (EU definition)                     | 8.3 |8.4 |7.5 |7.1 |
+----------------------------------------------------+-----+----+----+----+
|Consumer Price Index (CPI) inflation                |-0.3 |1.2 |1.8 |2.1 |
+----------------------------------------------------+-----+----+----+----+
|Government net lending (% of GDP)                   |-1.2 |-0.5|0.1 |0.8 |
+----------------------------------------------------+-----+----+----+----+
|Repo rate (December)                                |0.25 |1.25|2.25|3.00|
+----------------------------------------------------+-----+----+----+----+
|Exchange rate, EUR/SEK (December)                   |10.24|9.15|8.75|8.60|
+----------------------------------------------------+-----+----+----+----+


For further information, please  Press contakt
contact                          Elisabeth Lennhede,  Press & PR
Robert Bergqvist,                [phone]
[phone]                  [e-mail]
Håkan Frisén, [phone]
Daniel Bergvall, +46  8 763 8594 Ola Kallemur, Group Press Officer
Mattias Bruér, [phone]    [phone], [phone]

Olle Holmgren, [phone]
Mikael Johansson, [phone]
Andreas Johnson, [phone]
Tomas Lindström, [phone]


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[HUG#1465139]





Nordic Outlook November 2010: 


http://hugin.info/1208/R/1465139/403445.pdf

Press release PDF: 


http://hugin.info/1208/R/1465139/403442.pdf




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