Nordea Bank, Economic Outlook, September 2013, "Turning Points"

Content
ECONOMIC
OUTLOOK
SEPTEMBER 2013
Turning points
Sustainable upswing
The global economy is on the threshold of a turnaround. For the first time in many years there are signs of rising economic activity in the old industrialised world concurrently with waning growth in the new emerging economies in Asia and Latin America.
New Nordic ballgame

Norway has led the growth race in the Nordic region, closely followed by Sweden, while Finland and Denmark have trailed far behind. But now things might change.
OVERVIEW 04 TURNING POINTS
SWEDEN 08
BRIGHTER OUTLOOK USA EURO AREA
16 18
BRIGHT FUTURE AHEAD PROGRESS ON A LONG HARD ROAD
RUSSIA 25 PREPARE TO FIGHT SLOWDOWN

CHINA 29 NOT A CYCLICAL SLOWDOWN
2 ECONOMIC OUTLOOK SEPTEMBER 2013
OIL AND COMMODITIES 33 NORDEA MARKETS THE TRIPLE DIGIT BARREL IS HERE TO STAY
Content
OVERVIEW
Data overview
Key figures ............................. 6 Interest rates ......................... 7 Exchange rates ..................... 7
Turning points .............................................................................................. 4
Nordic economies
SWEDEN
Brighter outlook ........................................................................................... 8 Higher inflation but somewhat weaker growth
NORWAY
Editor
Helge J. Pedersen, Global Chief Economist helge.pedersen@nordea.com Tel +45 3333 3126
..............................................10
DENMARK FINLAND
Sudden thaw ............................................................................................... 12 Down to the last card ................................................................................... 14
Major economies Editorial deadline

30 August 2013 USA
Bright future ahead ...................................................................................... 16 Progress on a long hard road ....................................................................... 18 Rebalancing towards private consumption ................................................... 20 Some structural and cyclical progress .......................................................... 21 Broadening recovery ................................................................................... 22 Decision time
EURO AREA
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GERMANY FRANCE
Data sources:
Data sources are Reuters EcoWin, national statistical bureaus and own calculations unless otherwise noted.
UK
JAPAN
..............................................................................................23
Emerging Markets
POLAND RUSSIA
On recovery path ......................................................................................... 24 Prepare to fight slowdown ........................................................................... 25 Export-based (gradual) recovery in sight ...................................................... 26 Domestic demand unseats exports as key growth driver ............................... 27 Baltic tiger is showing its teeth .................................................................... 28 Not a cyclical slowdown............................................................................... 29 Glass half empty .......................................................................................... 31 Gradual but bumpy recovery on track ........................................................... 32
ESTONIA LATVIA
LITHUANIA CHINA INDIA
BRAZIL
Commodities
OIL
The Triple Digit barrel is here to stay ............................................................ 33 Glimpse of optimism .................................................................................... 34
METALS
NORDEA MARKETS
Overview
Turning points
The Nordic countries are poised for a possible economic turnaround. Over the past few years Norway has defied all problems in the global economy and led the growth race in the Nordic region, closely followed by Sweden, while Finland and Denmark have trailed far behind. But now it seems that the Norwegian economy has reached a preliminary climax and is experiencing the same kind of slowdown that other countries have encountered, including emerging signs of housing market weakness. However, Norway will benefit from the expected recovery of the global economy like the other Nordic countries, not least Sweden and Finland that are more sensitive to fluctuations in the international economy. So will the Danish economy and here we also see signs of stabilisation in the important housing market. Despite the decelerating growth, the Nordic economies can still boast very healthy public finances compared to the rest of the world. Moreover, Denmark, Norway and Sweden have substantial surpluses on their external balances. Unemployment remains very low in Norway, while a slight improvement is seen in the labour markets in Sweden and Denmark. Inflation is still relatively low in all the countries, but recent data have shown an unexpectedly sharp spike in core inflation in Norway where capacity pressures are strongest. Capacity pressures, concern about overvalued housing prices and high private-sector indebtedness will make the central banks in Sweden and Norway hike interest rates rather early in the forecast period. These countries will thus be among the frontrunners in the global monetary policy cycle. This will also lead to renewed appreciation of the SEK and the NOK versus the EUR during the forecast period. The global economy is also on the threshold of a turnaround. For the first time in many years there are signs of rising economic activity in the old industrialised world concurrently with waning growth in the new emerging economies in Asia and Latin America. The US seems to be heading for a self-sustaining upswing and the Euro area has emerged from the recession led by Germany in top shape. The aggressive fiscal policy tightening in the Euro area is approaching an end. This will support growth opportunities in the southern European countries, which will slowly but surely struggle their way out of the recession during the forecast period when also the UK will finally emerge from the economic downturn. Japan also seems to be on the right track. The extremely expansionary economic policy known as Abenomics has really fuelled hopes that Japan will close the chapter on the past several years of weak economic growth and deflation. China, on the other hand, has shown significant weakness so far this year. Excess capacity and uncertainty about the stability of the financial sector and the housing market has led to an economic slowdown, which owing to Chinas importance as a leading global buyer of commodities has spread to commodity-producing countries such as Brazil. However, we expect the setback in China to be temporary, as the authorities will stimulate the economy, keeping growth largely in line with the annual 7.5% target. The Russian economy has also shown signs of weakness this year when growth is only propped up by continued strong consumer spending. But slightly higher oil prices and a more expansionary fiscal policy will shift the economy into a higher gear during the forecast period. This will also stimulate growth in the Baltic economies, which have been hit on the export front, but on the other hand have enjoyed stable growth in domestic demand a trend that we expect to remain intact in the coming years.
Sustainable upswing
We expect the nascent signs of improvement in the oldworld economies to result in a sustainable upswing, but with muted growth in the years ahead. Much indicates that the economic crisis had led to a lower potential growth rate due to weak investment activity and higher structural unemployment. Against this background, growth in the global economy will reach 3.1% this year, rising to around 4% in both 2014 and 2015, which are now included in our forecast period, see the table below.
Real GDP growth, %
2011 World G3 BRIC Nordics Denmark Finland Norway Sweden 4.0 1.3 7.6 2.5 1.1 2.7 2.5 3.7 2012 3.3 1.5 6.0 1.0 -0.4 -0.8 3.4 0.7 2013E 3.1 0.9 5.8 1.0 0.3 -0.5 2.0 1.3 2014E 3.8 2.0 6.1 1.9 1.3 1.5 2.3 2.5 2015E 4.0 2.3 6.0 2.1 1.7 2.3 2.4 2.5
Note: For a description of the methodology behind the World GDP, see page 6
Tighter monetary policy
Given the prospect of a near-term turnaround in the global economy, the monetary policy stance will also reverse soon. For the monetary policy authorities in Europe and the US, it will not be a question of whether monetary policy should be tightened, but rather when and how much.
NORDEA MARKETS
Overview The US will also be at the front in terms of monetary policy. One of the summers major themes in markets has been when Federal Reserve Chairman Ben Bernanke will announce that the Fed has started tapering its monthly buying of Treasuries and mortgage bonds, which currently helps keep interest rates low. This will likely happen at the September FOMC meeting. Note, however, that the monetary policy line will still be (extremely) lenient and that an actual tightening will not take place until the Fed hikes its policy rate. We do not expect this to happen until 2015 at the earliest, where rates will be hiked by 100 bp in four steps of each 25 bp. In our baseline scenario we assume that the dovish Janet Yellen takes over from Ben Bernanke when he steps down at the end of January 2014 as expected.
Later and less in Europe
cline. The currency depreciation has led to rising inflation, and as many of the countries use inflation targeting to determine their monetary policy line, the central banks have had to counter this development with higher interest rates. This is also one of the reasons for the weaker growth pace at the moment. However, in step with the recovery of the global economy, growth in the commodity-producing countries will also accelerate. We have long argued that economic fundamentals suggest a strengthening of the USD versus the EUR. However, so far this has failed to materialise; perhaps because the Euro area still has a large cyclical current account surplus. But in step with this being reduced and the interest rate differential widening in favour of the US, the turnaround will move closer. Thus, we expect EUR/USD to drift towards 120 during the forecast period.
Risk scenarios
In Europe the ECB will follow suit, raising its policy rate towards the end of 2015 when the economic upswing has become more stable also in this part of the world. But the policy rate will only be hiked by 50 bp. Inflation is still low and with prospects of a weak labour market throughout most of the forecast period and comparatively stable commodity prices, the ECB has no reason to take a more radical approach. The ECB has repeatedly stressed that it will support the real economy and the very existence of the Euro area by any means possible and that the tool box is far from empty. Lately the bank has also revised its communication strategy, making forward guidance the new buzzword. However, the ECBs statement that The Governing Council expects interest rates to remain at present or lower levels for an extended period of time is only indicative and a far cry from the open model known in Norway and Sweden, which publish an interest rate path that specifically states the central banks guidance for its own interest rate policy given the expected economic trends. The expected monetary policy tightening will also result in higher market rates at the long end of the yield curve. However, in the case of the US this has already to some degree been discounted during the summer when yields on 10-year Treasuries backed up by nearly 125 bp. This trend has also driven European government bond yields higher. In our view, US Treasury yields will rise to just under 4% during the forecast period, while European equivalents will remain below 3%.
Time for USD appreciation
Several risks to our baseline scenario could affect the growth outlook in both a positive or negative direction.
Upside risks:
Lower oil prices maybe as a result of increasingly larger shale gas production. Accelerating shift in economic sentiment. Later-than-expected tapering of the Feds bondbuying programme drives the entire yield curve lower. An easier fiscal policy line is accepted in the Euro area to support growth. Successful implementation of the structural measures in Japans reform programme. China benefits from stronger-than-expected export growth, with positive effects on the rest of the world. The conflict in Syria and general unrest in the MENA region lead to drastic increases in oil prices. A hard landing in China. The US defaults as Congress fails to raise the debt ceiling. More aggressive-than-expected monetary policy tightening in the US and Europe, which hits the housing markets and financial markets hard. The Euro-area crisis flares up on uncertainty over fiscal policy sustainability or disrupted bank union negotiations. Growth dynamics fade from the Emerging Markets economies.
Downside risks:
The monetary policy stance also has a major impact on trends in the FX markets. Recently this has been most evident for a number of Emerging Markets currencies, which have been hit hard merely on expectations of a less expansionary US monetary policy going forward. Moreover, the currencies of the commodity-producing countries have been hit by the slowdown in China, which has caused demand for their main export products to de-
In our view, the current risk outlook is largely balanced in terms of positive/negative risks. Helge J. Pedersen, Global Chief Economist
helge.pedersen@nordea.com
+45 3333 3126
NORDEA MARKETS
Overview
Growth, %
World1) USA Euro area China Japan Denmark Norw ay Sw eden UK Germany France Italy Spain Finland Estonia Poland Russia Latvia Lithuania India Brazil Rest of World 2011 4.0 1.8 1.5 9.3 -0.6 1.1 2.5 3.7 1.1 3.4 2.0 0.5 0.1 2.7 8.3 4.5 4.4 5.5 5.9 7.5 2.8 4.5 2012 3.3 2.8 -0.5 7.8 2.0 -0.4 3.4 0.7 0.2 0.9 0.0 -2.4 -1.6 -0.8 3.2 1.9 3.4 5.6 3.6 5.1 0.9 3.7 2013E 3.1 1.7 -0.5 7.5 1.6 0.3 2.0 1.3 1.2 0.5 0.2 -1.5 -1.6 -0.5 1.9 1.4 2.4 3.9 4.0 5.0 2.0 3.6 2014E 3.8 2.9 1.0 7.3 1.3 1.3 2.3 2.5 1.8 1.6 1.0 0.6 0.8 1.5 3.6 2.5 2.7 4.4 3.8 6.0 2.7 4.1 2015E 4.0 3.2 1.5 7.0 1.0 1.7 2.4 2.5 2.0 2.0 1.5 1.0 1.5 2.3 3.7 3.5 2.8 3.2 4.0 6.5 2.6 4.3
Inflation, %
World1) USA Euro area China Japan Denmark Norw ay Sw eden UK Germany France Italy Spain Finland Estonia Poland Russia Latvia Lithuania India Brazil Rest of World 2011 5.0 3.1 2.7 5.4 -0.3 2.8 1.2 3.0 4.5 2.5 2.3 2.9 3.1 3.4 5.0 4.3 8.5 4.4 3.4 9.5 6.6 6.8 2012 4.0 2.1 2.5 2.6 0.0 2.4 0.8 0.9 2.8 2.1 2.2 3.3 2.4 2.8 3.9 3.7 6.6 2.3 2.8 7.5 5.2 6.4 2013E 3.5 1.6 1.4 3.0 0.2 0.9 2.2 0.1 2.3 1.6 1.1 1.5 2.0 1.6 3.3 1.1 6.4 0.7 1.7 6.0 6.2 5.7 2014E 3.7 2.1 1.3 3.5 0.8 1.3 1.6 1.3 1.7 1.7 1.5 1.5 1.2 1.8 2.8 2.5 6.0 3.0 2.5 6.5 5.8 5.5 2015E 3.8 2.3 1.7 4.0 1.3 1.7 2.0 2.1 1.9 2.0 1.3 1.7 1.6 2.0 3.1 2.5 5.8 2.3 2.8 7.0 5.6 5.3
1) Weighted average of 184 count ries. Weights for all countries and dat a f or Rest of World are f rom t he most recent World Economic Out look, by the IM F. The weight s are calculat ed f rom PPPadjust ed GDP-levels
Public finances, % of GDP

USA Euro area China Japan Denmark Norw ay Sw eden UK Germany France Italy Spain Finland Estonia Poland Russia Latvia Lithuania India Brazil 2011 -8.4 -4.1 -1.1 -10.0 -2.0 13.6 0.0 -7.8 -0.8 -5.3 -3.7 -9.4 -0.7 1.2 -5.0 7.0 -3.5 -5.5 -6.7 -2.6 2012 -6.8 -3.7 -1.6 -10.2 -4.2 14.3 -0.6 -6.3 0.2 -4.9 -2.9 -10.6 -1.8 -0.3 -3.9 -0.2 -1.5 -3.0 -5.5 -2.1 2013E -3.9 -2.9 -2.3 -10.0 -1.4 11.5 -1.4 -6.5 0.2 -4.0 -2.7 -6.5 -2.2 -0.6 -4.4 -0.3 -1.0 -2.8 -5.3 -3.3 2014E -3.1 -2.7 -2.0 -9.5 -1.6 12.1 -1.4 -5.0 0.4 -3.8 -2.3 -5.5 -2.0 -0.1 -3.3 -0.4 -0.5 -2.4 -5.5 -3.6 2015E -2.4 -2.5 -2.0 -9.0 -2.0 11.1 -0.6 -3.0 0.2 -3.0 -2.0 -4.1 -1.5 0.0 -2.9 -0.4 0.0 -2.0 -5.0 -3.0
Current account, % of GDP

USA Euro area China Japan Denmark Norw ay Sw eden UK Germany France Italy Spain Finland Estonia Poland Russia Latvia Lithuania India Brazil 2011 -2.9 0.3 2.8 2.0 5.6 12.8 7.3 -1.5 5.6 -2.6 -3.1 -3.7 -1.5 2.1 -4.8 5.4 -2.2 -3.7 -3.4 -2.1 2012 -2.7 1.8 2.6 1.0 5.6 14.2 6.7 -3.8 6.4 -1.8 -0.5 -0.9 -1.8 -1.2 -3.5 4.3 -1.7 -0.5 -5.1 -2.6 2013E -3.0 2.5 2.2 1.5 5.7 11.4 6.2 -3.9 6.3 -1.6 1.0 1.6 -1.5 -0.8 -0.8 2.5 -1.5 -0.5 -5.5 -3.5 2014E -3.0 2.7 1.5 1.0 4.8 12.4 6.3 -3.5 6.1 -1.7 1.1 2.9 -1.4 -1.2 -1.9 2.0 -2.2 -1.5 -5.3 -3.2 2015E -3.0 2.3 1.0 0.5 3.8 11.8 6.3 -2.5 5.0 -1.5 1.3 3.5 -1.2 -1.3 -2.5 1.7 -2.7 -2.0 -4.5 -2.7
NORDEA MARKETS
Overview
Monetary policy rates
US Japan Euro area Denmark Sw eden Norw ay UK Sw itzerland Poland Russia China India Brazil 30.8.13 0.25 0.10 0.50 0.20 1.00 1.50 0.50 0.00 2.50 8.25 6.00 7.25 9.00 3M 30.06.14 0.25 0.25 0.10 0.10 0.50 0.20 1.00 1.50 0.50 0.00 2.50 8.00 6.00 7.00 9.00 0.50 0.35 1.25 1.75 0.50 0.00 2.50 7.75 6.00 6.75 9.50 31.12.14 0.25 0.10 0.50 0.50 1.50 1.75 0.50 0.00 3.50 7.50 6.50 6.75 9.50 31.12.15 1.25 0.10 1.00 1.25 2.00 2.25 1.25 0.75 4.50 7.50 6.50 7.00 9.50
Monetary policy rate spreads vs Euro area

US Japan1 Euro area Denmark Sw eden Norw ay UK Sw itzerland Poland Russia China India Brazil 30.8.13 -0.25 -0.15 -0.30 0.50 1.00 0.00 -0.50 2.00 7.75 5.50 6.75 8.50 3M -0.25 -0.15 -0.30 0.50 1.00 0.00 -0.50 2.00 7.50 5.50 6.50 8.50 30.6.14 -0.25 -0.15 -0.15 0.75 1.25 0.00 -0.50 2.00 7.25 5.50 6.25 9.00 31.12.14 -0.25 -0.15 0.00 1.00 1.25 0.00 -0.50 3.00 7.00 6.00 6.25 9.00 31.12.15 0.25 -1.15 0.25 1.00 1.25 0.25 -0.25 3.50 6.25 5.50 6.00 8.50
3-month rates
US Euro area Denmark Sw eden Norw ay UK Poland Russia Latvia Lithuania 30.8.13 0.26 0.23 0.28 1.22 1.71 0.52 2.71 6.80 0.27 0.40 3M 0.30 0.20 0.30 1.25 1.70 0.50 2.75 6.75 0.20 0.50 30.6.14 0.35 0.30 0.45 1.60 1.95 0.50 2.80 6.55 0.30 0.50 31.12.14 0.55 0.35 0.50 1.85 1.96 0.60 3.75 6.45 0.35 0.35 31.12.15 1.60 1.00 1.20 2.35 2.45 1.40 4.70 6.50 1.00 1.00
3-month spreads vs Euro area

US Euro area Denmark Sw eden Norw ay UK Poland Russia Latvia Lithuania 30.8.13 0.04 0.05 1.00 1.49 0.29 2.49 6.58 0.05 0.18 3M 0.10 0.10 1.05 1.50 0.30 2.55 6.55 0.00 0.30 30.6.14 0.05 0.15 1.30 1.65 0.20 2.50 6.25 0.00 0.20 31.12.14 0.20 0.15 1.50 1.61 0.25 3.40 6.10 0.00 0.00 31.12.15 0.60 0.20 1.35 1.45 0.40 3.70 5.50 0.00 0.00
10-year government benchmark yields

US Euro area Denmark Sw eden Norw ay UK Poland 30.8.13 2.77 1.83 2.02 2.44 2.98 2.76 4.43 3M 2.55 1.75 1.90 2.15 2.84 2.60 4.50 30.6.14 2.90 2.10 2.20 2.85 3.29 2.80 4.80 31.12.14 3.25 2.40 2.50 3.15 3.50 3.00 5.00 31.12.15 3.90 2.75 2.85 3.50 3.59 3.50 5.20
10-year yield spreads vs Euro area

US Euro area Denmark Sw eden Norw ay UK Poland 30.8.13 0.94 0.18 0.61 1.15 0.92 2.60 3M 0.80 0.15 0.40 1.09 0.85 2.75 30.6.14 0.80 0.10 0.75 1.19 0.70 2.70 31.12.14 0.85 0.10 0.75 1.10 0.60 2.60 31.12.15 1.15 0.10 0.75 0.84 0.75 2.45
Exchange rates vs EUR

EUR/USD EUR/JPY EUR/DKK EUR/SEK EUR/NOK EUR/GBP EUR/CHF EUR/PLN EUR/RUB EUR/LVL EUR/LTL EUR/CNY EUR/INR EUR/BRL 30.8.13 1.32 129.9 7.46 8.73 8.09 0.85 1.23 4.27 44.0 0.70 3.45 8.11 88.2 3.12 3M 1.30 125.6 7.46 8.45 7.80 0.83 1.25 4.15 42.7 0.70 3.45 7.90 77.7 2.91 30.6.14 1.25 131.3 7.46 8.20 7.80 0.82 1.25 4.05 41.0 0.70 3.45 7.50 75.0 2.88 31.12.14 1.25 137.5 7.46 8.20 7.75 0.82 1.30 4.00 40.8 0.70 3.45 7.44 72.5 2.94 31.12.15 1.20 132.0 7.46 8.20 7.70 0.80 1.35 3.95 39.0 0.70 3.45 7.02 63.6 2.88
Exchange rates vs USD

30.8.13 USD/JPY USD/DKK USD/SEK USD/NOK GBP/USD USD/CHF USD/PLN USD/RUB USD/LVL USD/LTL USD/CNY USD/INR USD/BRL 98.1 5.63 6.59 6.11 1.55 0.93 3.23 33.2 0.53 2.61 6.12 66.6 2.36 3M 97.0 5.76 6.53 6.02 1.56 0.97 3.2 33.0 0.54 2.67 6.10 60.0 2.25 30.6.14 105.0 5.96 6.56 6.24 1.52 1.00 3.2 32.8 0.56 2.76 6.00 60.0 2.30 31.12.14 110.0 5.96 6.56 6.20 1.52 1.04 3.2 32.6 0.56 2.76 5.95 58.0 2.35 31.12.15 110.0 6.21 6.83 6.42 1.50 1.13 3.3 32.5 0.59 2.88 5.85 53.0 2.40
NORDEA MARKETS
Sweden
Brighter outlook
More broadly-based growth as exports increase Election budget benefits households The Riksbank set to hike next year SEK firming against the EUR
Recovery in sight
Trends in the Swedish economy have been weak over the past two years. The dampening was significant in H1 2013 when GDP rose by a modest 1% on the year earlier. This slowdown is due to weaker international demand resulting from the turbulent situation in Europe. Consequently, exports have contracted and the heightened uncertainty has also held back business investment. Much indicates that growth in the Swedish economy is accelerating. The domestic economy is stimulated by an expansionary economic policy line and households continue to be the main growth engine. At the same time, we see a turnaround in the export industry. Public consumption is rising and next year investment activity should pick up as well as production rises. GDP is thus increasing at a decent pace outstripping the potential growth rate as of H2 this year. Growth will abate in 2015 in step with fading stimulus effects both in Sweden and internationally.
Brighter export outlook
plunge in 2009. The almost 2-year-long slump in the export of goods will now come to an end, as demand in key export markets such as Germany, the US and the UK picks up again. Exports of services have developed much more favourably than goods exports and are becoming an increasingly important driver of economic growth. Over the past ten years, exports of services have grown by an average 6% pa, and comparatively strong growth is also expected in the coming years.
Strong households; government budget in the red
The favourable conditions for households are intact. The savings ratio is high and rising house prices and share prices have boosted household wealth. In addition, real income will rise by an average of 2.5% pa in 2013-2015. Households concern over the economic situation in general and labour market conditions in particular has also started to ease. The conditions for a favourable trend in consumption are thus in place. One of the reasons behind households income gains next year is lower taxes. This year unfunded fiscal policy reforms of SEK 25bn have been launched, equivalent to 0.7% of GDP. We expect additional unfunded reforms of a similar size in the election year 2014, most of them targeting households. The drawback is that the reforms will strain public finances and lead to a shortfall in financial savings of about 1.5% of GDP in both 2013 and 2014. In 2015 the deficit will shrink as the economic recovery has then progressed further. Nonetheless, public sector debt will remain close to 40% relative to GDP in all the forecast years.
Market growth for the Swedish export industry declined sharply last year. After a sluggish start to the year it will fall further this year to a 20-year low except for the
Sweden: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment - industry - residential investment Stockbuilding* Exports Imports GDP GDP, calendar adjusted Nominal GDP (SEKbn) Unemployment rate, % Employment grow th Consumer prices, % y/y Underlying inflation (CPIF), % y/y Hourly earnings, % y/y Current account (SEKbn) - % of GDP Trade balance, % of GDP General govt budget balance (SEKbn) - % of GDP Gross public debt, % of GDP
* Contribution to GDP growth (% points)
2010 (SEKbn) 1,617 890 602 74 110 23 1,651 1,445
3,338
2011 2.2 1.1 6.4 11.4 14.7 0.5 7.1 6.3 3.7 3.7 3,500 7.8 2.3 3.0 1.4 2.7 258 7.3 2.6 1 0.0 38.4
2012 1.5 0.7 3.2 7.5 -8.2 -1.1 0.8 0.0 0.7 1.1 3,562 8.0 0.7 0.9 1.0 2.9 238 6.7 2.6 -20 -0.6 38.1
2013E 2.0 1.0 -3.3 -6.2 0.6 0.5 -2.0 -2.5 1.3 1.3 3,638 8.0 0.9 0.1 1.0 3.1 224 6.2 2.3 -52 -1.4 41.2
2014E 2.7 1.3 2.8 2.8 4.9 0.0 3.9 3.6 2.5 2.6 3,783 7.8 0.7 1.3 1.2 2.8 238 6.3 2.5 -53 -1.4 41.2
2015E 2.4 0.9 3.6 4.9 3.7 0.0 4.6 4.3 2.5 2.3 3,942 7.6 0.7 2.1 1.5 3.2 246 6.3 2.5 -24 -0.6 40.5
NORDEA MARKETS
Sweden
Lower productivity growth Exports to rebound
Productivity growth has been slow over the past two years. The main reason is probably the subdued economic trends, as weak production growth normally means that capacity utilisation is low. However, it is worth noting that the number of hours worked has risen over the past year despite the low GDP growth. Actual and expected deceleration of wage growth may have contributed to more labour-intensive production and even to a decline in the long-term productivity growth. The number of people employed has risen even more than the number of hours worked over the past two years when average working hours have declined. As a result, employment grew almost as fast as GDP in 2012, which is unusual. The unexpected and seemingly new labour market trends increase uncertainties in the forecast. We expect absence levels to decline somewhat and productivity growth to recover partially during the forecast horizon, which will curb the upturn in employment. The working-age population continues to grow and unemployment therefore declines at a slow pace.
Riksbank to hike despite low inflation Some recovery of business productivity
Continued idle labour resources suggest dampened wage growth and modest domestic cost pressure. Coupled with the persistent decline in import prices, this implies that CPIF inflation will remain below the 2% target during the entire forecast period. Despite low inflation and rising unemployment the Riksbank has left the repo rate unchanged this year. The Riksbank argues that its monetary policy is already expansionary and that its focus is on household indebtedness. As the economic cycle appears to have bottomed and the outlook for the global economy has also brightened, further rate cuts are not likely. Next year the Riksbank will hike rates to counter growing household indebtedness at the same time as signs of rising capacity utilisation will emerge. The subdued inflation speaks in favour of a gradual increase of interest rates during the forecast period.
SEK undervalued versus the EUR Unemployment hard to shake
The SEK has appreciated against most other currencies during the summer, but not against the EUR, which has been surprisingly strong in light of the fragile economic situation in the Euro area. Given the prospect of higher growth and comparatively stable public finances, the Swedish economy is forecast to retain its relative strength during the forecast period. Early rate hikes from the Riksbank will increase the interest rate differential versus the Euro area, which in turn indicates that the SEK will firm against the EUR. On the other hand, the SEK will like most other currencies weaken against the USD in step with the US economy gathering strength. Torbjrn Isaksson
torbjorn.isaksson@nordea.com +46 614 8859
CPIF inflation remains below target
NORDEA MARKETS
Norway
Higher inflation but somewhat weaker growth

Uptick in inflation earlier than expected But growth outlook somewhat weaker Tentative rate hikes from 2014 The biggest surprise since our June forecast is the sharp uptick in core inflation. We have therefore revised up our 2013 and 2014 inflation forecasts. This could result in a rate hike in H1 2014, somewhat sooner than forecasted in June. The growth outlook has dimmed somewhat, though. Mainland GDP for Q2 was significantly lower than expected and weaknesses in the housing market have become more evident. We have revised down our 2013 and 2014 growth forecasts somewhat, mainly as a consequence of weaker growth in household demand. In 2015, which is included in our forecast for the first time, we look for a more expansionary fiscal policy that will help drive growth slightly higher. Mainland GDP is projected to grow by 2-2 % in 2014 and 2015.
Less impetus from consumers
than expected and we now look for a slight decline in prices in the autumn. Tighter bank credit standards and a high price level are probably the main reasons for the slowdown. We expect the moderate decline to continue throughout 2014 and 2015, resulting in an average price drop of 2-3% both years. This year price growth is estimated at roughly 4%. The subdued housing market will lead to lower residential construction and investment in residential construction will reverse from a strong increase to having a moderately negative effect on GDP growth in 2014 and 2015.
But business investment will rebound
While consumer spending disappointed in Q2, mainland business investment rose quite sharply after some weak quarters. Investment activity is at relatively low levels both in the service sector and in the manufacturing industry, suggesting that business investment will increase additionally given the moderate growth in activity in the overall economy. For oil investment the picture is the opposite. Investment growth is currently sky-high, but oil companies plans for 2014 indicate considerably lower growth next year. In 2015 growth will likely decline further, but the picture is very uncertain this far into the future. If, for example, oil prices decline, oil investment trends in 2015 could be much weaker. The momentum to the Norwegian manufacturing industry from domestic and international oil investments will abate. This may to some degree be offset by an expected upturn in Norways traditional export markets. But given the high cost level, Norway will not be able to benefit
Consumer spending disappointed in Q2 after very strong growth in Q1. We believe that the underlying trend in consumer spending is still positive and expect growth to accelerate somewhat again in the autumn. Next year consumer growth is expected to be somewhat lower due to significantly lower real wage growth and slightly higher interest rates. A somewhat weaker labour market and a cooler housing market could also curb consumers propensity to spend. The same trend of moderate con-sumer spending growth is likely to continue in 2015. This summer house price trends were somewhat weaker
Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment - gross investment, mainland - gross investment, oil Stockbuilding* Exports - crude oil and natural gas - other goods Imports GDP GDP, mainland Unemployment rate, % Consumer prices, % y/y Core inflation, % y/y Annual w ages, % y/y Current account (NOKbn) - % of GDP Trade balance, % of GDP General govt budget balance (NOKbn) - % of GDP
2010(NOKbn) 1,132 591 537 383 141 126 1,141 562 316 776 2,750 2,090
2011 2.5 1.8 7.6 8.5 9.8 0.1 -1.8 -6.2 0.0 3.8 1.2 2.5
2012 3.0 1.8 8.0 3.7 19.1 -0.2 1.8 0.9 2.6 2.4 3.1 3.4
2013E 2.6 2.3 5.7 2.7 13.0 -0.8 -1.4 -4.5 1.2 1.0 1.2 2.0 3.6 2.2 1.6 3.6 335.7 11.4 10.5 340.0 11.5
2014E 2.4 2.5 1.6 0.5 4.0 0.3 1.7 2.0 1.5 2.5 2.2 2.3 3.8 1.6 1.8 3.7 391.6 12.4 11.5 380.0 12.1
2015E 2.5 3.0 2.0 1.5 3.0 0.0 1.0 0.0 2.0 2.4 1.9 2.4 3.9 2.0 2.0 3.5 388.9 11.8 10.9 365.0 11.1
3.3 1.2 0.9 4.2 351.0 12.8 13.3 373.6 13.6
3.2 0.8 1.2 4.0 413.2 14.2 13.2 417.7 14.3
NORDEA MARKETS
Norway fully from this upturn.

Expansionary fiscal policy in 2015 Weaker housing market
Waning growth in oil investment and consumer demand in the mainland economy suggests that growth will be relatively moderate going forward. Moreover, we expect immigration to remain relatively high in net terms, which means that unemployment could increase somewhat. With decelerating growth and slightly higher unemployment, we expect fiscal policy to turn more expansionary regardless of who wins the next election. The spending rule for oil revenues will not be a hindrance since oil revenue spending is well below the limit. Notably in 2015 growth in public spending and investment could be high.
Higher but stable inflation
Low business investment practically everywhere
A presumably more expansionary fiscal policy will curb the decline in employment growth and make the uptick in unemployment more moderate. Wage growth is estimated to remain just under 4% and core inflation should be roughly 2%. We assume that the NOK will remain reasonably stable so that growth in price on imported goods will pick up further.Rent increases, which account for nearly 20% of inflation, have accelerated sharply this year. We expect that growth in rents will remain relatively high as existing rents are gradually revised up in step with the sharp increase in new rents.
Slightly earlier rate hike
Inflation rising earlier than expected suggests that Norges Bank will bring its first rate hike forward to H1 2014. Slowing growth and somewhat higher unemployment indicate that interest rates will be raised very cautiously. International interest rate movements will to a large extent determine interest rate levels also in Norway. In H2 2014 markets are expected to price in higher interest rates internationally, and during 2015 policy rates are projected to be hiked in both the US and the Euro area. This will likely be one of the factors prompting further rate hikes from Norges Bank.
Stable EUR/NOK over time
Is retail price growth about to give in?
The NOK took a dive in June when Norges Bank signalled a high probability of a rate cut in September. The NOK weakening and higher inflation suggest that the policy rate is left unchanged and that Norges Bank will revise up its interest rate path. This should boost the NOK to some degree. Subsequently, EUR/NOK is expected to remain relatively stable. Oil prices will move sideways, and even in case of an earlier Norwegian policy rate hike than in the Euro area, the expected interest rate differential, measured for instance by 2-year swap rates, will not change much. Changes in this interest rate differential usually have a large impact on the EUR/NOK performance. Erik Bruce
erik.bruce@nordea.com +47 2248 4449
A rather weak NOK
Katrine Godding Boye

katrine.boye@nordea.com +47 2248 7977
NORDEA MARKETS
Denmark
Sudden thaw
Consumers waking up Tentative improvement in fragile housing market Risk of jobless upswing Investment knot unravelling After more than four years of zero growth, a thaw is underway in the Danish economy. The harbinger of this can mainly be seen in the household sector where the combination of higher disposable incomes and growing optimism paves the way for increased consumption. At the same time we see good chances of consumer spending growth being accompanied by an upturn in investment activity and higher exports in step with rising activity in key export markets. Viewed in this light we reiterate our forecast of accelerating growth in the Danish economy in the years ahead more specifically a growth rate of 0.3% this year, rising to 1.3% next year and 1.7% in 2015.
Consumers waking up
become the main driver of economic growth. The higher consumer spending will also cause imports to accelerate and viewed in isolation this will put downward pressure on the currently very substantial current account surplus. However, this pressure will partly be offset by a renewed uptick in exports as the economic upswing gathers momentum in key export markets such as Sweden, Germany, the UK and the US.
Upswing aided by low inflation
During the summer the year-on-year rate of increase in Danish consumer prices has fallen to a 40-year low. The declining rate of inflation is due to several factors coinciding: energy prices have stagnated, lower taxes and duties have curbed increases in food prices and weak demand and low wage growth have made it tougher for businesses to pass price increases on to consumers. The low inflation is definitely good news for the Danish economy; in addition to ensuring positive real wage growth, it also helps boost Denmarks competitiveness.
Risk of jobless upswing
Since the crisis really took hold in late 2008, household consumption has been stagnant. As it makes up about 50% of GDP, this is a crucial reason for recent years zero growth in the Danish economy. However, recent months data for consumer confidence and Dankort debit card sales indicate a renewed increase in activity among Danish households. The reasons are higher disposable incomes thanks to tax cuts and positive real wage growth as well as households stronger confidence in the economic outlook. Coupled with a positive trend in household wealth, the higher disposable incomes and growing optimism mean that consumer spending will once again
The paradox in the Danish labour market is growing increasingly larger. For quite some time unemployment has been falling in gross terms, although growth in the Danish economy has been below the level that is normally required for a stable number of unemployed. The deviations in employment and unemployment indicate a significant outflux from the labour market that artificially drives unemployment lower. Given the contracting labour force it is currently very difficult to assess how much damage the long period of falling employment and low number of vacancies has done
Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment - government investment - residential investment - business fixed investment Stockbuilding* Exports Imports GDP Nominal GDP (DKKbn) Unemployment rate, % Gross unemployment level, '000 persons Consumer prices, % y/y Hourly earnings, % y/y Nominal house prices, one-family, % y/y Current account (DKKbn) - % of GDP General govt. budget balance (DKKbn) - % of GDP Gross public debt, % of GDP
2010 (DKKbn) 858 510 300 38 71 191 -5 887 789 1,761
2011 -0.5 -1.5 2.9 4.2 14.6 -1.6 0.5 6.5 5.6 1.1 1,792 6.1 160 2.8 -2.8 -2.8 101 5.6 -34.9 -2.0 46.4
2012 0.5 0.7 -0.1 10.7 -8.6 1.2 -0.4 0.2 1.0 -0.4 1,824 6.2 162 2.4 1.5 -3.2 102 5.6 -77.5 -4.2 45.6
2013E 0.3 0.4 0.3 -9.4 -4.5 3.9 0.5 0.4 1.3 0.3 1,845 5.9 154 0.9 1.4 2.2 105 5.7 -25.0 -1.4 44.1
2014E 1.5 0.5 3.5 5.4 2.0 3.8 0.0 2.8 3.5 1.3 1,895 5.9 154 1.3 1.7 2.4 90 4.8 -31.0 -1.6 43.8
2015E 2.0 0.5 2.4 -7.9 3.8 4.0 0.0 3.7 3.8 1.7 1,960 5.8 151 1.7 2.0 2.9 75 3.8 -40.0 -2.0 44.4
NORDEA MARKETS
Denmark to the Danish labour market. And in turn it is also very difficult to assess the current scope for fiscal policy action in the Danish economy. Given this uncertainty, the growing signs of improvement in consumer spending and the risk of loss of credibility in the financial markets, we still believe that fiscal policy should not be eased further at this point. Not even although we do not expect employment to rise until mid-2014.
Tentative improvement in fragile housing market Growth returns
The housing market is still undergoing the necessary consolidation following recent years price plunge. Notably in the greater Copenhagen area this has resulted in price increases, led by the market for owner-occupied flats. The rising prices give reason to hope that this positive trend will gradually spread to other parts of the country. A trend that is supported by continued very low mortgage rates, a historically low increase in new homes for sale and prospects of labour market stabilisation. However, the risk of a new setback still lurks beneath the surface. The rising prices are thus based on a very low turnover and the number of unsold homes is very high (both homes currently for sale and homes expected to be put on the market when prices begin to rise). We therefore expect nominal housing prices measured by the national average rate to increase moderately in the coming years. However, we will still see major geographical differences. Improvements will mainly be concentrated in demographically growing areas of the country that support stronger demand.
Investment knot unravelling
Prospect of rising household consumption
Slow labour market reversal
Despite historically low interest rates and the opening of a temporary tax window, business investment activity has stagnated at a very low level. This poses a major problem, as it leaves a vacuum in demand and reduces future growth opportunities. However, going forward we see good chances of business investment shifting into a higher gear. Until the turn of the year this growth will chiefly be driven by activity brought forward before the investment window closes. In 2014 we expect the uptrend in investment activity to continue as a result of the low interest rates, growing demand and a large pent-up need. The prospect of higher investment activity is also supported by a renewed increase in business loan demand concurrently with the banks no longer tightening their credit standards. However, it should be pointed out that Danish investments are often made outside rather than inside the country owing to the high domestic cost level a trend that has been evident over several years by now. Helge J. Pedersen
helge.pedersen@nordea.com +45 3333 3126
Investment overhang
Jan Strup Nielsen

jan.storup.nielsen@nordea.com +45 3333 3171
NORDEA MARKETS
Finland
Down to the last card

GDP in 2015 will still be below the 2007 level Economic recovery depends entirely on exports Employment will continue to weaken Households will remain cautious
GDP in 2015 will still be below the 2007 level
the manufacturing, retail and construction sectors. There is no quick fix on the horizon, as new orders for the manufacturing industry are still meagre. The lack of economic growth will keep the employment rate low and unemployment high well into next year, putting a damper on growth in households' purchasing power.
Economic recovery depends entirely on exports
The Finnish economy began to grow moderately in H1 2013. Initially, recovery will be very slow, gaining momentum in 2014 and 2015 as international demand recovers. The economic recovery will also be slower this year than the decline that preceded it, which continued for most of 2012. In light of this information, we estimate overall production to shrink by 0.5% this year, but to hit a growth figure of 1.5% in 2014 and 2.3% in 2015 due to an increase in exports. The growth forecasts for 2013 and 2014 have been maintained. The losses in overall production suffered in recent years have been enormous. Under our forecast scenario, real GDP in 2015 will still be slightly lower than what it was in 2007, for example.
Widespread weakness
The economic data on Finland is mostly grim, with hardly any bright spots. But we may be experiencing the darkest hour just before dawn, as recent developments in the global economy and a number of leading indicators point to more positive forecasts for exports. The outlook for the global economy as a whole is brighter for a change. The OECD's leading indicator and the global purchasing managers' index have been forecasting a moderate recovery in the world economy and global trade for a while. Now these forecasts are finally gaining traction. Economic activity has clearly started to pick up in markets that are important for Finland, such as the United States, the euro area, Sweden and the United Kingdom. We believe that strengthening international demand will put exports on an upward track towards the end of this year. Initially, however, the recovery will be limited by a slowdown in Russia's economic growth and the considerable proportion of investment goods in exports. Investment across the globe will only start to recover once old capacity is being utilised sufficiently. How big a slice the Finnish export industry will gain from increased global demand will eventually be determined by its competitiveness. The trade balance will remain in a mild surplus, as weak domestic demand continues to slow down the import of goods. The current account remains in a deficit becauseof deficits in the trade in services and income transfers.
2011 2.6 0.5 5.7 1.5 2.7 6.2 2.7 188.7 2012 0.2 0.6 -1.0 -1.3 -0.2 -1.0 -0.8 192.5 2013E 0.4 0.5 -2.1 -0.2 -1.4 -2.1 -0.5 197.3 8.2 -5.0 1.6 2.0 -2.9 -1.5 0.8 0.4 -4.3 -2.2 111.2 56.4 2014E 1.1 0.5 1.4 0.2 3.9 3.8 1.5 203.1 8.3 2.0 1.8 1.6 -2.8 -1.4 0.7 0.4 -4.1 -2.0 119.2 58.7 2015E 1.8 0.5 4.1 0.0 5.8 5.5 2.3 211.3 7.8 4.0 2.0 1.5 -2.6 -1.2 1.0 0.5 -3.2 -1.5 126.3 59.8
With overall production on a slight upward track, the perception of current economic activity may be too positive, as no clear-cut engine for growth has emerged yet. The latest foreign trade figures indicate that both exports and imports are still declining. Exports are decreasing at a slower rate than imports, so technically foreign trade should accelerate growth. Weak import figures, on the other hand, signal that domestic demand (especially private consumption and investment) has remained lacklustre and, with production shrinking, companies need less and less intermediate products. Domestic production is hamstrung by the difficulties of
Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Stockbuilding* Exports Imports GDP Nominal GDP (EURbn) Unemployment rate, % Industrial production (output), % y/y Consumer prices, % y/y Hourly w ages, % y/y Current account (EURbn) - % of GDP Trade balance (EURbn) - % of GDP General govt budget balance (EURbn) - % of GDP Gross public debt (EURbn) - % of GDP
2010 (EURbn) 99 44 34 -1 72 70 178.7
7.8 3.8 3.4 2.7 -2.7 -1.5 -1.3 -0.7 -1.3 -0.7 92.8 49.2
7.7 -2.1 2.8 3.2 -3.6 -1.8 0.1 0.1 -3.4 -1.8 103.1 53.6
NORDEA MARKETS
Finland
Employment will weaken further There are early signs of a recovery
The economic recession will weaken employment with a lag. We expect the labour market to continue to deteriorate, and the unemployment rate, adjusted for seasonal changes, to rise to 8.5% at the end of this year. Unemployment will remain high well into 2014 before brisker activity begins to increase labour demand again. The official statistics are confounding, as they indicate a steep decline in the number of unemployed, the labour force and the unemployment rate in June and July. We believe this to be more of a case of a temporary drop due to higher-than-normal fluctuation in the labour force survey than a permanent exit of the unemployed from the labour market. Observations in the coming months are likely to show a rising unemployment rate once again.
Households will remain cautious
Euro area PMI suggests a pick-up in manufacturing
Households' purchasing power will hardly improve this year and next, as its rise is hampered by several factors. Employment will deteriorate further. In order to improve the competitiveness of Finnish companies, the collective bargaining negotiations this autumn are expected to result in very low wage increases over several years, which will prevent incomes from rising much. Coupled with modest inflation, this will also slow down the rise in pensions in the near future. Tax hikes on income and consumption are also on the agenda. Preliminary decisions by the authorities indicate that income tax brackets will not be adjusted for inflation next year. In addition, many municipalities are expected to raise their tax rate. Commodity taxes will be selectively raised. The lack of improvement in purchasing power will keep households cautious and growth in private consumption slow. This cautiousness will most likely also curb households' debt appetite and the volume of housing transactions despite the fact that interest rates are estimated to remain exceptionally low. In H1 this year, the number of housing transactions declined by more than 10% compared to the previous year, partly due to higher taxes on such transactions, and there has been no reversal in this trend yet. New housing loans drawn down by households were similarly on a decline of more than 20%. Household cautiousness will keep construction companies on their toes and construction project start-ups below average for the time being. The shortage in the supply of new residences will compensate for weak demand, stabilising prices at a rise parallel to the increase in households' disposable income. Pasi Sorjonen
pasi.sorjonen@nordea.com +358 9 165 59942
Export volumes lack symptoms of recovery
The fall in unemployment is temporary
NORDEA MARKETS
USA
Bright future ahead

Expect stronger growth despite fiscal tightening The US consumer is back deleveraging is over Higher inflation pressures in 2014 and 2015 First Fed rate hike in early 2015 US data releases over the summer have made us even more confident in our optimistic economic outlook for the US. Thus, the stronger-than-expected 2.5% GDP growth rate in Q2 was the fastest pace in three quarters. The fact that the recovery has gained momentum despite sequester-related government spending cuts, higher taxes for high-income earners and the expiration of the payroll tax holiday suggests the economy should accelerate later this year as the drag from fiscal tightening fades. However, downward revisions to GDP over the past quarters arithmetically necessitate reducing our overall 2013 growth forecast by 20 bp to 1.7% even though we still expect 2-3% growth in H2 2013. In 2014 and 2015 fiscal policy will continue to act as a drag on growth, but less so than in 2013. Moreover, thanks to improved fundamentals in the private sector we expect the recovery to gain even more pace over the next few years as pent-up demand is released, especially in the form of business investment but also stronger consumer spending. GDP growth is therefore projected to strengthen to 2.9% and 3.2% in 2014 and 2015, respectively. We are not concerned that the likely upcoming scaling back and subsequent termination of the Feds asset purchases (QE) will harm the economy excessively. First, the Fed has clearly communicated that it is only going to start tapering its purchases if a stronger economy does not require such further support. Second, even when the Fed ceases to expand its balance sheet, US banks will remain flush with liquidity, already added to the banking system by the Fed in the form of excess reserves. Finally, rising mortgage rates as imminent QE tapering has been priced into the market should not derail the housing recovery. All else equal, higher mortgage rates will obviously act as a drag on growth. Thus for a mortgage on a median-priced single-family home (around USD 200,000) with a 20% down payment, the recent rise in mortgage rates represents an increase in the monthly mortgage payment of about 3% of median family income. However, in the current environment this negative impact is likely to be at least partly offset by increased incentives for banks to lend because recently rising home prices and employment imply a lower risk that mortgages turn delinquent. Moreover, because of earlier postponed housing demand we see potential for pent-up demand to be released before rates and prices rise even further.
The US consumer is back
In the absence of new shocks, we believe that the US is facing a strong cyclical recovery over the next few years compared to all other major advanced economies. The main reason is that private-sector deleveraging seems to be over. Households debt-to-disposable income ratio has fallen to a decade low and along with still very low interest rates the sharp debt reduction has reduced the debtservice ratio to the lowest level since records started in 1980. National homes price are expected to rise around 5% annually over the next two years following the 10%+ pace observed over the past year. Rising home prices, coupled with gains in stock prices, low interest rates, an improv
USA: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption and investment Private fixed investment - residential investment - equipment and softw are - non-residential structures - intellectual property products Stockbuilding* Exports Imports GDP Nominal GDP (USDbn) Unemployment rate, % Industrial production, % y/y Consumer prices, % y/y Consumer prices ex. energy and food, % y/y Hourly earnings, % y/y Current account (USDbn) - % of GDP Federal budget balance (USDbn) - % of GDP Gross public debt, % of GDP
2010 (USDbn) 10,201.9 3,174.0 2,039.3 381.1 731.8 362.0 564.4 61.5 1,843.5 2,362.0 14,958.3
2011 2.5 -3.2 6.2 0.5 12.7 2.1 4.4 -0.2 7.1 4.9 1.8 15,533.8 8.9 3.4 3.1 1.7 2.0 -457.7 -2.9 -1,295.6 -8.4 98.2
2012 2.2 -1.0 8.3 12.9 7.6 12.7 3.4 0.2 3.5 2.2 2.8 16,244.6 8.1 3.6 2.1 2.1 1.9 -440.4 -2.7 -1,087.0 -6.8 101.3
2013E 2.0 -2.4 4.7 13.3 3.7 0.7 3.0 0.0 2.5 1.6 1.7 16,764.1 7.4 2.5 1.6 1.8 2.0 -502.9 -3.0 -650.0 -3.9 105.2
2014E 2.8 -0.7 7.8 12.4 7.5 7.3 5.0 0.0 5.2 4.8 2.9 17,545.4 6.5 3.5 2.1 2.2 2.5 -526.4 -3.0 -550.0 -3.1 108.3
2015E 2.9 -0.2 8.0 12.6 7.4 7.2 5.7 0.0 5.5 5.3 3.2 18,465.6 5.6 3.8 2.3 2.4 2.8 -554.0 -3.0 -450.0 -2.4 110.8
NORDEA MARKETS
USA ing labour market and continued easing of banks lending conditions are expected to lead to stronger consumption growth going forward. Moreover, with a very high level of corporate profit margins, stronger global growth, improved competitiveness, partly due to a weak USD, easier credit conditions and reduced uncertainty as the nightmares of the Great Recession and Washington politics fade, the prospects for business investments are also quite bright. In addition, household formation growth suggests that housing starts could double over the next few years, reaching an annual pace around 2 million units.
First Fed rate hike in early 2015 The US consumer is back Fiscal drag on growth expected to fade
Very encouragingly, the job market is clearly improving. We expect employment growth to average 200,000 per month in H2 2013, roughly in line with the trend so far this year, and around 225,000 per month in 2014 and 2015. With an assumed steady labour force participation rate, unemployment is forecast to reach 7% by end-2013, 6% by end-2014 and 5.2% by end-2015. The Fed is expected to start reducing its monthly bond purchases in September this year, with QE ending in Q1 2014. Given the Feds numerical rate guidance, the first rate hike is expected in early 2015, and by end-2015 the fed funds rate is projected at 1.25%. Fed Vice Chairman Janet Yellen is our favourite to replace Bernanke as Fed chairman in early 2014. With full employment expected to be reached by late 2014 or so, signs of stronger inflation pressures are projected to emerge in the latter part of the forecast horizon.
Fiscal risks back in focus in H2 2013
Housing recovery has only just begun
In addition to continued global downside risks to the US outlook, US fiscal risks are still a concern. The debt ceiling is clearly the most important fiscal issue in H2 2013. In case of no agreement to raise the debt ceiling, the US government defaults. The final deadline for raising the debt ceiling is most likely in October or early November. Moreover, to avoid a partial government shutdown Congress will have to pass a temporary funding measure before the current authority expires on 30 September. The reason is that Congress once again seems unlikely to pass a budget before the new fiscal year starts on 1 October. However, because fighting over the debt ceiling has proven to be a popularity-losing effort, our expectation continues to be that Congress will solve these fiscal issues with relatively little drama this time. Any impact on the economy is believed to be minimal. Johnny Bo Jakobsen
johnny.jakobsen@nordea.com +45 3333 6178
Job market improvement expected to continue
NORDEA MARKETS
Euro area
Progress on a long hard road

Recession is over, the crisis is not Contraction in the periphery easing The policy response has changed just a bit ECB on hold, but low barrier for more easing The good news about the Euro area is that the recession seems to be over. The bad news is that the crisis is not over and that conditions for strong growth in output or employment are not yet in place. The recovery should gradually gain some strength over time but it remains vulnerable to shocks and will need support from a very lenient monetary policy for a long time. After six consecutive quarters of declining output, GDP increased by 0.3% over the quarter in Q2. That was driven by growth in Germany and France but also by Italy and Spain contracting less than before. Construction probably picked up, to a large part due to a catch-up effect after a long winter. Private consumption probably also rose. Many sentiment indicators are compatible with slow growth going forward, but catch-up effects should have run out by now. As GDP increased earlier this year than we expected, we revised up our growth forecast for this year to -0.5% from -0.8%. Actually, we are almost back to our March forecast (-0.4%). We still expect around 1% for next year, mainly driven by domestic demand. Our first glance into 2015 assumes a further healing from the crisis with growth strengthening to 1.5%. We expect the drivers for that to be a less restrictive fiscal policy, further progress on deleveraging and structural reforms and a slightly weaker euro supporting exports.
Improvement on the financial side
ards in Q2, they did not do so more than in Q1. So all in all, there is improvement on the financial side that should support growth going forward.
but deleveraging still an impediment to growth
In contrast to the US, private sector deleveraging is not over. Consequently, private households will remain reluctant to consume more given very high unemployment and falling house prices in several countries and companies will remain reluctant to take on more debt to finance investment. At the same, public debt is still on an unsustainable path in several Euro-area countries. Therefore, there still is a need for growth-enhancing structural reforms and at the same time for restrictive fiscal policy. However, in our view, tax increases and spending cuts will be less of a drag on growth next year than this year which is good news.
Political risks and event risks not gone
Political stability is especially important for countries that have to implement painful reforms over several years. The risks to stability have not gone. Several governments for example those in Italy, Portugal and Greece look shaky and may fall. Greece may also need more help with its public debt in one way or another. And whether Portugal will be able to return to bond markets next year remains to be seen. Small countries can cause irritation on financial markets. But they can probably not derail the Euro-area recovery if crisis management by the ECB, European governments, the IMF and the European Commission contains the damage which we expect to happen.
The policy response has changed just a bit
In our view, the relative calm in financial markets in recent months contributed to the stabilisation of the economy. Marked declines of peripheral countries bond yield spreads over German Bunds yields more than compensated the 50 bp increase of 10Y Bund yields this year. Moreover, although banks still tightened lending stand-
The economic policy response seems to have changed just a bit this year. Austerity, structural reforms and a central bank not doing more than is absolutely needed is still the mantra, but some countries have been allowed a slower pace of budget deficit reduction and the ECB has gone further than most would have expected to help the economy back on a sustainable growth path. What has changed? The significant drop in core inflation
Euro area: Macroeconomic indicators (% annual real changes unless otherwise noted)
Private consumption Government consumption Fixed investments Exports Imports Net exports* GDP Nominal GDP, EUR bn Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP General government gross debt, % of GDP
2010 (EURbn) 5,272 2,017 1,740 3,769 3,648 121 9,425
2011 0.2 -0.1 1.5 6.5 4.3 0.9 1.5 9,490 10.2 2.7 0.3 -4.1 88.0
2012 -1.3 -0.4 -4.2 2.9 -0.7 1.5 -0.5 9,674 11.4 2.5 1.8 -3.7 92.7
2013E -0.5 0.0 -2.5 1.0 1.2 0.0 -0.5 9,761 12.1 1.4 2.5 -2.9 95.5
2014E 0.5 0.2 3.5 4.0 3.8 0.3 1.0 9,986 11.9 1.3 2.7 -2.7 96.0
2015E 0.7 0.3 4.5 5.0 4.8 0.2 1.5 10,309 11.6 1.7 2.3 -2.5 96.5
NORDEA MARKETS
Euro area during the early part of the year could be seen as a sign that there is more slack in the economy than policy makers previously assumed. Estimates about the degree of slack in the economy the output gap differ widely, ranging from around 1% when using a simple trend model to 4% as estimated by the OECD. It is very difficult to know what the structural rate of unemployment actually is when unemployment rates differ hugely, from above 25% in Spain to a 25-year low of 6.8% in Germany. Still, if the recent decline in price pressures is interpreted as a sign of a slightly higher output gap, say about 2%, it would explain why the economic policy response has changed just a bit, with slightly more emphasis on fiscal and monetary easing. Looking ahead, more slack in the economy means that it will take more time for inflation to return to target (slightly below 2%) and hence that the first ECB rate hike could come later. We have revised our inflation forecast down for next year and now believe the ECBs first policy rate hike could come in the second half of 2015. It also means that core inflation and labour market indicators will be even more important going forward. If inflation falls too much the ECB should start to seriously worry about the risk of deflation and being too far behind the curve.
Low barrier for more monetary easing Gradual recovery
No turnaround yet in bank lending
We expect the ECB to keep its key interest rates unchanged until the second half of 2015. However, we also believe that the barrier for more monetary easing is fairly low at least for the remainder of this year. One last refi rate cut to 25 bp could be sanctioned if key figures surprise on the downside and put to question the sustainability of the recovery. It would also be the ECBs likely first response if market rates rise too fast. ECB President Mario Draghi introduced forward guidance in July. The ECB now intends to keep policy rates at current or lower levels for an extended period. The Frankfurt version of forward guidance is fairly soft compared with other big central banks and is more about trying to talk market rates down than about making any hard commitments, in our view. Still, forward guidance is in place and can easily be expanded. The easiest expansion would probably be to indicate a time frame, where policy rates are intended to be kept at low levels. Unemployment thresholds like the Fed and the Bank of England have introduced are less likely, but could happen, especially if the ECB really starts worrying about deflation. We believe that a dovish ECB with all tools in place will limit the pace at which market rates will rise over the forecast horizon. Holger Sandte
holger.sandte@nordea.com +45 3333 1191
Low inflation for some time
One last interest rate cut still possible
Anders Svendsen
anders.svendsen@nordea.com +45 3333 3951
NORDEA MARKETS
Germany
Rebalancing towards private consumption

After a fairly weak period at the turn of the year, the German economy returned to the growth path in Q2. Part of the GDP increase (0.7% over Q1) was due to a catchup effect in construction after the unusually long winter. The underlying trend is probably around 0.3%. On the demand side, the single most important driver of the German economy is now private consumption. Real disposable income could rise by about 1% this year and the next. In contrast to many other countries, consumer confidence is at a healthy level, reflecting favourable labour market trends with record-high employment. Given the very low interest rates, households spending on housing construction should support growth. On the other hand, favourable financing conditions have not yet translated into strong capital spending on machinery and equipment. By and large, companies are still reluctant to invest as capacity utilisation rates in the industrial sector are below normal levels and the uncertainty about the outlook for the Euro area is still high. We expect business activity in the Euro area to strengthen gradually so that German exports to Euro-area countries should increase slightly over the coming quarters. This should also have a positive impact on capex spending. We expect GDP to grow by 1.6% next year. Our first estimate for 2015 is 2% again the highest rate among the larger Euro-area countries. Given the tightness of the labour market, we expect wages and consumer prices to increase by slightly more than the Euro-area average. On 22 September, 61.8 mio eligible voters are called to the polls to elect the new Bundestag. Judging from current polls, Angela Merkel is likely to stay in office as chancellor, either in the current centre-right/liberal coalition or heading a Grand Coalition with SPD. For more on the election and what it could mean for Germany and for Europe, see our research note Four more years for Angela?, which is available on Nordea's website. Holger Sandte
Back to growth
Consumer confidence at a healthy level
Outlook for manufacturing improving
Germany: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption and investment Fixed investment Exports Imports Net exports* GDP Nominal GDP (EURbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP Gross public debt, % of GDP
2010 (EURbn) 1,433 488 435 1,173 1,034 139 2,495
2011 1.7 1.0 6.4 7.9 7.5 0.6 3.4 2,610
2012 0.7 1.2 -1.9 4.5 2.6 1.1 0.9 2,666
2013E 1.0 1.0 -0.7 1.0 1.4 -0.1 0.5 2,720 6.8 1.6 6.3 0.2 81.1
2014E 1.3 1.0 4.8 4.6 5.0 0.1 1.6 2,788 6.6 1.7 6.1 0.4 78.6
2015E 1.7 1.0 5.5 6.0 7.0 -0.1 2.0 2,899 6.5 2.0 5.0 0.2 77.0
7.1 2.5 5.6 -0.8 80.4
6.8 2.1 6.4 0.2 81.9
NORDEA MARKETS
France
Some structural and cyclical progress

In France things are finally moving in the right direction, albeit slowly. That applies both to progress on structural matters and the business cycle. Driven by final domestic demand, GDP increased more strongly than expected in Q2 (0.5% q/q), ending a mild recession. The rise was only partly compatible with other data indicating a much more subdued recovery that still needs to be confirmed. While business confidence has risen from a low level, consumer confidence is still near its all-time low held back by a continued rise in unemployment. However, conditions for strong growth are not in place. One of the reasons is tight fiscal policy, as France is still going through the Excessive Deficit Procedure. Tax measures contribute most to the adjustment of the targeted adjustment of 1.8% points. In 2014 and 2015 fiscal policy will probably be less restrictive. On a more positive note, the ECBs easing has been transmitted to domestic lending rates so that the banking sector is not holding back growth. Continued momentum in Germany and a gradual further easing of the recession in neighbouring Italy and Spain should support French exports. To tackle the structural problem of low profit margins, the government introduced a special corporate tax credit. This should support business investment mostly in 2014. The shortfall in tax revenues will be partly funded by an increase in VAT, probably from 1 January 2014. We expect GDP growth of 0.2% for 2013, followed by a gradual strengthening in 2014 and 2015, mostly driven by domestic demand. On the structural side, pension reform will be this autumns hot topic. The recent labour market reform was lauded by the IMF as the broadest since the 1980s. It goes some way in increasing companies flexibility and reducing the duality between employees on short-term contracts and those on permanent contracts. Incentivising policies are still largely absent.
Growth: moderate expectations
Weak investment activity
Unemployment rate on the rise
Holger Sandte
France: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption and investment Fixed investment Exports Imports Net exports* GDP Nominal GDP (EURbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP Gross public debt, % of GDP
2010 (EURbn) 1,045 444 334 466 509 -43 1,936
2011 0.5 0.4 3.0 5.6 5.3 0.0 2.0 2,000 9.6 2.3 -2.6 -5.3 85.8
2012 -0.3 1.4 -1.2 2.5 -0.9 1.0 0.0 2,032 10.3 2.2 -1.8 -4.9 90.2
2013E 0.4 1.4 -2.0 1.0 1.2 0.0 0.2 2,052 11.0 1.1 -1.6 -4.0 94.0
2014E 0.3 1.0 2.5 4.0 4.0 0.0 1.0 2,093 10.8 1.5 -1.7 -3.8 96.2
2015E 0.6 1.0 3.5 4.5 4.0 0.2 1.5 2,156 10.5 1.3 -1.5 -3.0 97.0
NORDEA MARKETS
United Kingdom
Broadening recovery
Data so far this year offer some hope that a sustainable recovery is materialising. GDP growth has picked up and the recovery is broadening. The housing market is improving, the labour market is improving and exports are finally picking up at least to countries outside the Euro area. Consumer spending remains the key driver of the recovery, while investment has yet to start recovering. High-frequency indicators suggest that growth momentum will remain decent in the remainder of 2013. We have revised our GDP forecast upwards for this year and for 2014 and see growth in 2015 around 2%. We believe the labour market will be the key to a sustainable recovery. In recent years, trend growth has been close to zero and the recovery has been called the slowest in 100 years. Still, employment has been growing and was at an all-time high in May. Growing employment with no growth in production means that the productivity level has fallen this unusual pattern has been dubbed the productivity puzzle. We expect a continued moderate improvement in the labour market going forward, but see some risks that the recovery could be jobless, weak and driven solely by a normalisation of the productivity level. For that reason, we have been quite surprised to see the Bank of England (BoE) adopting a forward guidance framework based on an unemployment threshold. Indeed, the central bank itself writes that the path of the unemployment rate in the expected recovery scenario is highly uncertain. The BoE intends to keep the Bank rate at the current level and the Asset Purchase Programme at least at the current level until the unemployment rate reaches 7%, unless there is a risk to financial stability or inflation expectations rise too much. In August, the BoE projected the threshold to be reached in 2016, which clearly signals its intention of keeping the Bank rate low for long and thereby support the economic recovery. We see the first hike at the second half of 2015. We expect the GBP to gradually strengthen against the EUR. Anders Svendsen
anders.svendsen@nordea.com +45 3333 3951
Early signs of recovery
Non-Euro-area exports improving
The labour market is the key
United Kingdom: Macroeconomic indicators (% annual real changes unless otherwise noted)
Private consumption Government consumption Fixed investment Stockbuilding* Exports Imports GDP Nominal GDP (GBPbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General govt budget balance, % of GDP Gross public debt, % of GDP
2010 (GBPbn) 959 337 221 2 447 480 1486
2011 -0.4 0.0 -2.4 0.5 4.5 0.3 1.1 1537
2012 1.1 2.8 0.5 -0.3 0.9 2.8 0.2 1562
2013E 1.6 1.0 -2.3 -0.3 3.9 1.7 1.2 1608 7.7 2.3 -3.9 -6.5 94.0
2014E 1.8 -0.4 5.5 0.0 6.5 6.4 1.8 1669 7.5 1.7 -3.5 -5.0 99.0
2015E 2.0 -0.7 4.1 0.0 5.4 4.4 2.0 1744 7.2 1.9 -2.5 -3.0 101.0
8.1 4.5 -1.5 -7.8 85.5
8.0 2.8 -3.8 -6.3 90.0
NORDEA MARKETS
Japan
Decision time
The first two arrows of Premier Shinzo Abes ambitious three-pillar strategy, accommodative monetary and fiscal policy, have successfully lifted growth momentum and inflation. The JPY has lost 20% in effective terms and regained its lost competitiveness. Household consumption and net exports have been the main drivers. Lately there have been signs of a turnaround in private investment, which is positive given the huge wealth accumulation in the corporate sector. These factors are expected to support growth in the coming quarters, and the calmer diplomatic relation to China helps the export outlook. While we acknowledge Abenomics positive effects on short-term growth, we remain cautious on the underlying strength in the medium to long run. Without structural reforms, the third pillar in Abes plan, addressing a shrinking labour force and declining productivity, Japans potential growth will remain at the current 1%. Unlike the policies undertaken so far, the structural reforms, such as hiking the consumption tax, opening up the agriculture sector and encouraging female labour participation, are politically unpopular. Considering many of Japans failed reform attempts in the past, it is too early to label Abe the great saviour of Japans economy. The reforms announced in June were short of details and failed to impress. Abe vowed to present another round of reforms in the autumn. Although his party now enjoys parliamentary majority after the July election, resistance to reforms will be strong from within the party. Currently all attention is on whether he decides to hike the consumption tax as planned by the previous government. The last hike occurred in 1997 and has been unreasonably accused of having started Japans decade-long paralysis. The decision is due in mid-September. We expect Abe to give green light to the hike effective from April 2014. It will have little effect in reducing public debt but is a first step towards fiscal consolidation. More importantly, it shows Abes ability to make tough decisions. Amy Yuan Zhuang
amy.yuan.zhuang@nordea.com +45 3333 5607
Strong momentum in the short term
Regained competitiveness
Sales tax hike: unpopular but necessary
Japan: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Gross fixed capital formation Stockbuilding* Exports Imports GDP Nominal GDP (JPYbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP
2010 (JPYbn) 279,865 95,188 96,398 -797 73,270 67,477 482,442
2011 0.5 1.4 1.2 -0.5 -0.4 5.9 -0.6 470,774
2012 2.4 2.4 4.3 0.0 -0.1 5.5 2.0 475,713
2013E 2.0 1.4 1.1 -0.3 3.5 2.2 1.6 485,228 3.8 0.2 1.5 -10.0
2014E 1.7 0.8 1.0 -0.2 3.5 3.5 1.3 494,932 3.5 0.8 1.0 -9.5
2015E 1.3 1.1 1.6 -0.1 3.2 4.5 1.0 504,831 3.0 1.3 0.5 -9.0
4.6 -0.3 2.0 -10.0
4.4 0.0 1.0 -10.2
NORDEA MARKETS
Poland
On recovery path
Following a sharp slowdown in economic growth throughout 2012, the Polish economy bottomed out in early 2013. We predict that the recovery will continue in the remainder of this year and further GDP growth acceleration should be seen in 2014-2015. The key driver of the pick-up in economic activity will be improvement in the external environment (strong exposure to the Euro area, particularly Germany). Fixed investment should rebound on stronger investment activity in the private sector (record-low interest rates, easier lending conditions, reduced uncertainty regarding developments in the Euro area) and revived activity in public investment (reduced pace of fiscal consolidation and inflow of fresh EU funds from 2014). Consumption growth will be fostered by the already started improvement in labour market conditions and increased consumer confidence. The sharp inflation drop in late 2012 and H1 2013 has already started to reverse. We predict that recovering domestic demand and low base effects will lead to a gradual rise in inflation towards the central banks 2.5% target. However, as we do not expect the output gap to be closed until early 2015 (potential growth of about 3% will not be exceeded by then), any significant underlying inflationary pressures are unlikely to occur earlier. Moderate economic recovery and constrained inflationary pressures should allow the Polish MPC to keep interest rates on hold well into 2014. We expect the first rate hike in Q3 2014, and normalisation of Polands monetary policy should be a gradual process with the key policy rate at 3.5% at end-2014 and 4.5% at end-2015. In the medium term the PLN will benefit from cyclical recovery of the Polish economy, but in the short term it is vulnerable to a possible sell-off of Polish bonds by foreign investors amid concerns about QE3 tapering. Piotr Bujak
piotr.bujak@nordea.com +48 521 3651
Economic growth has started to gain momentum
Inflation bottomed out
PLN dependent on developments in bond markets
Poland: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Gross fixed capital formation Exports Imports GDP Nominal GDP (PLNbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP 2010 (PLNbn) 856 268 281 598 615 1,417 2011 2.6 -1.7 8.5 7.7 5.5 4.5 1,528 2012 0.8 0.0 -0.8 2.8 -1.8 1.9 1,595
2013E 0.5 -0.1 -1.3 3.2 0.3 1.4 1,640 13.8 1.1 -0.8 -4.4
2014E 1.3 0.5 5.5 3.9 3.6 2.5 1,708 13.4 2.5 -1.9 -3.3
2015E 2.5 2.5 7.0 4.5 4.5 3.5 1,782 12.8 2.5 -2.5 -2.9
12.5 4.3 -4.8 -5.0
13.4 3.7 -3.5 -3.9
NORDEA MARKETS
Russia
Prepare to fight slowdown

Markets and investors are unwillingly getting used to the slowing economic growth in Russia. The threat of stagnation is not in our baseline scenario, however, deceleration of growth appears to be more serious than previously anticipated. Household consumption, accounting for more than 50% of GDP, still continues to be the major driver of economic growth. Robust wage growth and low unemployment along with credit market activity spur consumption. The sustainability of consumption growth is uncertain as savings may increase following weak business activity and overall decreasing consumer confidence. However, the major concern will be low investment activity. Capital investment growth rates slowed almost to 0% from 6.7% growth last year. Big companies remain reluctant to invest due to high interest rates and unpredictable and stagnant commodity market dynamics. Economic growth will be supported at the end of 2013 by the farming sector and positive base effects. In H1 2014 the Olympic Games may add two cents to growth but the overall pace will likely be modest. We forecast 2.4% GDP growth in 2013 and 2.7% in 2014. In order to stimulate economic growth, higher budget spending can be expected. The government is preparing to allot about USD 40 billion (almost 2% GDP) from the reserve fund to fund long-term infrastructure projects. Moreover, until the end of 2013 the CBR will likely start to cut key interest rates, supporting business confidence and stimulating investment. Our oil market forecast is also the supportive factor in the long run. The rouble may stay under pressure near term given economic growth concerns and prospects of a more dovish monetary policy. We are less optimistic over the RUB in the coming period, but we still see a relatively stable currency in the long run, as exporters activity and our oil price forecast of USD 103-113/bbl for 2013 remain RUB supportive, though periods with volatility may occur. Dmitry Savchenko
dmitry.savchenko@nordea.ru +7 495 777 34 77 4194
CBR shifts target basket band upward
Consumption is still robust
Investment activity is dragging growth down
Russia: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Exports Imports GDP Nominal GDP (RUBbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP Central govt budget balance, % of GDP 2010 (RUBbn) 23,843 8,671 10,014 13,679 9,790 46,309 2011 6.4 1.2 8.3 0.3 20.3 4.4 55,799 2012 6.6 0.0 6.7 1.8 8.7 3.4 62,599
2013E 4.3 0.3 2.5 1.5 3.6 2.4 68,668 5.7 6.4 2.5 -0.3
2014E 4.5 0.4 3.0 2.0 4.0 2.7 75,459 5.6 6.0 2.0 -0.4
2015E 4.7 0.3 3.0 2.1 5.0 2.8 82,924 5.5 5.8 1.7 -0.4
6.6 8.5 5.4 7.0
5.5 6.6 4.3 -0.2
NORDEA MARKETS
Estonia
Export-based (gradual) recovery in sight

The Estonian economy is experiencing a temporary stagnation with growth at about 1.1% y/y in the first half of the year (Q2: 1.3% y/y), disappointing against already pessimistic expectations. Robust domestic demand-led growth has been over for some time. However, the outlook is gradually improving. Exports are expected to regain broad-based strength only towards the second half of next year. Slower growth is a result of exceptionally strong (state) investment volumes from last year, but also due to persistent economic uncertainty in key export markets like Finland, Sweden and Russia, and inflationary pressures emanating from high energy prices. Despite real growth of about 1%, the economy still expanded above 5% in nominal terms in the first half of the year. Growth will remain underpinned by resilient consumption, which is supported by real wage growth and improving employment prospects. Unemployment will reach 7.5% by 2015. Despite headwinds from slower global trade, exports and manufacturing volume continue to expand at a moderate pace. Exports and manufacturing volume exceeded pre-crisis highs already at the end of last year. The market remains challenging with weak export orders. Foreign companies are eager to expand businesses in Estonia at lower production costs. High inflation remains an impediment for the economy. As energy price effects fade and import prices trend low, we expect inflation to moderate into 2014. Convergence towards the Euro-area average inflation rate remains a challenge since higher wage increases and volatile food prices limit the disinflation process. Price pressures from global energy and food prices are assumed to be limited, but risks rise in 2015 as the economy regains strength. Overall, the economy is expected to re-accelerate into next year as export demand and investment appetite gradually return. Due to the slow recovery of Euro-area demand in H2, any pick-up in growth momentum for Estonia will likely remain muted in 2013. Tnu Palm
tonu.palm@nordea.com + 372 628 3345
Investments will cut into economic growth
Manufacturing outlook improves only gradually
Inflation decelerates into 2014
Estonia: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Exports Imports GDP Nominal GDP (EURbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General govt budget balance, % of GDP 2010 (EURbn) 7.50 2.99 2.73 11.38 10.41 14.32 2011 3.6 1.4 25.9 23.4 25.0 8.3 16.0 2012 4.4 4.0 20.9 5.6 9.1 3.2 17.0
2013E 3.2 0.8 -2.2 5.0 4.0 1.9 17.9 9.2 3.3 -0.8 -0.6
2014E 3.6 0.9 5.6 6.3 6.4 3.6 19.0 8.4 2.8 -1.2 -0.1
2015E 3.7 1.0 4.5 5.1 4.7 3.7 20.5 7.5 3.1 -1.3 0.0
12.5 5.0 2.1 1.2
10.2 3.9 -1.2 -0.3
NORDEA MARKETS
Latvia
Domestic demand unseats exports as key growth driver

According to the recent flash estimate, the economy of Latvia grew by 3.8% y/y in Q2 2013 while the seasonally adjusted q/q growth slowed down from 1.4% in Q1 to 0.5% in Q2. The slowdown was mainly caused by strong headwinds in several key export markets as well as production stoppage at the steel plant Liepjas metalurgs, a key exporter. In Q2 services grew by 7% y/y, construction by 5% y/y and trade by 3% y/y, while the predominantly export-oriented processing industry recorded a decline by 0.6% y/y. The above data support our forecast that in 2013 domestic demand will at least temporarily unseat exports as the main driver of growth, and economic growth for the year as a whole will be below 4% considerably lower than last year but still above most other EU member states. Growth should accelerate slightly in 2014 due to both improving demand for exports and positive effects from euro introduction. On 9 July 2013 the Ecofin Council voted to admit Latvia into the Euro zone from 1 January 2014 and fixed the changeover exchange rate at LVL 0.702804 per EUR, ie the mid-point rate maintained by the Bank of Latvia since the end of 2004. The consumer price index contracted in July m/m and inflation in y/y terms is still at just 0.3% while the 12month average inflation is at 0.8%. Annual inflation is expected to stay below 1% in 2013, but to accelerate considerably in 2014 due to basis effects and factors such as liberalisation of the electricity market for households. Latvias banking sector is well capitalised and liquidity is abundant. Deleveraging is now in its fifth year, with loans to residents declining further in H1 2013. Deposits are growing at a moderate pace and no additional influx of non-resident deposits as a result of the financial crisis in Cyprus has been observed so far. Andris Strazds
andris.strazds@nordea.com +371 67 096 096
Domestic demand driving growth in the short term
Unemployment sharply down, but still elevated
Steady increase in non-resident deposits
Latvia: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Exports Imports GDP Nominal GDP (LVLmn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General govt budget balance, % of GDP 2010 (LVLmn) 8,071 2,349 2,330 6,847 7,020 12,784 2011 4.8 1.1 27.9 12.7 22.7 5.5 14,275 2012 5.4 -0.2 12.3 7.1 3.1 5.6 15,520
2013E 4.2 1.0 5.0 2.5 2.8 3.9 16,250 11.7 0.7 -1.5 -1.0
2014E 4.5 1.5 7.0 4.0 4.5 4.4 17,450 10.0 3.0 -2.2 -0.5
2015E 4.0 1.5 5.0 5.0 6.0 3.2 18,500 9.0 2.3 -2.7 0.0
16.2 4.4 -2.2 -3.5
14.9 2.3 -1.7 -1.5
NORDEA MARKETS
Lithuania
Baltic tiger is showing its teeth

Lithuanian GDP increased by 4.2% y/y in the first half of 2013 driven by robust industrial production (7.9% y/y) and retail sales (4.0% y/y) growth. This is in line with our forecast of 4.0% expansion in 2013 as a whole, which is truly impressive given an ongoing fiscal consolidation and weak performance of Lithuanias main export partners. Positive economic sentiment suggests that Lithuanian economic growth will continue to be among the fastest in the European Union. Exports were a key economic growth driver in the first half of the year. However, they were boosted by temporary one-off effects: a record-high wheat harvest and restored full oil refinery plant production capacity. Excluding those effects, export growth would have been 4% instead of 14% in H1 2013. We expect export growth to stall in H2 2013 as these effects will fade away. Nevertheless, private consumption growth will keep momentum and offset the negative effect of stagnating exports on overall economic growth in 2013 H2. Rising wages, falling inflation and declining unemployment are boosting households real purchasing power. Consumer confidence is at record-high levels, suggesting that private consumption growth will remain robust. Lithuania is likely to join the Euro zone in 2015 one year later than Latvia. Lithuania was not eligible to adopt the euro in 2014 since it failed to meet inflation and budget deficit criteria (both by a narrow margin of 0.2%). However, falling inflation (annual inflation fell to 0.6% in July) and rising tax revenues significantly strengthen Lithuanias chances of meeting both criteria this year. The main challenges for the Lithuanian economy come from the East. In particular, the weakening Russian economy may have a significant negative impact on Lithuanias export performance, since Russia is the top destination for Lithuanian exports. ygimantas Mauricas
zygimantas.mauricas@nordea.com +370 612 66291
Baltics were immune to the Euro-zone recession
Domestic consumption supported by fundamentals
Lithuania is likely to adopt the euro in 2015
Lithuania: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Exports Imports GDP Nominal GDP (LTLmn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General govt budget balance, % of GDP 2010 (LTLmn) 60,586 19,475 15,589 64,792 66,683 95,323 2011 6.3 0.5 18.3 14.1 13.7 5.9 106,370 2012 4.7 0.7 -2.5 11.2 5.6 3.6 113,471
2013E 3.8 1.6 6.0 8.0 7.5 4.0 119,371 11.2 1.7 -0.5 -2.8
2014E 4.2 2.0 7.0 6.0 7.0 3.8 126,892 9.8 2.5 -1.5 -2.4
2015E 4.5 2.5 6.0 5.0 6.0 4.0 135,774 8.8 2.8 -2.0 -2.0
15.3 3.4 -3.7 -5.5
13.2 2.8 -0.5 -3.0
NORDEA MARKETS
China
Not a cyclical slowdown

Growth stabilisation in H2 The new premier has his heart set on reforms Declining potential growth on structural factors CNY liberalisation continues
Beijings unexpectedly radical change
The development of the Chinese economy in H1 has not played out as we expected. Domestic and external demand has been sluggish. Surprisingly the authorities have chosen not to stimulate the economy to a larger extent using investment stimulus. It reflects their tolerance for lower growth in order to rebalance the economy. Beijings radical change of attitude was not easy to predict. Chinas economic policy under Wen Jiabao, the preceding premier, has placed a high importance on maintaining economic stability and meeting growth targets. Li Keqiang, the new premier, has been Wen Jiabaos right hand for five years. He was perceived to share Wens cautious stance and not be a hard-line reformist as he later proved to be. We believe that Likonomics will set the agenda going forward, aiming to control credit growth and bring down overcapacity in manufacturing, but only if the growth rate does not slip below the lower limit, which we still believe to be 7.5% for this year. Currently we are close to this pain threshold, which is the reason why the government has announced some help over the summer to prevent a further drop in economic activity. Beijings new standpoint makes it harder to read Chinas crystal ball. It remains to be seen how much growth will be allowed to decline in the next two years when the target is likely to be lowered to 7.0%, and whether local officials will follow the new guidelines. Local officials evasion of central policies has been seen before.
Improved cyclical sentiment in sight
porters, the Chinese economy is unlikely to drop much further in H2. We expect the recent pause in the CNY strengthening and a brighter outlook for the advanced economies to lead to higher export growth. Imports to China will benefit as well given the relatively large share of imports used in producing exports. Given the extensive destocking during H1, manufacturers will soon produce again to refill inventories. We only see a stabilisation and not a recovery for structural reasons. After years of rapid growth, the catchingup effect becomes smaller and Chinas growth potential will naturally fall. In addition, the driving forces behind the growth miracle created some problems, which require a lower growth to be addressed.
Structural issues lower potential growth
According to the IMFs calculation, capital has accounted for about half of Chinas potential output growth over the past 20 years. Most of the capital went cheaply to the state-owned enterprises (SOE). This has caused overinvestment and overcapacity, particularly in the heavy industrial sectors such as steel, shipbuilding and mining, which the SOEs dominated. The problem became worse after the 4 trillion yuan investment stimulus in 2009. The IMF has estimated the capacity utilisation rate in China to be as low as 60% in 2011, compared to 76% in the US and 86% in Germany. The evil twin to overcapacity is deflation, which is reflected by the persistently negative growth in PPI, despite double-digit growth in labour costs. The low pricing power is then followed by shrinking profits. Several studies have shown that some industrial SOEs are not profitable once government supports such as cheap loans, rent-free land and direct subsidies are stripped away. In 2012 the SOEs realised profits of 6% of GDP but employed 10% of the labour force, implying relatively low productivity. Unfortunately there is no painless solution to reduce overcapacity. It will lead to higher bankruptcy and push up non-performing loans (NPL). The regulators will be careful in designing the solution, so NPL will be kept at a manageable level. Furthermore, Beijing needs to curb the SOEs monopoly
Thanks to cyclical improvement and the mini stimulus, such as tax breaks for small firms and eased credit to ex-
China: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Stockbuilding* Exports Imports GDP Nominal GDP (CNYbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP
* Contribution to GDP growth (% points), **National account details for 2012 still not released
2010 (CNYbn) 14,076 5,336 18,362 999 12,292 10,720 40,151
2011 9.4 9.7 9.5 0.7 8.8 4.8 9.3 47,310 4.1 5.4 2.8 -1.1
2012** 8.3 8.2 9.2 -0.1 7.0 10.4 7.8 51,932 4.1 2.6 2.6 -1.6
2013E 8.0 8.0 8.5 -0.6 7.5 9.0 7.5 56,606 4.1 3.0 2.2 -2.3
2014E 8.2 7.0 7.5 0.0 7.5 10.0 7.3 61,418 4.1 3.5 1.5 -2.0
2015E 8.5 7.0 7.3 -0.1 7.0 10.0 7.0 66,331 4.1 4.0 1.0 -2.0
NORDEA MARKETS
China power and promote fair competition with the private businesses. This is the only way to obtain efficient capital distribution and investment. Another issue keeping the leaders awake at night is shadow banking. In a separate analysis we found Chinas total credit outstanding to be 220% of GDP at the end of 2012, whereas non-official bank lending accounted for nearly half. While the risk of a financial collapse is small because the state owns assets worth more than 300% of GDP and holds the worlds largest foreign exchange reserves of USD 3.5 trillion, it would be a good idea to keep it under control. Overcapacity and shadow banking are the reasons why we expect credit conditions to be tightened, especially in the non-official financial sectors. All else equal, this will cause the potential output to drop. A deteriorating demographic situation will also act as a drag, which is not easy to reverse. Many researches have argued that China has passed the Lewis turning point, which implies less surplus labour. The manufacturing sector will slow down as cheap labour is no longer available. The female labour participation is already high. Relaxing the one-child policy will provide benefits only in the very long term. What is left is to boost old-aged employment by lifting the retirement age, currently 50 for female blue collars and 60 for male blue collars. Productivity needs also to be raised to maintain a high potential growth. Productivity catchup related to industrialisation may have peaked already. Even though the educated share of the labour force has increased, the quality has reportedly fallen. Education devaluation has become a widespread phenomenon.
CNY stays away from the currency war Industrial turnaround fuelled by restocking Growth stabilisation in sight
Serious overcapacity problem in China
Unlike most other Emerging Markets currencies, the CNY has not been hit very hard by the speculation over Fed tapering. The CNY has gained 5.7% year to date (latest data from June) in effective terms, while the JPY lost 20%. Beijings reluctance to weaken the CNY against the USD can be interpreted as a wish to continue the renminbi liberalisation. Several official and unofficial stories during the spring indicated that a series of reforms need to be in place before capital control can removed. The State Council said in May that quotas on foreign investment in domestic financial markets would be raised to give domestic companies better access to foreign funding. Deputy Governor at the PBoC revealed that the CNY trading band may be widened from the current +/- 1% in the near future. The benchmark lending rate floor was removed at the end of July, a first step to liberalised interest rates. All in all, we expect the financial liberalisation to continue and the CNY to strengthen. Amy Yuan Zhuang
CNY strengthening continues as wished
NORDEA MARKETS
India
Glass half empty

Indias economic growth usually moves in the same direction as the global economy. However, this relationship broke down in early 2012 when internal challenges darkened economic prospects. At a recent gathering of senior officials Premier Manmohan Singh admitted that the economy faces very difficult circumstances. Investor confidence in India has eroded over the past year and recently took a plunge due to the speculation over Fed tapering. Capital flowed out of the country and the rupee fell. The capital controls introduced on the 14 August to reverse the trend backfired and subsequently caused the INR to lose 2.3% vs the USD in one day. For a country that relies on portfolio flows rather than foreign direct investment to fund its current account deficit, such a plunge could be fatal. Fuel subsidies are one of the factors to blame for Indias elevated fiscal and current account deficit (5.5% and 5.1% of GDP in 2012, respectively). About 70% of the countrys oil consumption is imported and demand could have been contained if the subsidies were cut and administered prices raised. However, it is a politically unpopular topic and the government has faced strong headwinds in proposing the change. Other challenges faced by India are an inefficient retail sector dominated by mom and pop shops and heavy regulation in the labour market. A young and growing working population and an expected productivity catch-up speak in Indias favour. India has one of the worlds highest potential growth rates, about 7% according to the IMF and OECD. Structural reform to liberalise the economy is the only way to realise its full potential. With a coalition government that lacks a parliamentary majority and an election looming (May 2014), it is clear that radical reform will not happen in the near future. Unfortunately, Indias political paralysis is far more inherent, reflected in the profound ambivalence of Indias ageing rulers and a tricky political climate dominated by family networks. Thus, Indias future remains clouded. Amy Yuan Zhuang
Domestic concerns weigh on growth
One of the worlds largest current account deficits
No rest for the rupee
India: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Fixed investment Exports Imports GDP (production approach) Nominal GDP (INRbn) Wholesale prices, % y/y Current account, % of GDP General government budget balance, % of GDP 2010 (INRbn) 43,499 8,910 24,745 17,102 20,502 77,953 2011 8.0 8.6 11.1 15.3 21.5 7.5 89,749 2012 4.0 3.9 -29.8 3.0 6.8 5.1 100,206
2013E 5.5 5.0 9.0 4.0 8.0 5.0 109,225 6.0 -5.5 -5.3
2014E 6.5 4.0 9.5 7.0 10.0 6.0 119,055 6.5 -5.3 -5.5
2015E 7.5 4.0 10.0 10.0 12.0 6.5 129,770 7.0 -4.5 -5.0
9.5 -3.4 -6.7
7.5 -5.1 -5.5
NORDEA MARKETS
Brazil
Gradual but bumpy recovery on track

The Brazilian economy shows some signs of recovery. Industrial production is gaining momentum after bottoming out in 2012 and investment has finally begun to pick up after a prolonged slump. However, risks remain on the downside as expectations of US tapering, a prolonged Chinese slowdown, and increased policy uncertainty threaten the still fragile recovery. We expect growth to come out at around 2% y/y in 2013 and accelerate throughout the forecast horizon. 2014 is election year in Brazil, and we will likely see the Rousseff government boost fiscal spending in order to increase its chances of re-election. This will likely help support growth in the medium term. Nonetheless, the story of Brazil is now one of low growth, high inflation and a weak currency. Fiscal and monetary goals are increasingly at conflict. On the one hand, fiscal policy is dedicated to accommodate economic activity, while on the other hand monetary policy is trying to reduce inflation by tightening the monetary stance. A weaker currency is partly to blame for the conflicting policy goals, as the depreciating real threatens to drive up inflation even further. So far this year, inflation has climbed above the upper band of the inflation target (2.5-6.5%) twice, forcing the BCB to begin its first rate hike cycle since 2010. The Selic was raised at the past four central bank meetings by a total of 175 bp and is currently at 9.00%. Despite the BCBs efforts to tame inflation it remains stubbornly high, indicating that more rate hikes are necessary. Looking ahead, we expect the BCB to continue hiking the Selic throughout 2013 and subsequently stabilise in 2014 and 2015. While risks are tilted towards further rate hikes given that inflation pressures are not contained, the BCB will likely be less aggressive due to concerns regarding a deteriorating current account deficit and the slump in growth. Deanie Haugaard Jensen
deanie.jensen@nordea.com +45 3333 3161
Recovery on track
Inflation in the comfort zone hikes in sight
BRL at a 4-year low
Brazil: Macroeconomic indicators (% annual real changes unless otherwise noted)

Private consumption Government consumption Gross fixed capital formation Exports Imports GDP Nominal GDP (BRLbn) Unemployment rate, % Consumer prices, % y/y Current account, % of GDP General government budget balance, % of GDP 2010 (BRLbn) 1,816 541 580 342 413 3,770 2011 4.1 2.0 4.8 4.5 10.0 2.8 4,143 2012 3.2 3.2 -1.9 0.7 4.0 0.9 4,403
2013E 1.7 2.3 5.9 -0.7 9.7 2.0 4.736 5.5 6.2 -3.5 -3.3
2014E 1.9 5.6 3.8 6.3 5.0 2.7 5.061 5.7 5.8 -3.2 -3.6
2015E 1.6 2.5 6.3 6.7 6.4 2.6 5.405 5.6 5.6 -2.7 -3.0
6.0 6.6 -2.1 -2.6
6.0 5.2 -2.6 -2.1
NORDEA MARKETS
Oil
The Triple Digit barrel is here to stay

Oil prices have remained stubbornly high in 2013 as growth in global supply disruptions, mainly in the MENA region, has outpaced growth in US tight oil production. In the forecast period we expect the global supply/demand balance to soften somewhat and reduce the upward pressure on oil prices mainly due to healthy growth in North American oil production and a slowdown in the Chinese economy. The risk of supply losses remains high after the resumption of the unrest in the MENA region. Further supply outages can clearly push oil prices above our forecast while a hard landing in China can cause a sharp fall in oil prices. The global oil market has undergone remarkable changes in the past few years. While sustained high oil prices have triggered a surge in tight oil and oil sand production in North America, political turbulence in the aftermath of the Arab spring has blurred the production capacity outlook for countries such as Libya, Egypt, Syria and Iraq. The natural decline in oil production from the world's mature oil fields such as the North Sea is to a greater degree replaced by oil from more expensive production areas such as Canadian oil sands and US shale oil and to a lesser extent by oil from less expensive production areas like the Middle East. This has pushed up the replacement cost of oil noticeably over the past few years. Going forward escalating costs are expected to be a huge challenge for capacity expansions, which in a worst case scenario can cause new projects to be put on hold if margins come under pressure and/or profitability is squeezed. We expect the long-term trend for OECD oil demand to be in structural decline. Oil intensity is expected to continue to fall as high oil prices gradually make an impact on consumer choices and fuel efficiency requirements. Non-OECD oil demand is expected to surpass OECD demand within the forecast period driven by income growth, economic activity and population growth especially in Asia and the Middle East. The transportation sector accounts for around 60% of total oil demand and this share is expected to rise due to increasing vehicle ownership and subsidised fuel prices in many countries. New sulphur cap regulation within the SECA region effective from 2015 can push prices on gasoil/diesel higher as ship operators will start competing with car owners and airlines for better fuel grades. We expect climate issues will move high on the agenda again before the important 2015 global climate talks. Although we do not expect major changes in neither investment nor consumption before this meeting, the outcome can clearly change the outlook for the oil market and oil prices in the longer term. Thina M. Saltvedt
thina.margrethe.saltvedt@nordea.com +47 2248 7993
Oil price forecast Brent baseline (USD/barrel)

2012 2013E 2014E 2015E Q1 118 113 108 107 Q2 109 103 104 103 Q3 109 108 108 106 Q4 110 107 107 108 Year 112 108 107 106
Source: Nordea Markets
Oil price forecast, high and low price scenario
Chinese oil import share increased sharply
Sulphur Cap regulations for the shipping industry
NORDEA MARKETS
Metals
Glimpse of optimism
As expected, growth in base metals prices during the previous months was capped by low demand and supply catching up. After weak Chinese growth indicators during the first half of 2013, the forecasts for base metals prices have been slightly lowered. However, the Chinese economy is expected to stabilise towards the end of the year, but at a lower growth pace. Combined with improvement in the US industry and recent positive indicators from the Euro area, this suggests tighter markets in 2014 and price growth. Supply is expected to be fairly constant throughout the year, possibly decreasing in 2014 and 2015. The aluminium market is still oversupplied and we do not forecast reduced production in the short term. On the demand side we see rapid growth, particularly due to high demand from aircraft manufacturers. As the market remains in surplus, we forecast a slight price decline during the autumn of 2013 until demand catches up, the market tightens and prices gradually increase. Due to consumers stock building we expect demand for copper to increase during the second half of 2013 and therefore prices to rise towards the end of the year. For the next two years we forecast that prices will vary about USD 7,500. The rather substantial negative financial positions in the market support this price growth. Fundamentals remain weak and hence prices of nickel are expected to remain at subdued levels at least into the first half of 2014. Supply is forecast to remain high due to low production costs in China, and weakening demand for stainless steel amplifies the surplus. As the zinc market is expected to remain well supplied until the first half of 2014, near-term prices are likely to remain subdued. However, the combination of few high-quality projects providing additional supply and a substantial volume fading out implies a forecast of undersupply towards the second half of 2014 and thus a gradual increase in zinc prices.
Marte Andresen
marte.andresen@nordea.com
LME Metals index down, but not a dive
Copper resilient, while aluminium struggles
Zinc prospects to rise, while nickel looks weak
Thina M. Saltvedt
thina.margrethe.saltvedt@nordea.com +47 2248 7993
NORDEA MARKETS
Economic Research Nordea
Economic Research Nordea

Denmark:
Helge J. Pedersen, Global Chief Economist
helge.pedersen@nordea.com, +45 3333 3126
Sweden:
Annika Winsth, Chief Economist Sweden
annika.winsth@nordea.com, +46 8 614 8608
Johnny Bo Jakobsen, Chief Analyst

johnny.jakobsen@nordea.com, +45 3333 6178
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jan.storup.nielsen@nordea.com, +45 3333 3171
Lena Sellgren, Senior Analyst

lena.sellgren@nordea.com, +46 8 614 88 62
Amy Yuan Zhuang, Senior Analyst

amy.yuan.zhuang@nordea.com, +45 3333 5607
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Estonia:
Tnu Palm, Chief Economist Estonia
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Lithuania:
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Russia:
Dmitry A. Savchenko, Chief Economist Russia
dmitry.savchenko@nordea.ru, +7 495 777 34 77 4194
Roger Wessman, Chief Economist, Finland

roger.wessman@nordea.com, +358 9 165 59930
Norway:
Steinar Juel, Chief Economist Norway
steinar.juel@nordea.com, +47 2248 6130
Dmitry S. Fedenkov, Head of Research, Russia

dmitry.fedenkov@nordea.ru, +7 495 777 34 77 3368
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Piotr Bujak, Chief Economist Poland
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Nordea Bank, Economic Outlook, September 2013, &quot;Turning Points&quot;

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Nordea Bank, Economic Outlook, September 2013, &quot;Turning Points&quot;

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New Nordic ballgame

OVERVIEW 04 TURNING POINTS

BRIGHT FUTURE AHEAD PROGRESS ON A LONG HARD ROAD

RUSSIA 25 PREPARE TO FIGHT SLOWDOWN

Turning points .............................................................................................. 4

Sudden thaw ............................................................................................... 12 Down to the last card ................................................................................... 14

Major economies Editorial deadline

LITHUANIA CHINA INDIA

3 ECONOMIC OUTLOOK SEPTEMBER 2013

Tighter monetary policy

4 ECONOMIC OUTLOOK SEPTEMBER 2013

5 ECONOMIC OUTLOOK SEPTEMBER 2013

Public finances, % of GDP

Current account, % of GDP

6 ECONOMIC OUTLOOK SEPTEMBER 2013

Monetary policy rate spreads vs Euro area

3-month spreads vs Euro area

10-year government benchmark yields

10-year yield spreads vs Euro area

Exchange rates vs EUR

Exchange rates vs USD

7 ECONOMIC OUTLOOK SEPTEMBER 2013

Sweden: Macroeconomic indicators (% annual real changes unless otherwise noted)

2010 (SEKbn) 1,617 890 602 74 110 23 1,651 1,445

8 ECONOMIC OUTLOOK SEPTEMBER 2013

CPIF inflation remains below target

9 ECONOMIC OUTLOOK SEPTEMBER 2013

Higher inflation but somewhat weaker growth

Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)

3.3 1.2 0.9 4.2 351.0 12.8 13.3 373.6 13.6

3.2 0.8 1.2 4.0 413.2 14.2 13.2 417.7 14.3

10 ECONOMIC OUTLOOK SEPTEMBER 2013

Norway fully from this upturn.

Low business investment practically everywhere

Is retail price growth about to give in?

A rather weak NOK

Katrine Godding Boye

11 ECONOMIC OUTLOOK SEPTEMBER 2013

Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)

2010 (DKKbn) 858 510 300 38 71 191 -5 887 789 1,761

12 ECONOMIC OUTLOOK SEPTEMBER 2013

Prospect of rising household consumption

Slow labour market reversal

Jan Strup Nielsen

13 ECONOMIC OUTLOOK SEPTEMBER 2013

Down to the last card

Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)

2010 (EURbn) 99 44 34 -1 72 70 178.7

14 ECONOMIC OUTLOOK SEPTEMBER 2013

Euro area PMI suggests a pick-up in manufacturing

Export volumes lack symptoms of recovery

The fall in unemployment is temporary

15 ECONOMIC OUTLOOK SEPTEMBER 2013

Bright future ahead

USA: Macroeconomic indicators (% annual real changes unless otherwise noted)

16 ECONOMIC OUTLOOK SEPTEMBER 2013

Housing recovery has only just begun

Job market improvement expected to continue

17 ECONOMIC OUTLOOK SEPTEMBER 2013

Progress on a long hard road

2010 (EURbn) 5,272 2,017 1,740 3,769 3,648 121 9,425

18 ECONOMIC OUTLOOK SEPTEMBER 2013

No turnaround yet in bank lending

Nordea Bank, Economic Outlook, September 2013, "Turning Points"

Nordea Bank, Economic Outlook, September 2013, "Turning Points"