Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
SEB report: Global economy resilient to political uncertainty

SEB report: Global economy resilient to political uncertainty

Ratings: (0)|Views: 7 |Likes:
Published by SEB Group
Political turbulence has dominated recent news headlines, but financial market reactions have been rather modest and by all accounts, the effects on the real economy are not particularly significant, say SEB’s economists in a wrap-up of some macro updates published in recent weeks.
Political turbulence has dominated recent news headlines, but financial market reactions have been rather modest and by all accounts, the effects on the real economy are not particularly significant, say SEB’s economists in a wrap-up of some macro updates published in recent weeks.

More info:

Categories:Types, Business/Law
Published by: SEB Group on Oct 28, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

01/08/2014

pdf

text

original

 
 
Global economy resilient to political uncertainty
MONDAY
OCTOBER 28, 2013
RECENT NEWS HEADLINES HAVE BEEN DOMINATEDBY POLITICAL TURBULENCE.
Above all, the deep divide inthe United States Congress has helped increase economicpolicy uncertainty. Other factors are a degree of uncertaintyabout the formation of a new German government and a newwave of protests against fiscal austerity in southern Europe.Geopolitical tensions in North Africa and the Middle East arestill cause for concern, especially when it comes to dealingwith Syria’s chemical weapons.
DESPITE THESE CONCERNS, FINANCIAL MARKETREACTIONS HAVE BEEN RATHER MODEST.
By allaccounts, the effects on the real economy are notespecially significant. In recent weeks, we have postedcountry/regional reviews (Macro Updates) using incomingeconomic statistics and have published a new issue of
Eastern European Outlook 
. Our main conclusion is thatthe data have followed our expectations in the Augustissue of
Nordic Outlook
. The biggest change concernsan upward revision in Japanese growth. As earlier, weexpect global economic growth, measured in GrossDomestic Product (GDP) adjusted for purchasing powerparities (PPP), to climb from 3.2 per cent in 2013 to 4.0per cent in 2014 and 4.2 per cent in 2015.
OUR FORECAST IS STILL THAT US GROWTH WILLSPEED UP DURING THE NEXT COUPLE OF YEARS
 
andthereby serve as an important driver of the worldeconomy. The direct effect of the October partialshutdown of US federal government operations will be tolower the annualised fourth quarter GDP figure by anestimated 0.5 percentage points. For the first time in 17years, Congress failed to reach a budget agreement intime, accentuating the deep divisions in American politics.Although our main scenario is that a long-term budgetand debt ceiling agreement can be reached early nextyear, the risk picture has changed. In the August issue of
Nordic Outlook
, we estimated that the risks to our mainscenario were symmetric, with a 20 per cent probability ofboth a stronger and weaker economic scenario. Becauseof the new US political situation, we have raised theprobability of a worse outcome to 25 per cent. We havealso changed our estimate of when the Federal Reservewill start cutting back on its monthly securities purchases.Because of greater economic policy uncertainty and moremixed economic signals, we now expect “tapering” to beannounced after the Federal Open Market Committee(FOMC) meeting in March 2014.
 
IN THE EURO ZONE, ECONOMIC INDICATORS ARESTILL POINTING TOWARDS A WEAK RECOVERY.
Thecomposite purchasing managers’ indices (PMIs) in thefour largest countries
 – 
Germany, France, Italy and Spain
 – 
 have converged and are now close to the expansionthreshold of 50. After GDP growth of 0.3 per cent in thesecond quarter, we expect somewhat slower growthduring the second half of 2013. Measured as annualaverages, GDP will shrink by 0.5 per cent in 2013 and thenincrease by 0.8 per cent in 2014 and 1.7 per cent in 2015.In recent months, unemployment has been at 12.0 percent: a historically high level, but a marginal downturnfrom the peak of 12.1 per cent in prior months. In severalcrisis-hit countries, however, lower labour forceparticipation rather than more jobs is the reason whyunemployment has stopped climbing. Inflation wasmeasured at 1.1 per cent in September, and we expectcontinued low price pressure.
Global GDP growth
Y-o-y percentage change (brackets: August 2013
Nordic Outlook 
)
2012 2013 2014 2015
 United States 2.8 1.6(1.6) 3.3(3.3) 3.7(3.7)Japan 2.0 2.0(1.9) 1.9(1.4) 1.3(1.0)Germany 0.7 0.5(0.5) 1.7(1.7) 2.0(2.0)China 7.7 7.7(7.5) 7.4(7.4) 7.0(7.0)India 5.1 4.7(5.0) 5.5(5.6) 6.0(6.0)United Kingdom 0.2 1.5(1.5) 2.3(2.3) 2.6(2.6)Euro zone -0.6 -0.5(-0.5) 0.8(0.8) 1.7 (1.7)Nordic countries 1.0 0.6(0.8) 2,4(2.4) 2.6(2.5)Baltic countries 4.3 3.3(2.9) 3.7(3.8) 4.2(4.4)
OECD 1.4 1.2(1.2) 2.5(2.4) 2.8 (2.8)
Emerging markets 4.9 4.8(4.8) 5.3(5.3) 5.4(5.4)
The world, PPP*
 
3.4 3.2(3.2) 4.0(4.0) 4.2(4.2)
Source: OECD, SEB
 
* Purchasing power parities
 
EVEN THOUGH THE EURO ZONE RECESSION IS NOWOVER,
the region remains a weak link in the worldeconomy. Such figures as GDP growth, unemployment,competitiveness and public sector budget balances are
moving in the right direction
, but they are still at
worrisome levels
. Fiscal austerity and credit marketdisruptions will hamper euro zone economies for years to
 
 2
come. The European Central Bank (ECB) will have to keepworking proactively to keep interest rates and yields downin peripheral crisis-ridden countries. We are sticking toour assessment that the ECB will cut its refi rate by 25basis points in December 2013 and offer additional low-cost Long-Term Refinancing Operation (LTRO) loans tobanks. More steps will also be needed to prop up crisis-hitcountries, including a further Greek debt write-down.
PARTLY BECAUSE THE FED DID NOT ANNOUNCE ATAPERING OF ITS BOND PURCHASES IN SEPTEMBER,
financial markets in Asia have regained some of theirdownturns of last summer, when India and Indonesiawere especially hard hit. Meanwhile there are signs thatmost of the growth deceleration is now past for the regionas a whole. In
China
, GDP growth accelerated somewhatduring the third quarter, compared to the precedingquarter, reaching a year-on-year rate of 7.8 per cent. Wehave revised our forecast for 2013 upward and estimatethat China will surpass this year’s official target of 7.5 percent by a few tenths of a percentage point. The recentupturn has, however, largely been driven by centralgovernment infrastructure investments. Looking ahead,our assessment is that decision makers want to avoidmajor stimulus measures that will counteract their effortsto rebalance the economy towards consumption-drivengrowth. We thus believe that GDP growth will graduallydecelerate during the next few quarters, among otherthings because of a tighter credit environment.
UNLIKE CHINA, INDIA HAS BEEN HARD HIT BYFINANCIAL MARKET TURMOIL
. During the past month,however, India’s currency and stock market haverecovered some of their earlier downturns. Onecontributing factor is the reforms aimed at liberalising thefinancial sector that the Reserve Bank of India launched inSeptember. Meanwhile there are also certain signs ofstabilisation in growth; exports have performed stronglyin recent months and industrial production has alsoimproved. Underlying structural weaknesses remain inplace, however, and the central government is hardlylikely to implement any growth-promoting reforms beforethe spring 2014 election. Continued high inflation andbudget deficits also make it difficult to launch short-termstimulus programmes aimed at economic stabilisation.
THE NORDIC ECONOMIES WILL CONTINUE TO SHOWDIVERGENT PERFORMANCE.
In Sweden, the secondquarter GDP figure was revised downward relativelysharply, compared to the preliminary outcome. This is oneof the reasons why we have adjusted our full-yearforecast for 2013 downward from 1.2 to 0.8 per cent.Industrial indicators are still relatively weak while theservice sector index continues to climb towards normallevels. The situation of households is more solid;consumption is being stimulated by an expansionaryfiscal policy as well as by rising share and home prices.Combined with stronger international demand, we believethat GDP growth will climb to 2.6 per cent in 2014 andfurther to 3.2 per cent in 2015. Despite rising employment,the jobless rate will remain high. Because of low resourceutilisation along with weak inflation pressure, theRiksbank will wait until December 2014 before starting tohike the refi rate and may possibly delay its rate hikes untilearly 2015.
THE MOMENTUM OF THE NORWEGIAN ECONOMY HASWEAKENED SINCE EARLY 2013
.
In particular, householdgoods consumption has shown a downward trend.Meanwhile the housing market has cooled, which impliesa downside risk for residential construction ahead. GDPgrowth looks set to end up slightly below 1 per cent in2013, but we then expect an upturn to more than 2 percent annually in 2014 and 2015. Unemployment(according to the Labour Force Survey) rose to 3.6 percent during June-August, but this was due to an increasein the labour force; underlying job creation remainsstrong. Inflation provided a sharp upside surprise duringthe spring and summer. Core inflation (CPI-ATE) reached2.5 per cent in August but then fell to 1.7 per cent inSeptember. In this environment, Norges Bank faces adifficult balancing act. Due to concern about the strongNorwegian krone, we do not now expect an interest ratehike until September 2014. The deposit rate will stand at2.0 per cent by late 2014 and 2.75 per cent at the end of2015, but the risks are on the downside.
GDP growth in the Nordic countries
 
Y-o-y percentage change (brackets: August 2013
Nordic Outlook 
)
2012 2013 2014 2015
 Sweden 1.0 0,8(1.2) 2.6(2.6) 3.2(3.2)Norway 3.1 0.9(1.1) 2.4(2.7) 2.1(2.3)Denmark -0.4 0.5(0.4) 2.0(2.0) 2.5(2.5)Finland -0.8 -0.8(-0.3) 1.2(1.3) 1.6(1.6)
Nordics 1.0 0.5 (0.8) 2.4 (2.4) 2.6 (2.5)
 
Source: OECD, SEB
 
DENMARK WILL CONTINUE ITS MODEST RECOVERY.
During the second quarter Danish GDP rebounded, drivenby an upturn in both domestic demand and exports.Looking ahead, there is good potential for a continuedrecovery. Rising real wages and a housing marketturnaround will buoy private consumption. In addition,fiscal policy will shift in an expansionary direction after afew years of austerity. Despite stimulus measures, publicsector finances are expected to move into surplus duringour forecast period.
THE FINNISH ECONOMY IS STRUGGLING WITH BOTHCYCLICAL AND STRUCTURAL PROBLEMS.
This is mostclearly apparent in the current account balance, whichover the past decade has moved from surpluses of 8-9 percent of GDP to deficits of 1-2 per cent. Although theeconomy emerged from recession in the second quarter,
 
 3
the recovery will be more lacklustre than in the otherNordic countries. Despite the weaknesses in theeconomy, relatively strong central government financesmean that the fixed income market has remained stronglyconfident in the Finnish economy. The yield spread toGermany for 10-year government bonds has been around20-30 basis points in the past year. This represents loweryields than in Norway and Sweden, for example.
Håkan Frisén
, +46 8 763 80 67, hakan.frisen@seb.se 

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->