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Economic Outlook

Economic Outlook

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Published by Frode Haukenes
Economic Outlook
January 2010

Contents
OVERVIEW
The litmus test .............................................................................................. 4

Data overview
Key figures............................. 6 Interest rates ......................... 7 Exchange rates ..................... 7

Nordic economies
DENMARK
Sharp rise in consumer spending this year................................................................... 8

SWEDEN
Labour market stabilisation ........................
Economic Outlook
January 2010

Contents
OVERVIEW
The litmus test .............................................................................................. 4

Data overview
Key figures............................. 6 Interest rates ......................... 7 Exchange rates ..................... 7

Nordic economies
DENMARK
Sharp rise in consumer spending this year................................................................... 8

SWEDEN
Labour market stabilisation ........................

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Published by: Frode Haukenes on Jan 21, 2010
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02/28/2011

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Economic Outlook
January 2010
 
 
Contents 
3 January 2010 Economic Outlook
Data overview
Key figures
.............................
6
 
Interest rates
.........................
7
 
Exchange rates
.....................
7
 
Visit us at:
www.nordea.com/e-Markets
Editor
Helge J. Pedersen,
Global Chief Economist
helge.pedersen@nordea.comTel +45 3333 3126
Editorial deadline
14 January 2010
DENMARK 
Sharp rise in consumer spending this year
...................................................................
8
 
SWEDEN 
Labour market stabilisation
..........................................................................
10
 
NORWAY 
Growth to slow again in 2011
.......................................................................
12
 
FINLAND 
Employment to rise in second half-year
........................................................
14
ICELAND 
Slowly overcoming the crisis
.......................................................................
16
Nordic economies
USA
Upswing will continue, but at slower pace
....................................................
17
EURO AREA
Greater divergence between members characterises recovery
.....................
19
 
JAPAN 
Bright spots thanks to growth in neighbouring countries
.............................
21
 
UK 
Several signs of improvement
.....................................................................
22
 
SWITZERLAND 
Thriving domestic demand
..........................................................................
23
 
Major economies
POLAND 
Gradual recovery ahead
...............................................................................
24
 
RUSSIA
Weak domestic demand constrains economic recovery
................................
26
 
ESTONIA
EMU membership not a magic wand
.............................................................
28
 
LATVIA
Budget cuts lay a solid foundation for long-term growth
...............................
29
 
LITHUANIA
Domestic demand restricts growth
...............................................................
30
 
HUNGARY 
In for a long tough haul
................................................................................
31
 
CZECH REPUBLIC 
Suffering from austerity measures
...............................................................
32
CHINA
CNY appreciation soon to resume
................................................................
33
INDIA
The path to recovery is clearing up further
...................................................
34
BRAZIL
The economy is recovering – and now it’s election year
!
..............................
35
TURKEY 
Economy on strong growth path
..................................................................
36
Emerging Markets
OIL
All eyes soon back on capacity constraints
..................................................
37
OTHER COMMODITIES 
Metal prices to remain high
..........................................................................
38
Commodities
Data sources are Reuters EcoWin,national statistical bureaus andown calculations unless otherwisenoted.
Data sources:
OVERVIEW 
The litmus test
..............................................................................................
4
 
 
 Overview 
4 January 2010 Economic Outlook
The litmus test
At the threshold of the new decade it is clear that theworld economy has finally moved out of recession. Thehuge financial sector rescue packages and significantconcerted G20 easing of economic policies to kickstartthe economies have thus been highly successful.Economic growth especially in South-East Asia spear-headed by China has been strong. This is the only regionin the world where industrial production is now higherthan before the collapse of Lehman Brothers. Every-where else production has been set back several years de-spite the increased momentum. Global capacity utilisa-tion therefore remains weak, which dampens investmentneeds overall and worsens the labour market situation. Inaddition, it reduces the likelihood of strong private con-sumption growth, which is further limited by householdsin many countries consolidating their finances and in-creasing their savings.So even though the situation has improved a great dealcompared to just a few months ago, we still basically be-lieve that the current economic upswing will be moderateand only gradually gain momentum. So far the upswingin the industrialised countries has been driven by expan-sionary economic policies and inventory changes follow-ing the dramatic downturn in production towards the endof 2008 and in early 2009. Consequently, in our view thecoming six months will provide the ultimate litmus testof final demand and especially private consumption. Af-ter that period, we will know with greater certaintywhether the upswing will be stronger or weaker than wecurrently envisage in our baseline scenario.
Global imbalances remain
The global imbalances, which are one of the root causesof the severe crisis, have yet to be resolved. China, whichhas emerged from the crisis strengthened and is about totake over Japan’s role as the second-largest economy inthe world, still boasts a high savings ratio and a largecurrent account surplus. As China continues to gain mar-ket share at the expense of the industrialised countries,the US and the EU have increasingly implemented tradepolicy measures against China and demanded that theChinese authorities abandon the peg to the USD and re-sume the gradual revaluation of the CNY versus the USDand the EUR. We expect this to happen in the course of the coming quarters, but let there be no doubt: the Chi-nese monetary authorities alone will decide when to re-value the CNY and at what pace.The progress in China and investors’ growing risk appe-tite have been the key factors driving the recent pick-upin commodity prices. Oil prices are now back at levelsaround USD 80 a barrel, but also metal prices and pricesof soft commodities (sugar, fruit, coffee, soya beans,grain etc.) have skyrocketed. This increases the risk of arenewed setback to the world economy as the price in-creases ultimately will erode corporate profits andhouseholds’ purchasing power. The latter is especially atrisk because wage earners’ chances of obtaining compen-sation for the higher commodity prices are very slim dueto the international economic crisis.In addition, the rising commodity prices have caused thecurrencies of commodity-producing countries tostrengthen sharply. Brazil has even imposed capital re-strictions to prevent its currency from appreciating toofast and too much, and in several other countries, includ-ing Russia, the monetary authorities have said that theyconsider similar measures.
Tighter economic policy
The rising commodity prices are not the only risk factorfor global growth. Also the required tightening of mone-tary and fiscal policy, the so-called exit strategies, couldimpede a robust, self-sustaining economic upswing.No doubt, the extremely accommodative monetary poli-cies in the form of record low interest rates and quantita-tive easing measures are the key factors behind the in-cipient upturn in many national housing markets. Also,they support investment activity. This increases thechances of growth becoming self-sustaining and evenstronger than in our baseline scenario.However, the problem is that maintaining an accommo-dative monetary policy for too long could trigger bothhigh inflation and new bubbles in the equity and propertymarkets. While the inflation risk should not be exagger-ated at this juncture due to the unfavourable market con-ditions for businesses and the labour market situation, itwill clearly move higher up on the agenda in a few years’time unless policies are gradually tightened relativelysoon. A number of central banks, including those in Nor-way, Australia and Israel, have started to hike rates, butin our view rates in the Euro area will not be hiked untilend-2010 at the earliest, while the Fed in the US willlikely wait until early 2011. We also believe that the ratehikes will be fairly moderate due to modest inflationpressure as a result of significant idle capacity through-out the forecast period. But the phasing out of quantita-tive easing measures should start earlier, probably begin-ning in early H2 2010.Also fiscal policies will have to be tightened. In manycountries budget deficits and the public debt have in-creased so dramatically that international rating agencieshave found it necessary to downgrade these countries’credit ratings.Moreover, in accordance with the excessive budget defi-cits procedure, the EU Commission has recommendedmost EU countries to take steps to significantly tightentheir fiscal policies as early as this year.

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