Professional Documents
Culture Documents
International overview 5
Japan 21
Asia 22
Eastern Europe 29
The Baltics 30
Sweden 32
Denmark 41
Norway 42
Finland 45
Boxes
Cut-off date for calculations and forecasts was April 29, 2010.
Tomas Lindström
Economist
+ 46 8 763 80 28
Contributions to this report have been made by Thomas Köbel, Klaus Schrüfer, SEB Frankfurt/M and
Olle Holmgren, Trading Strategy. Stein Bruun, SEB Oslo is responsible for the Norwegian analysis
Our main scenario is that the recovery will continue A fourth phase started early in 2010. It is characterised
in spite of imbalances and crises. The Asian emerging by a focus on the sustainability of public sector com-
economies will remain an important engine of global mitments. The Greek crisis is the clearest example, but
growth. The American upturn is now beginning to gain other countries are also affected. Financial markets are
support from rising employment, while the competitive- also beginning to focus more broadly on the consequenc-
ness of German exporters is benefiting from a weaker es of stimulus measures and what will happen when they
euro. Overall, we expect global growth of 4.7 per cent, disappear.
both this year and next. In the 30 member countries of
Divergent government debt burdens Deep-seated problems in the PIIGS countries are hamper-
Per cent of GDP ing growth in the euro zone (see box). At present, our
110 110 basic scenario is that the core countries of the euro zone
100 100 will perform decently, among other things because the
90 SEB forecast 90 slide in the euro from previous high valuations will ben-
80 80 efit their exports.
70 70
60 60
GDP growth
Year-on-year percentage change
50 50
40 40 2008 2009 2010 2011
30 30 United States 0.4 -2.4 3.6 2.8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Japan -1.2 -5.2 2.4 2.2
Developed economies The Nordic countries
China 9.6 8.7 10.5 9.0
Emerging markets Euro zone 0.5 -4.0 1.5 1.8
Source: OECD, SEB United Kingdom 0.5 -4.9 1.5 2.0
Sweden -0.2 -4.9 3.0 2.7
So far, the fourth phase has revealed major divergences Norway 1.8 -1.5 2.0 2.3
in both the financial and economic situation. In Asian Denmark -0.7 -4.8 1.5 1.8
countries, expansion is continuing at a rapid pace. They Finland 1.2 -7.8 2.6 2.7
are benefiting both from good domestic fundamentals Nordic countries 0.5 -4.4 2.3 2.4
and an ever-larger influx of capital. The risks of new as- Baltic countries -0.7 -15.7 0.1 4.2
Emerging markets 6.1 2.4 6.8 6.4
set price bubbles are thus moving closer and closer.
OECD 0.6 -3.5 2.5 2.4
Those OECD countries that were primarily affected by World, PPP* 3.0 -0.6 4.7 4.7
World, nominal 2.0 -1.3 4.0 4.0
the crisis via the international trade collapse, but avoid-
* Purchasing power parities
ed severe damage to their financial sector and residential
market, are now rebounding more quickly. This applies, Source: OECD, SEB
for example, to Japan, Germany and the Nordic countries
(except Denmark).
US: Modest pace of debt retirement economic growth figures we foresee in the next couple
Per cent of disposable income of years are hardly sufficient to bring about any rapid
140 downturn in unemployment. Preventing unemployment
130 11 from ending up permanently higher than pre-crisis levels
120 9
will thus be a major challenge for economic policy in the
110 next couple of years.
7
100
90
The IMF is providing various advice on achieving this. In
5
80
countries like the US, for example, it recommends active
70
3 measures such as re-training grants to ease the impact of
60 1 deep crises in specific economic sectors. In Germany, the
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 IMF emphasises the importance of removing aid meas-
ures in an orderly way so as not to hamper the upturn.
Household debts (LHS)
Household savings ratio (RHS) It also recommends continued macroeconomic stimulus
Source: Federal Reserve
measures in those countries that have room for this. It is
clear that a pragmatic approach focusing on the special
Our conclusion is that because of extremely low inter-
situation of different countries dominates the IMF’s rec-
est rates, debt reduction is occurring at such a modest
ommendations.
pace that it can be combined with a fairly good economic
recovery. To some extent, this implies postponing adjust-
ment burdens. There is a long-term risk that interest rate Inflation will remain low
hikes combined with new rule structures in the credit During the past six months, Consumer Price Index (CPI)
market may contribute to more rapid debt adjustment. inflation in the OECD countries has climbed as the effects
of earlier energy price declines have faded from the sta-
Big differences in the labour market tistics. Instead, the recovery in energy prices has domi-
The consequences of the financial crisis on the labour nated the 12-month figures. We now expect CPI inflation
market have varied greatly between countries. In Ger- to fall in most countries when the contribution from en-
many, for example, unemployment has fallen, while it ergy prices becomes more neutral.
more than doubled in the US. These divergences can be Falling rate of pay increase
explained partly by different legislation regarding the Year-on-year percentage change
hiring and firing of employees. 4.5 4.5
4.0 4.0
There are also other reasons why labour market reac-
tion to a given GDP change has diverged from expecta- 3.5 3.5
via the collapse in world trade. The shape of crisis meas- Euro zone US
ures has also been of great importance. Many countries Source: ECB, BLS
mains very strained. Rule changes for the financial infra- Weak upturn in long-term yields
structure will also mean new strains and risks. In an interesting way, developments in the long-term
Key interest rates government bond market reflect the various dramatic
Per cent processes that dominate the world economy. Budget defi-
7 7 cits and a brighter economic situation are helping to push
6 6 up yields, while falling inflation has the opposite effect.
5 SEB 5
forecast Meanwhile an increasing focus on country risks has led to
4 4 sharper distinctions between different European coun-
3 3 tries. Yields have been pushed down in core countries led
by Germany, driven by both flight to quality and greater
2 2
uncertainty about the recovery. This is one of the reasons
1 1 why German and American long-term yields have recently
0 0 moved in different directions. German 10-year yields are
00 02 04 06 08 10
at almost the same low level as during the most intensive
Euro zone US Bank of England period of the crisis, while American ones are 125 basis
Source: ECB, Fed, SEB
points higher than at the end of 2008.
Differences in economic situation and in the vulnerabil-
ity of the financial sector are now leading to divergent
10-year government bonds
Per cent
strategies. The Asian central banks have begun monetary 7.0 7.0
tightening aimed at preventing market bottlenecks and 6.5 6.5
SEB
asset bubbles. The leading central banks in the OECD 6.0 forecast 6.0
countries, however, continue to send out relatively gen- 5.5 5.5
tle signals and are focusing on being careful to prop up 5.0 5.0
4.5 4.5
the economic recovery.
4.0 4.0
3.5 3.5
We thus anticipate that it will take until December be-
3.0 3.0
fore the Fed begins hiking its federal funds rate. Before 2.5 2.5
that, it will withdraw liquidity from the market, while 2.0 2.0
it will wait until mid-2011 before slimming down its bal- 99 00 01 02 03 04 05 06 07 08 09 10 11
ance sheet by beginning to sell off assets. The ECB will US Germany
begin hiking its refi rate in March 2011. As early as this Source: Reuters EcoWin, SEB
pull in the other direction. The yield spread between have also been an important explanation, as shown by
Norway and Germany will remain around 70 basis points currency appreciation in commodity-producing emerging
in the next few months. After that, we expect continued economies. In addition, the recent increase in concerns
key rate hikes by Norges Bank to help widen the spread about fiscal problems has also been of great importance.
to 80 basis points towards year-end, after which it will
fall somewhat in 2011. The escalation of the crisis in Greece, along with its
secondary effects especially on Portugal and Ireland, has
Stock markets face new challenges continued to push down the euro. Powerful international
Share prices have continued upward in recent months rescue programmes are now being put in place, which
after a minor slump early in 2010. Positive macroeco- will stabilise the situation in the short term. But the
nomic signals and indications of continued, extended crisis has exposed fundamental problems in the euro
support from low interest rates have helped fuel the system, and the necessary budget tightening will hamper
upturn. In addition, company financial reports have been growth, even in a more long-term perspective. The pain
very strong. Many industrial companies have shown great threshold for how strong a currency the euro zone can
skill in transitioning to larger sales in expansive markets, tolerate has thus been lowered. We thus believe that the
primarily in Asia. High margins have also contributed to a euro will continue to weak. We predict that it will stand
clear increase in profits, despite modest volume increas- at USD 1.20 by the end of 2011. The British pound will
es (a kind of leveraging effect). also regain ground against the euro. By the end of 2011,
the EUR/GBP exchange rate will be 0.80.
Stock market performance
Index 100 = January 2007
Currency movements since the EUR/USD peak
150 150 Percentage change against USD since December 3, 2009
140 140 5,0%
130 130 3,0%
120 120 1,0%
110 110 -1,0%
100 100 -3,0%
90 90
-5,0%
80 80
-7,0%
70 70
-9,0%
60 60
50 50 -11,0%
40 40 -13,0%
Jan May Sep Jan May Sep Jan May Sep Jan May -15,0%
07 08 09 10
D
D
XN
ZD
N
R
R
K
Y
R
H
N
TR
B
JP
A
O
IN
PL
SE
EU
R
C
M
G
C
N
K
an attractive alternative in the prevailing international The Norwegian krone will benefit from rising oil prices,
climate and flight to safety. We thus expect the EUR/SEK twin surpluses in the budget and current account and
exchange rate to be 9.00 as early as the end of 2010. tighter monetary policy ahead. The strength of the krone
will help push down inflation during 2010. Looking ahead,
Krona tracks business optimism Norges Bank thus regards a somewhat weaker NOK as
11.5 -60 desirable. But in the prevailing international environ-
-50
11.0 ment, replete with fiscal worries, it is difficult to foresee
-40
10.5 anything but continued krone appreciation. We forecast a
-30
EUR/NOK rate of 7.75 in December 2010.
10.0 -20
9.5 -10
0
9.0
10
8.5 20
8.0 30
98 99 00 01 02 03 04 05 06 07 08 09 10
EUR/SEK (LHS)
Business confidence, net balance (RHS)
Source: NIER, SEB
Reforming the financial infrastructure Limiting the build-up of excessive leverage ratios
The potential to achieve the aims in the third point Strengthening both short and long-term liquidity and
are discussed below. financial buffers (liquidity coverage ratio, structural
liquidity ratio)
New financial infrastructure − getting there
Introducing a financial sector tax
The purpose of introducing new requirements and regu-
lations for banks and other financial institutions is to The purpose of the international process is to find the
create a financial infrastructure with a higher degree of lowest common denominator. But it is always possible
resilience and stability. Fundamental questions in this for a country or region to introduce tougher require-
context are what functions the financial sector should ments than the minimum ones that apply at the interna-
have and how big it should be. Another question that de- tional level.
cision makers are increasingly facing is whether a strat-
egy of gradual changes is the most fruitful, or whether
Higher cost of capital
more far-reaching reforms are needed.
At present it is difficult to assess the impact of the
proposals on the credit market and the overall economy.
There is great uncertainty about which measures will
TODAY FUTURE
actually be enacted. The politicians have “pledged” that
these proposals will not jeopardise the healing process in
the financial sector and/or the economic recovery. This
summer, impact assessments that examine this will be
presented.
normal during a transitional period. In addition, the many financial institutions need to extend the maturity
cost of capital will establish itself at a higher level than of their borrowing. The process is being accelerated
before the crisis. One reason for this is that the cost of because central banks are reducing their quantitative
equity for banks is normally higher than the cost of de- easing operations, while regulators are requiring a bet-
posits. ter match between long-term deposits and lending in the
banking system.
Credit conditions remain squeezed Since funding with longer maturities is more expen-
The situation in the global credit market has improved
sive than today’s borrowing via central banks, this will
appreciably in the past year, but due to the lingering
squeeze future profitability. Also squeezing profitability is
effects of the economic and financial crises and new
greater competition for household and company deposits
rules/requirements, the situation is far from normal.
and the fact that the yield curve will eventually become
Depressed profitability and maturing loans for the bank-
less steep.
ing sector totalling about USD 5 trillion during 2010-2012
will result in major strains. Low credit expansion in euro zone
Year-on-year percentage change
The need for banks, governments and companies to re-
12.0 12.0
finance maturing loans (and finance new deficits) simul- Credit growth
taneously may create upward pressure on interest rates. 10.0 10.0
But a maturing loan also means that an investor needs to 8.0 8.0
find somewhere to put his funds. The important question 6.0 6.0
is whether, for example, the investor will demand com-
4.0 4.0
pensation for extending the maturity of a loan and for Average M3
2.0 2.0
accepting a foreign exchange or credit risk. Money supply growth (M3)
0.0 0.0
The global banking system’s credit side has not yet been
-2.0 -2.0
restored. Further write-downs can be expected. Ac- 92 94 96 98 00 02 04 06 08 10
cording to a compilation by the IMF, global write-downs
Source: ECB
realised to date total USD 1.5 trillion. Write-downs of
another USD 700 billion or so are expected in the near
The calculations that the IMF has recently published
future. The situation is the most serious in the United
about the “funding gap” (estimated credit capacity mi-
Kingdom, where write-downs are by far the largest in
nus credit demand from the non-financial sector) focus
relation to the size of the economy. The euro zone, on
primarily on the UK, where the 2010 budget deficit is
the other hand, has a larger percentage of overall write-
projected at about 10 per cent of GDP, while the cor-
downs ahead.
responding imbalance in the euro zone and the US is only
New write-downs ahead for banking sector. equivalent to 2 per cent of GDP.
200 400
350
70
100 100
80
20
0
US UK Eurozone Other Asia
Europe
Source: IMF
than we anticipated in our February forecast. GDP ISM Composite index (LHS) Real GDP (RHS)
growth will end up at 3.6 per cent this year and 2.8 Source: ISM, Department of Commerce
Higher consumption despite weaker income Consumption will grow more strongly than disposable
Household consumption rose significantly faster than income this year, and the opposite will be true in 2011.
expected in the first quarter, even though disposable Consumption growth will end up just below 2½ per
income actually fell in real terms. The upturn reflects an cent both this year and next. Household confidence
unexpected fall in the household savings ratio. Wealth- indicators remain at historically very low levels. This sup-
based savings models indicate that the savings ratio ports a cautious consumption forecast. Consumer confi-
should climb substantially from today’s levels. But over dence is compatible with consumption growth of 1-1½
the past two decades, such models have generally over- per cent this year: well below our forecast.
estimated the savings ratio. There are many signs that
the Fed’s low interest rate policy will help this pattern to Household balance sheets on the mend
Ratio
persist during the next couple of years. Our forecast for
9.5 Long-run average 3.00
this period is thus no longer based on a sharp upturn in 9.0
2.75
savings. The savings ratio will amount to 3 per cent this 8.5
8.0 2.50
year and then rise moderately to 3.6 per cent in 2011,
7.5
measured as annual averages. 7.0 2.25
6.5 2.00
Weak income growth will nevertheless restrain private 6.0
5.5 1.75
consumption. The labour market recovery looks set to 5.0
Liquid assets = deposits, credit market instruments
and corporate equities 1.50
follow the pattern of the two most recent economic up- 4.5
4.0 1.25
turns: employment growth will be considerably slower
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
than the usual scenario during the period 1950-1983,
when fast-growing employment laid the groundwork for a Total assets to liabilities (LHS)
Liquid assets to liabilities (RHS)
sharp upturn in consumption during the first year of reco- Source: Federal Reserve
very. In addition, tax hikes are likely in 2011. Our overall
Household balance sheets will remain an obstacle to
forecast is that real disposable income will grow by a
growth in the longer term as well. Because of house-
low 1 per cent this year and 3 per cent in 2011.
hold debt retirement, combined with the stock market
upturn, the ratio between household (liquid) assets and 162,000. We expect business sector employment to con-
liabilities looks healthier than a year ago. But this ratio tinue rising during the rest of 2010. Cutbacks during the
still has a long way to go before reaching its long-run economic crisis were forceful; this is reflected by far
average. higher sustained US productivity growth than in Western
Europe, for example. The need to rehire employees is
Housing market shaky once again thus likely to become apparent relatively soon, but due
The housing market is normally the sector that rebounds to the moderate production upturn, during the coming
first when monetary policy eases. But despite record- year we expect private sector employment growth not
low interest rates, the Fed’s purchases of mortgage to exceed an average of 130,000 jobs per month, or less
bonds and government subsidies to home buyers, hous- than 1½ per cent on an annualised basis.
ing statistics have been a disappointment over the past
six months. The National Association of Home Builders During the spring nearly a million people are working on
(NAHB) index of construction industry confidence rose short-term contracts for the 2010 Census, which is tem-
to 19 in April but this is the same level as in September porarily driving up public sector employment. This ef-
2009 and is far below the 50 mark that indicates growth. fect totalled 48,000 in March. Public sector employment
is nevertheless being undermined by the poor financial
Another 5 to 6 million foreclosures are in the pipeline, health of state and local governments, indicating a con-
which means that the “shadow supply” of homes is tinued need for employee cutbacks. State and local gov-
considerably larger than the 8-9 months of inventory ernment employees total around 20 million people and
that the official figures indicate. The supply situation is thus represent about 15 per cent of the US labour force,
holding down both prices and new construction. Hous- compared to fewer than 3 million federal jobs.
ing starts will total 620,000 this year and 850,000 in
2011, measured as annual averages. Overall, the employment upturn will not be enough to
push down the jobless rate especially far. We expect US
The S&P/Case-Shiller home price index, the main price unemployment to average 9.5 per cent this year and
measure that the market focuses on, has climbed eight 8.9 per cent in 2011. Hours worked will increase by less
out of the last nine months in seasonally adjusted terms. than 2 per cent in the coming year.
Without seasonally adjustments, however, it has fallen
for five months in a row. Meanwhile, alternative meas- Continued high unemployment will contribute to a clear
ures such as the FHFA and Loan Performance home price wage and salary squeeze. In the past year, average hourly
indices have turned downward again. By year-end, we wages have risen by 1.8 per cent, which is lower than
expect the S&P/Case-Shiller index to remain close to cur- the rate of increase in the Consumer Price Index during
rent levels, but the risk is on the downside. This spring, the same period. This pay squeeze will continue during
before bouncing back in March, home sales weakened to our forecast period. In 2010, hourly wages in the private
new lows and this points towards continued depressed sector will go up by 1.6 per cent and in 2011 by 1 per
prices. cent: the lowest rate of increase in recent decades.
Unit labor cost relative to inflation growth in M2 has fallen below 1.6 per cent, compared to
Year-on-year percentage change 8 per cent a year ago.
15.0 15.0
12.5 12.5
MZM now below the zero line
82% correlation Year-on-year percentage change
10.0 10.0 40 40
7.5 7.5 35 35
5.0 5.0 30 30
2.5 2.5 25 25
0.0 0.0 20 20
15 15
-2.5 -2.5
10 10
-5.0 -5.0
5 5
50 55 60 65 70 75 80 85 90 95 00 05 10
0 0
Unit labour cost CPI inflation -5 -5
Source: BLS
80 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Our forecast is that core inflation will fall from 0.9 per MZM M2
cent this year to 0.5 per cent in 2011. Consumer Price Source: Federal Reserve
Index inflation will also fall after a temporary energy- In addition, the decline in bank lending is continuing.
driven upturn. Altogether, we expect inflation to end up This decline is currently more than 8 per cent year-on-
at 1.5 per cent this year and 0.7 per cent next year. year, which means that we are still in the midst of the
steepest downturn in at least 40 years. The Fed has un-
Further decline in core inflation
Year-on-year percentage change
derscored that it is keeping an eye on the development.
6 6 In our assessment, monetary curves must begin to point
5 SEB 5
upward before interest rate hikes begin to make sense.
forecast
4 4
Bank lending keeps falling
3 3 Year-on-year percentage change
2 2 20 20
1 1
15 15
0 0
-1 -1 10 10
-2 -2
5 5
98 99 00 01 02 03 04 05 06 07 08 09 10 11
0 0
Core inflation Headline inflation
Source: US Department of Commerce, SEB
-5 -5
One important reason for the Fed’s caution is probably In spite of this, we are sticking to our forecast that the
that the transmission mechanism still works poorly. The Fed’s first key rate hike will occur in December 2010
monetary base is currently increasing at around 20 per and that the federal funds rate at the end of 2011 will be
cent on an annualised basis. Meanwhile broad measures 2 per cent. Meanwhile preparations are under way to
of money supply are continuing to fall; for the first time pave the way for a normalisation of monetary policy. This
in 15 years, MZM growth is now below zero. Year-on-year year it is mainly a matter of testing the tools for with-
drawing liquidity. The arduous task of slimming the bal- The higher yield caused by rising government debts, large
ance sheet by selling assets will not begin until 2011 at budget deficits and acerbic announcements from rating
the earliest. agencies thus have to be weighed against the squeeze on
Sharp moderation in underlying inflation yields resulting from continued low capacity utilisation
Year-on-year percentage change and a falling trend of inflation.
5.5 5.5
5.0 5.0 Health care reform approved
4.5 4.5 Congress finally voted in favour of President Obama’s
4.0 4.0
health care plan. According to the Congressional
3.5 3.5
3.0 3.0 Budget Office (CBO), the plan will cost an estimated
2.5 2.5 USD 940 billion over a 10-year period. It will provide
2.0 2.0 coverage to 32 million Americans who lack medical
1.5 Fed central tendency: core PCE inflation in 2010 1.5
insurance today. Its costs will be funded with the help
1.0 1.0
0.5 0.5 of new taxes on high income earners, fees on health
84 86 88 90 92 94 96 98 00 02 04 06 08 10 care companies and cuts in Medicare.
FRB Cleveland, Median
FRB Cleveland, 16% trimmed-mean
The health care reform is a major success for the
Source: Cleveland Fed administration. It signifies that in the future, Barack
Obama may be counted as one of the few presidents
Fading stimulus effects
who reshaped American society. But its impact in the
Our assessment of fiscal policy has not changed signifi-
form of GDP growth and budget deficits will be very
cantly since February; stimulus measures will contribute
small during the next couple of years. Not until 2012
1 percentage point of GDP to growth this year and -0.8
will the reform help lower the federal deficit.
per cent in 2011. The federal budget deficit, which to-
talled USD 1.4 trillion in fiscal 2009 (9.9 per cent of
GDP), will reach close to USD 1.6 trillion this fiscal year
and USD 1.4 trillion next year. Federal debt, which stood
at 84 per cent of GDP in 2009, will be just below the 100
per cent mark at the end of our forecast period. The
difficulties of managing such a high debt level will mean
that the country’s sovereign credit rating may be in
danger a few years from now. The risk that the US may
lose its AAA status has increased “substantially”, accord-
ing to Moody’s ratings agency. One common rule of thumb
is that government bond yields rise by about 50 basis
points if their credit rating is downgraded by one step.
*
Debt to GDP ratios
Per cent of GDP
130 130
120 SEB 120
110 forecast 110
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Surprising strength
Record-fast export recovery GDP growth will reach nearly 2.5 per cent this year,
half a percentage point higher than our February forecast
Unemployment below 5 per cent
and above the consensus view. Exports will increase by
Bank of Japan will raise key rate in 2011 6-7 per cent, capital spending by more than 4 per cent
and private consumption just above 2 per cent. Next
year, growth will total more than 2 per cent, also an up-
The Japanese economy is doing better than expected. ward adjustment from our February forecast.
Exports of goods and services, which fell by nearly 25 per
The economic rebound is pulling the labour market with
cent last year despite a fourth-quarter lift, have contin-
it; unemployment peaked at 5.6 per cent last year and
ued to climb thanks to higher demand from China and
fell unexpectedly to 4.9 per cent in January 2010. The
other Asian countries. Exports to China rose by a full 30
downturn occurred faster than anticipated and we fore-
per cent in the fourth quarter and will continue upward
see a continued downturn, albeit at a fairly slow pace.
this year. Total exports have not increased so fast since
The jobless rate will average just below 5 per cent this
1980, but this is occurring from a low level, at present
year and about 4.5 per cent in 2011.
about 20 per cent below that of a year ago.
Deflation pressure will continue in Japan but will be
Tankan Survey: Take-off in manufacturing
Net balance
somewhat less powerful. CPI inflation bottomed out at
40 40 -2.5 per cent in October 2009 and is now at about -1 per
cent (negative inflation 13 months in a row). We expect
20 20
rather small movements ahead, and CPI inflation will
0 0 average -0.6 per cent in 2010. Next year, decent GDP
-20 -20 growth and an improved labour market will help inflation
climb above zero again.
-40 -40
Fiscal and monetary tightening We foresee encouraging prospects for good Chinese eco-
Inflation under control in China nomic performance ahead. Several policy tools, the same
ones employed to stimulate the economy, will need to be
used. With the aid of fiscal belt-tightening (starting next
year), a higher key interest rate and currency apprecia-
The 2009 global recession pulled down growth in Asian
tion, growth will decelerate to a level compatible with
emerging countries to its lowest level in eight years,
a controlled inflation rate. Yuan appreciation will begin
but these economies have shown better resilience than
late in the second quarter and be about 5 per cent this
the West. China and India were among the countries
year and somewhat more in 2011. When this occurs, it
that managed to maintain a relatively good growth rate,
will be an important signal that the authorities view do-
driven by sharply expansionary fiscal and monetary poli-
mestic demand as more robust and not so dependent on
cies. Because of their strong balance sheets, many Asian
stimulus programmes.
countries had room to respond to the economic crisis
with vigorous fiscal policies. The average stimulus in 15 Belt-tightening and base effects will slow growth, start-
Asian developing countries is equivalent to 7.5 per cent ing in the second half of 2011. GDP growth will thus
of GDP over the years 2008-2010 (India about 4 per cent not exceed 10.5 per cent in 2010 and 9.0 per cent in
and China about 14 per cent), compared to less than 3 2011. Reforms in education, health care and pension
per cent of GDP in the G7 countries. systems will enable households to reduce their precau-
tionary saving. Rising private consumption could thus
In Asia the recovery began as early as the second half
decrease the Chinese economy’s dependence on exports.
of 2009. Signals from a number of countries now indicate
good growth. The challenge ahead will be to ensure that Inflation in China and India
the recovery in domestic demand can survive on its own Per cent
power, without support from stimulus measures. 15.0 15.0
12.5 12.5
China’s GDP growth bottomed out as early as the first 7.5 7.5
quarter of 2009. Because of rapid growth after that, 5.0
5.0
strengthened by stimulus-driven domestic demand and
2.5 2.5
exports, growth reached 8.7 per cent in 2009. In the first
quarter of 2010, GDP was up by 11,9 per cent, in line 0.0 0.0
with our February forecast. Our assessment that the GDP -2.5 -2.5
will rise at a 12 per cent rate in the first half thus re- Jan May Sep Jan May Sep Jan May Sep Jan
07 08 09 10
mains in place. There are many indications of continued China India
good growth. Leading indicators are at pre-crisis levels Source: Reuters EcoWin
and consumer confidence has strengthened. Output data India: Good growth but high inflation
also show strong performance. Industrial production rose India has also weathered the crisis well, but fiscal ex-
by 18.1 per cent in March; retail sales and capital spend- pansiveness has swelled already large public sector
ing in manufacturing have recovered. deficits to around 10 per cent of GDP this year and next.
Because of the rapid increase in domestic demand, Chi- Industrial production has been growing since the fourth
na’s trade balance during March was negative for the first quarter of 2009 by more than 10 per cent year-on-year.
time since 2004. The risk of overheating has persuaded Meanwhile inflation has climbed above 10 per cent. Cer-
Chinese authorities to tighten economic policy since last tain price controls have been imposed, and the central
autumn, mainly by placing limits on lending; M2 money bank has raised its reserve requirements for banks and
supply and lending by the banks are now expanding more hiked its key interest rate. Further rate hikes plus fiscal
slowly. So far, however, the upturn in inflation has been tightening measures are expected to slow price increases
moderate, despite rising economic activity. CPI inflation ahead as the economy cools off. We expect GDP to grow
is now around 2.5 per cent, while core inflation is slightly by 8.0 per cent in 2010 and 7.0 per cent next year.
to more than 10 per cent of GDP, with the aim of bringing unemployment of nearly 20 per cent: almost double the
down the deficit to less than 3 per cent of GDP by 2014. 2007 figure. Youth unemployment is as high as 30 per
The package is sizeable enough to give Greece a chance cent. The labour market situation has made Spanish
to implement the necessary belt-tightening, but mean- households uncertain, which is apparent from their high
while it is too early to declare an end to the emergency level of precautionary saving (the household savings ratio
before these measures are actually in place and lower is now at 18 per cent).
budget deficits begin to be reported. What has been an-
Positive signs in the labour market
nounced to date is that Greece’s budget consolidation Year-on-year percentage change and net balance
programme includes lower wage and salary payments in 2.5 5
the public sector, a hike in value-added tax and a higher 2.0 0
retirement age. This has triggered protests, and there is 1.5 -5
1.0
still a risk that the government will not have the stamina -10
0.5
-15
to implement all these measures. 0.0
-20
-0.5
After Greece, Portugal is the country that runs the great- -1.0 -25
-30
est risk of being hit by market instability. Large government -1.5
-2.0 -35
budget and current account deficits, combined with limited -2.5 -40
political experience of belt-tightening programmes, make 00 01 02 03 04 05 06 07 08 09 10
this small economy highly vulnerable. After that comes
Employment (LHS)
Spain, whose extremely high unemployment and weak Expected employment (RHS)
real estate market provide fertile ground for market scepti- Source: Eurostat, European Commission
fewer hours but keep most of their regular pay. This 1.0 2.0
form of job sharing has served as a bridge over the eco- 1.5 1.5
nomic crisis. Since businesses have been able to retain 2.0
1.0
employees, they are now ready to ramp up production 00 01 02 03 04 05 06 07 08 09 10 11
quickly once the economy turns around. In Germany, Change in unemployment, shifted two years forward (LHS)
this allowance system has probably saved more than Change in total wage and salary cost in industry (RHS)
Source: Eurostat, SEB
500,000 jobs.
Yet unemployment has continued upward in other euro But regardless of this, today’s levels are extreme, which
zone countries, despite measures to stimulate jobs. It has an impact on the actions of both sides in the labour
now stands a bit above 10 per cent in France and at 8.5 market. Employers cite continued profitability problems,
per cent in Italy. In Spain, the trend is disastrous, with while employees and trade unions seem to be focusing
more on preserving jobs than on boosting wages and sala- inflation will subside in the coming months. This is why
ries. Overall euro zone labour costs in the manufacturing we now predict a falling inflation path: the rate of HICP
and service sectors, which rose by 4.5 per cent year-on- inflation will be 1.1 per cent in October 2010, then fall
year late in 2008, have actually slowed a bit more quick- to 0.7 per cent in December and bottom out at a low
ly than expected. In December 2009 the rate of increase 0.3 per cent in April 2011. Measured as annual averages,
was 2.2 per cent, and there are now many indications HICP inflation will be 1.1 per cent this year and 0.8 per
that labour cost increases will decelerate further to cent next year. Underlying inflation will gradually fall
about 1 per cent in 2011. from today’s 1 per cent to zero in December this year. As
capacity and resource utilisation cautiously rise, it will
Core inflation will continue downward then climb slowly, ending up between 0.2 and 0.9 per
Inflation in the euro zone, as measured by the Harmo- cent during 2011. In terms of annual averages, underlying
nised Index of Consumer Prices (HICP), rose unexpectedly inflation will be 0.6 per cent this year and 0.5 per cent
to 1.4 per cent in March from 0.9 per cent the month in 2011.
before. One reason was a rapid increase in energy prices
due to the cold weather early in 2010, but this burst of
Great need for internal devaluations yet begun; despite large budget and current account
One fundamental reason for the tensions that now deficits, the country had higher inflation than the euro
characterise the euro zone is the large differentials in zone average.
the cost increase situation, mainly between Germany
and the PIIGS countries. Since 2000, the accumulated
Budget balance, central government debt,
effects of higher pay increases and lower productiv- current account and inflation deviation,
ity growth on competitiveness have totalled around 2009
50 per cent in Greece and about 35-40 per cent in the Budget Debt CA ΔHICP ΔCore
other PIIGS countries. Taking into account that at the
Greece -13.6 115.1 -11.2 1.1 0.9
turn of the millennium, Germany probably started
Ireland -14.3 64.0 -2.9 -2.2 -2.8
with a higher cost level than the PIIGS countries, the
trend is somewhat less dramatic, but a reasonable Spain -11.2 53.2 -5.1 -0.5 -0.6
estimate is that the need for adjustment is in the 20- France -7.5 77.6 -1.5 -0.2 0.0
30 per cent range. Portugal -9.4 76.8 -10.1 -1.1 -0.9
Slovakia -6.8 35.7 -3.2 0.4 0.3
Major deterioration in competitiveness
Trend of unit labour costs, index 2000=100 Slovenia -5.5 35.9 -0.3 0.6 0.1
160 160 Belgium -6.0 96.7 -0.3 -0.3 0.7
150 150
Italy -5.3 115.8 -3.4 0.4 0.3
140 140
Netherlands -5.3 60.9 5.2 0.5 0.0
130 130
Austria -3.4 66.5 1.4 0.1 0.3
120 120
Germany -3.3 73.2 4.8 -0.1 -0.1
110 110
Finland -2.2 44.0 1.4 1.2 0.8
100 100
Luxembourg -2.2 15.0 5.7 0.0 0.6
90 90
00 01 02 03 04 05 06 07 08 09 10 11 Budget balance, debt and current account (CA) are measured as
a percentage of GDP, inflation deviation (ΔHICP, ΔCore) as the
Greece Portugal Spain
Ireland Italy Germany difference between actual inflation (HICP and core inflation) in
Source: OECD each country and the euro zone average.
Core inflation will bottom out late in 2010 At present, however, the interest rate puzzle is not so
Per cent difficult, since other factors also justify low interest
4.5 4.5 rates: GDP growth is below trend, inflation is below tar-
4.0 4.0 get, credit and money supply growth are low, and infla-
3.5 3.5
tion expectations are low and stable. In addition, the
3.0 3.0
2.5
SEB
2.5 Euro Overnight Index Average of interbank interest
forecast
2.0 2.0 rates (EONIA) is still about 70 basis points below the
1.5 1.5 refi rate. This means that the ECB can begin tightening
1.0 1.0
0.5 0.5
interest rates without touching its key rate. We expect
0.0 0.0 EONIA to stay at its current level until mid-2010, then
-0.5 -0.5 gradually be raised toward the refi rate. The first refi
-1.0 -1.0
rate hike will come in March next year; the refi and
01 02 03 04 05 06 07 08 09 10 11
EONIA rate will then be raised to 1.25 per cent. The
Core inflation HICP inflation refi rate will be 2.25 per cent at the end of 2011.
Source: Eurostat, SEB
eral, despite the country’s poor credit rating. The risk 5.0 5.0
that additional countries (for example Portugal and 2.5 2.5
Spain) will have problems cannot be ruled out either, and
0.0 0.0
this poses further demands on the ECB’s precision in tim-
ing interest rates. Raising the refi rate too early might -2.5 -2.5
99 00 01 02 03 04 05 06 07 08 09
kill economic recovery in the region.
Credits M3
Overnight interest rate still below refi rate Source: ECB
Per cent
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
08 09 10
EONIA O/N Refi rate
Source: Reuters EcoWin
Public finances and long-term yields To determine how yields with different maturities
The association between a country’s public sector are affected by budget deficit and debt levels, we
finances and bond yields has been in the spotlight have estimated yield equations for the 16 euro zone
during recent months; the bigger a country’s budget countries between 1980 and 2009. The table shows,
and central government debt problems are, the higher among other things, that a one percentage point in-
its yields will be, especially for longer maturities. For crease in the budget deficit (measured as a share of
example, yields on ten-year Greek sovereign debt are GDP) increases the ten-year yield by 0.50 percentage
currently around 10 per cent and on German debt points (50 basis points). The corresponding effect on
around 3. Such large spreads are directly connected five- and two-year yields is 47 and 45 points. No effect
to the risk of defaults. But even given more normal from debt level can be found. The table also shows
central government budget and debt levels, there is that a one percentage point increase in GDP growth
an association that has to do with the relation be- raises the ten-, five- and two-year yield by 12, 19 and
tween savings and investments in the economy as a 15 points, respectively. This result is quite consistent
whole. If savings decline compared to investments, for with studies from the IMF, which are related to the
example as a consequence of an expansionary fiscal United States, however.
policy, yields go up. This explains why countries with
Estimates of the slope of the yield curve are present-
large current account surpluses (i.e. high national
ed in the lower table. A one percentage point rise in
savings) often have low yields. Long-term yields are
the budget deficit boosts the 10yr-3m curve (ten-year
also affected by economic and inflation prospects: the
yield minus three-month yield) by 13 basis points, the
stronger economic growth and inflation are, the higher
5yr-3m curve by 10 points and the 2yr-3m curve by 7
both key interest rates and long-term yields will be.
points. This time debt level also has an impact. A one
Public finances and long-term yields in percentage point higher debt ratio leads to 4, 2 and 2
the euro zone point steeper yield curves. These results are also con-
sistent with other studies.
10 year 5 year 2 year
Bond yields
GDP growth 12 19 15
Budget deficit 50 47 45
Central government debt - - -
Source: SEB
The UK parliamentary election is being held on May The Conservatives have proposed an 80-20 allocation
6, two days after Nordic Outlook appears. It appears between spending cuts and tax hikes. We expect a
likely that the result will be a minority government value-added tax hike of nearly two percentage points
(due to a “hung Parliament”) for the first time since in 2011, pushing up CPI, yet our inflation forecast in-
1974. Recent Liberal Democrats successes in public dicates mild price increases. Inflation will reach 2.8
opinion polls seem to be creating a new situation in per cent in 2010 and 1.3 per cent in 2011.
British politics: three almost equally large parties.
Regardless of the election outcome, the government Tightening measures will lower demand, but offsetting
will face exceptional challenges. The British economy this is that the BoE will move slowly and cautiously with
is struggling with deeper imbalance problems than its key interest rate hikes: the first hike will come in
other leading economies. According to IMF estimates, December, and in December 2011 the key rate will
for example, the UK has a funding gap (credit sup- be a low 2.0 per cent. Partly due to low mortgage loan
ply minus demand) of a full 10 per cent of GDP, while rates, home prices have rebounded fast. According to
both the US and the euro zone are near balance. the Nationwide index they are up 9 per cent in the past
year, despite indications that residential properties are
clearly overvalued.
Questions about inflation in Estonia GDP downturn during the depression-like period 2008-
We expect Estonia’s GDP to increase by 2 per cent in 2010 will thus end up exceeding 25 per cent. Next year,
2010 and 5 per cent in 2011, after last year’s 14 per cent however, a decent recovery will occur and GDP will grow
decline. A high ratio of exports to GDP and heavy de- by 4 per cent. Fiscal austerity will then ease, while the
pendence on the expansive Nordic economies will benefit labour market will improve somewhat.
the recovery. Estonia’s expected euro zone accession in
Budget consolidation remains a top Latvian government
January 2011 also strengthens its growth prospects, via
priority. The deficit was 9 per cent of GDP last year, or
somewhat higher investments.
below the 10 per cent ceiling that international creditors
Our main scenario (which we raised to a 90 per cent had stipulated in their bail-out loan programme. We be-
probability in the March issue of Eastern European Out- lieve that Latvia will barely meet the 8.5 per cent ceil-
look) is that Estonia will meet all Maastricht criteria ing in 2010 and the 6 per cent deficit limit in 2011, but
− such as price stability, public finance and currency the political risk related to belt-tightening policies has
stability − during the evaluation that the European Com- increased since last winter after one party left the five-
mission and the ECB will perform in May and that the EU party coalition. A minority government is thus running
summit early in the summer will give Estonia the green the country as the autumn parliamentary election draws
light. Last year’s budget deficit was 1.7 per cent of GDP, closer. Since individual opposition parties have, in prac-
well below the 3 per cent Maastricht limit. This year we tice, declared their support for the austerity programme,
expect it to end up around 2.5 per cent. Estonia also however, we find it hard to foresee a post-election
has a tradition of strong budget figures, which is likely change of political course.
to influence the evaluation. The most recently reported Latvia's manufacturing sector
12-month inflation average until March 2010 was -0.7 per Production, 3-month moving average
cent. This meets the criterion that inflation may not ex- 115 20
ceed 1.5 percentage points above the three EU countries 110 15
105 10
with the lowest inflation.
100 5
95 0
There is one small catch, however. The Maastricht cri- 90 -5
teria are partly flexible. For example, a country must 85 -10
show credible, sustainable low inflation. On that point, 80 -15
75 -20
Estonia’s phase-in of low inflation is not as reassuring as, 70 -25
for example, Slovakia’s before it joined the euro zone 65 -30
in 2009 (see chart). We also predict rising inflation in 01 02 03 04 05 06 07 08 09
Estonia the rest of 2010, with an annual average of 2 per Year-on-year percentage change (RHS)
cent. Level, index 100 = 2005 (LHS)
Source: Reuters EcoWin
Our forecast is that exports will grow by 7 per cent both increase this year, mainly due to infrastructure projects.
this year and next, or roughly in line with long-term Our overall forecast is that after last year’s sharp de-
trend growth. The risks in this forecast are on the upside. cline, fixed investments will climb by 3 per cent in 2010
Swedish economic recoveries are normally characterised and by 5 per cent in 2011.
by faster growth, and the earlier deep downturn also
means that there is extra large potential for a rebound. Gross fixed investments
Percentage change, 2009 level in current prices (SEK bn)
Production and order levels according to the National
Institute of Economic Research’s Economic Tendency Sur-
2009 2009 2010 2011
vey and the purchasing managers’ index are also consist-
ent with stronger exports than our forecast. On the other Government sector 102 7 2 0
hand, there is greater uncertainty about the recovery in Housing 78 -21 8 12
the euro zone. Business sector 351 -19 3 6
Total 531 -15 3 5
Early upturn in capital spending Source: Statistics Sweden, SEB
According to Statistics Sweden’s latest fixed investment
survey, manufacturers are planning to increase their
A sharp inventory draw-down helped lower Sweden’s GDP
investments as early as this year, despite low capacity
growth rate by nearly 3 percentage points at most in
utilisation. We have thus made an upward adjustment in
mid-2009. During the fourth quarter, however, invento-
our forecast of capital spending in manufacturing. Busi-
ries shifted to a positive growth contribution. Most indi-
nesses admittedly tend to exaggerate their investment
cations are that this trend is continuing. We expect in-
needs early in the year, but on the other hand histori-
ventories to level off in 2010. This will result in a positive
cal experience indicates that they underestimate these
gross GDP contribution of one percentage point, but due
needs at the beginning of a recession.
to large import content, the net effect on production will
In addition, housing investments look set to regain a be substantially smaller. Changed inventory behaviour in
large proportion of last year’s downturn. For example, other countries will nevertheless also stimulate growth
the National Board of Housing, Building and Planning via rising Swedish exports.
expects a 50 per cent increase in housing starts during
2010 and 2011. Public sector investments will continue to
1.0 1.0
High correlation for growth 0.5 0.5
GDP, year-on-year percentage change
7.5 7.5 0.0 0.0
Sweden
US -0.5 -0.5
5.0 5.0
-1.0 -1.0
2.5 2.5 -1.5 -1.5
Euro zone
0.0 0.0 -2.0 -2.0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
-2.5 -2.5
Source: Statistics Sweden, Eurostat
-5.0 -5.0
Our conclusion is that a weak economic trend in the
-7.5 -7.5 euro zone is not incompatible with fairly strong
96 97 98 99 00 01 02 03 04 05 06 07 08 09 growth in Sweden. Only if the fiscal crisis in southern
Source: Reuters Ecowin
Europe leads to severe disruptions in the global finan-
cial system that block a recovery in global trade will
Sweden’s economic upturn be seriously jeopardised.
Ash clouds will mean lower GDP growth Strong increase in new car registrations
120
Air traffic in large parts of Europe more or less stood 30
115
still for a week in April due to clouds of ash from the
28 110
Icelandic volcano Eyjafjallajökull. We estimate that
105
this will lower GDP in Sweden and the euro zone by 26
100
0.2-0.3 per cent in the second quarter of 2010. Assum- 24 95
ing no recurrence of the ash problem, the downturn
22 90
will be temporary and its full-year effect will be very
85
small. The aviation industry accounts for about one 20
80
per cent of GDP, which means that the direct effect 18 75
on output due to grounded aircraft is still less than a 00 01 02 03 04 05 06 07 08 09 10
tenth of a percentage point. In addition, an estimated
Thousands of new car registrations (LHS)
1-2 per cent of the labour force was prevented from Retail sales, index (RHS)
travelling to their workplaces during portions of this Source: Statistics Sweden
If new ash clouds should drift in over Europe and cause 2008 2009 2010 2011
more long-lasting disruptions in aviation, the effect Consumption -0.2 -0.8 2.9 2.6
on growth could be considerably larger. However, his-
Income 2.7 2.1 0.7 2.3
torical experience shows that production disruptions
caused by natural disasters, strikes or the like almost Savings ratio,
never have any decisive impact on economic trends. % of income 11.6 13.9 12.1 11.8
Source: Statistics Sweden, SEB
slowly decline again. By late 2011 the jobless rate will We foresee productivity growth of 2.4 per cent in 2010
still be 2.5 percentage points higher than when the up- and 2.2 per cent in 2011. This is admittedly higher than
turn began late in 2008. the long-term trend, but it still represents the recovery
of only a small portion of the decline in recent years.
Labour market
Percentage change
Pay increases a bit lower than expected
2008 2009 2010 2011 The 2010 wage round has faced major challenges. The
economic crisis has hit the manufacturing sector hard,
Employment 1.1 -2.1 0.3 0.6
while the demand in many other sectors has been sus-
Labour supply 1.2 0.2 1.0 0.4 tained in part by economic stimulus measures. This has
Unemployment, % 6.2 8.3 8.9 8.8 put the traditional wage-setting role of manufacturing in
Average hours worked 0.1 -0.2 0.2 -0.2 question.
Productivity (GDP) -1.4 -2.2 2.4 2.2
Source: Statistics Sweden, SEB
Large gap between GDP and labour market GDP growth during recent quarters thus contrasts
The sharp decline in output has had surprisingly little sharply with other data about the economic trend. This
impact on the labour market. The rise in unemploy- applies not only to the labour market but also to the
ment has been much smaller than the GDP downturn trend of public sector finances, company financial re-
indicates, and this is reflected in falling productivity. An ports and confidence indicators for both households and
international comparison by the IMF shows that there businesses. Our conclusion is that there is a fairly high
are very large differences between countries in this probability that the GDP figures will be revised.
respect. While unemployment has doubled in the US, it
has not climbed at all in Germany, despite a larger GDP
GDP at turning points
decline than in the US. The IMF’s analyses of “Okun’s Index
Law”, which describes the relationship between GDP 104 104
and unemployment, points to a number of interesting 1993Q3 = 100
explanations with relevance to Sweden. One conclusion 103 103
is that to a greater extent than in other countries, the
trend in Sweden is a break with the historical pattern. 2005Q1 = 100
102 102
One common feature is that countries that have been 1997Q1 = 100
affected by the economic crisis primarily via the global 101 101
trade decline have often noted large drops in GDP but
relatively little growth in unemployment. In countries 100 100
with a damaged financial market and a housing market 2009Q1 = 100
collapse, the consequences for labour-intensive portions
99 99
of the economy have been much worse. Swedish govern- 1 year
ment economy policy largely succeeded in preventing Source: Statistics Sweden, SEB
the crisis in the manufacturing sector from spreading to
the whole economy. This is a major reason for the rela-
tively moderate labour market downturn. Another fac- Employment at turning points
Index
tor is that many companies viewed the unprecedented 102.0 102.0
drop in production as temporary and thus chose not to
May 2005 = 100
reduce their workforce. In addition, there was a certain
101.5 101.5
degree of organised working hour reductions, though March 1994 = 100
this has not been nearly as widespread as in Germany,
for example. 101.0 101.0
After a sluggish start, in which the Metal Workers’ Union Krona a downside risk for inflation
and the Association of Engineering Industries were unable Core inflation, defined as CPIF (CPI with a fixed interest
to reach a collective contract for months, an agreement rate) excluding food and energy, showed an upward trend
between the Association of Graduate Engineers and the throughout 2009, driven by a weak krona and falling
Association of Engineering Industries broke the ice. After productivity. At the end of 2009, core inflation stood at a
that, several agreements were achieved at a rather fast full 2.7 per cent.
pace. So far, they have covered periods of 18-24 months,
somewhat shorter than the 3-year contracts that have In the past six months or so, however, the krona has
been standard over the past decade. regained 75 per cent of its decline. With the customary
time lag, the stronger krona is now beginning to have an
Wage agreements impact on the inflation process, and core inflation has
Agreements reached to date. Pay hikes in %, thousands
now fallen to 2.1 per cent. This shift in inflation has been
2010 2011 Employees broad-based; for example, service inflation fell clearly
during the first quarter. We expect the core inflation rate
Manufacturing 1.1 1.8 250 to fall below one per cent by early 2011. The risks are
Distributive trades 2.4 2.0 100 also on the downside, as indicated among other things by
a record-large 4.4 percent decline in producer prices of
Construction 1.6 2.3 80
domestic consumer goods in March. Food prices also have
Local gov., white-collar 2.3 1.6 127
the potential for downside surprises.
Source: SEB The upside risks for CPI inflation come mainly from
international price increases for energy and other com-
With some variations, these agreements provide pay modities plus domestic environmental tax hikes. Lagging
increases equivalent to 1.5 per cent in 2010 and 2.0 per effects from the weak productivity increases of recent
cent in 2011, or somewhat lower than we had anticipat- years are also conceivable.
ed. But many of them specify an increase in mid-2011,
Large divergernces in lending
about six months before they expire. This creates a risk Year-on-year percentage change
of accelerated pay increases in 2012, since the yearly 20.0 20.0
average then will be affected by two pay hikes. 17.5 17.5
15.0 15.0
12.5 12.5
There is little risk that future agreements will be sig- 10.0 10.0
nificantly more generous than those already signed. We 7.5 7.5
5.0 5.0
are thus sticking to our assessment in the February issue 2.5 2.5
of Nordic Outlook that annual pay hikes will end up 0.0 0.0
-2.5 -2.5
averaging 2 per cent in 2010 and 2011. This forecast -5.0 -5.0
-7.5 -7.5
assumes that wage drift will be low in the persistently
03 04 05 06 07 08 09 10
weak labour market that will prevail in the next couple
of years. The uncertainty about the future wage process Total lending Lending to households
Lending to business
was amplified by the fact that the dominant Association Source: Statistics Sweden
expansionary fiscal policy and livelier housing lending and Faster key rate hikes in Sweden
housing markets. We expect the ECB during the second Repo rate vs refi rate, per cent
half of this year begin a normalisation of monetary policy 5.0 5.0
4.5 4.5
by withdrawing liquidity, causing the Euro Overnight SEB
forecast 4.0
4.0
Index Average of interbank interest rates (EONIA) to 3.5 3.5
begin rising. 3.0 3.0
2.5 2.5
Budget deficit, 2009 -0.8 -6.3 Looking further ahead, we foresee various reasons why
the key rate will be at a rather low level. Inflation will
Home prices, Q4 2009 6.0 -3.0
be low, and our forecast for CPIF during next year is
Lending to households, Q1 2010 9.3 1.8 considerably below the Riksbank’s forecast. In addition,
Lending to businesses, Q1 2010 -5.0 -2.4 resource utilisation will be low during the next couple of
Source: Riksbank, ECB years. Tighter lending rules, which the Swedish Financial
Supervisory Authority is about to push through, will con- today should stand at about SEK 9.40 per euro. Using our
tribute to higher household and business lending rates, forecasts of interest rate differentials and the economic
which will marginally reduce the need for key rate hikes. situation, the models points to a further shift to SEK 9.00
by the end of 2010. An important driving force for the
Due to the structural changes in the credit market, we krona is the continued improvement in the performance
are sticking to our assessment that the neutral key rate of industry.
level needs to be adjusted further downward to 3.75
per cent. In the next few months, however, it is unlikely We expect the krona to strengthen to SEK 9.00 per
that the Riksbank will announce any additional change in euro at the end of 2010, which is at the lower end of
its view of this after making a downward adjustment to the rather narrow interval that prevailed during 2002-
4.0 per cent from 4.25 per cent in February. 2007. One reason the krona why will reach such strong
levels is the prevailing systemic crisis in the euro zone.
Rising bond yields We expect a sideways movement against the US dollar
Yields on 10-year Swedish sovereign bonds are at the and a slight weakening to SEK 7.50 per USD in mid-2011.
level of German bonds and are lower than in all the other
euro zone countries. The reason is Sweden’s very strong Unexpectedly strong public finances
public finances, with central government debt as a per- The economic crisis has adversely affected Swedish pub-
centage of GDP likely to fall as early as next year. The lic finances. After several years of high surpluses − peak-
Riksbank’s key rate hikes will have the opposite impact. ing at 3.8 per cent of GDP in 2007 − the outcome for
Our forecast implies that Sweden’s repo rate at the end 2009 was a deficit of 0.8 per cent of GDP. But the impact
of 2011 will be 75 basis points higher than the key rate of the recession on the budget balance has not been as
in the euro zone. We thus believe that the yield spread powerful as one would normally expect. One reason for
against Germany will rise to 10 basis points at the end of this is that the downturn has been concentrated in the
2010. This means that the 10-year government bond yield export and manufacturing sectors, which has helped
will be 3.20 per cent at the end of 2010 and 3.70 per soften its effects on the labour market. As a result, un-
cent at the end of 2011. employment insurance expenditures and similar costs
have been kept down, while income tax and payroll tax
EUR/SEK rate below 9.00 revenue has been affected to a relatively small extent,
Sweden’s improved fiscal and economic situation has led given the magnitude of GDP decline.
to a significant recovery for the krona. The krona is now
The government managed to take advantage of its good
only 5 per cent weaker against the euro than it was in
finances at the outset of the recession, letting automatic
2007, and in trade-weighed TCW terms the difference is
stabilisers operate at full throttle while also enacting dis-
even smaller.
cretionary stimulus measures. In 2010, the active dose of
There are many indications that the krona will con- stimulus programmes is equivalent to just over 1 per cent
tinue to strengthen as the economic recovery of GDP. Sweden is one of the few EU countries that will
progresses. The Riksbank will raise its key interest rate move through the crisis without needing to implement
at a faster pace than the ECB, but also compared to most austerity programmes to stay below the EU Stability and
other central banks. A more pronounced export upturn Growth Pact’s deficit ceiling of 3 per cent of GDP.
will also help push up the krona. Higher interest rates
Public finances
combined with calmer financial markets usually favour Per cent of GDP
“carry trade” investments, which involve buying curren- 2008 2009 2010 2011
cies where the central bank is raising its interest rate. Revenue 52.6 52.7 51.7 51.5
Expenditures 50.2 53.5 52.8 52.1
Krona tracks business optimism
Net lending 2.5 -0.8 -1.0 -0.6
11.5 -60
-50 General gov’t
11.0
-40 gross debt 38.3 42.3 39.6 39.0
10.5
-30 Central gov’t debt 33.7 37.6 35.7 35.2
10.0 -20
Central gov’t borrowing
9.5 -10
requirement, SEK bn -135 176 46 42
0
9.0
10 Source: Statistics Sweden, SEB
8.5 20
8.0 30
98 99 00 01 02 03 04 05 06 07 08 09 10
EUR/SEK (LHS)
Business confidence, net balance (RHS)
Source: NIER, SEB
In recent months, upside surprises have continued. lead of 10-20 percentage points. The gap then narrowed
The 2009 budget outcome was better than expected, somewhat; in September the difference shrank to single
which will also affect public sector financial forecasts. digits. The final outcome gave the Social Democratic
Even though we now expect a somewhat more expansion- government and its parliamentary partners a somewhat
ary fiscal policy this year and next than we did in the wider margin of victory than according to the last public
February issue of Nordic Outlook, we are revising our opinion surveys.
forecast of public finances upward. We expect a total
fiscal stimulus dose equivalent to just over 1 per cent of As expected, the Alliance government’s spring fiscal pol-
GDP this year and 0.6 per cent in 2011. The deficit will icy bill did not reveal so much about its future policies.
bottom out this year at 1.0 per cent of GDP and improves But it focused on two important voter categories: pen-
to -0.6 per cent of GDP 2011. Correcting for the effects sioners will get a tax cut in 2011, and families with chil-
of the economic situation, net lending is above zero. dren will benefit from an increase in the supplement for
large families starting on July 1, 2010. Instead, the two
Central government debt has also been affected sur- main governing alternatives are now focusing on prepara-
prisingly little by the crisis. The upturn was only 3 per tions for the autumn parliamentary election. Both blocks
cent of GDP, compared to an increase of about 30 per- are working with common platforms that will be unveiled
centage points during the 1990s crisis. This year, debt this spring and summer. In late April, the red-green block
will again drop below 40 per cent of GDP. presented a number of proposals and a common shadow
budget, which provide an indication of its common plat-
form. But neither block will show all of its cards now;
Forecasts of the central government they will present initiatives and make election promises
borrowing requirement aimed at attracting important voter categories prior to
SEK billion
the September election.
2010 2011
The election tactics of the Social Democrats − the domi-
SEB 46 42
nant party in the red-green block − are shaped largely by
National Debt Office, March 53 37
the incumbent government’s actions. In the two elections
National Institute of Economic in recent decades where the Social Democrats regained
Research (NIER), March 39 36 power (1982 and 1994), competence in governing and
National Financial Management budget responsibility were key weapons in their cam-
Authority (ESV), March 49 10 paign. In those elections, the party cited its decades-long
experience in governing Sweden and was able to criticise
Ministry of Finance, April 63 8
the incumbent non-socialist government for having al-
Source: National Debt Office, NIER, ESV, Government
lowed budget deficits to explode.
Offices, SEB
This time around, it will be considerably harder to use
Central government finances are the most cyclically
such arguments. The Social Democrats will be campaign-
sensitive in the public sector. Last year’s central govern-
ing for the first time with the ambition of creating a
ment borrowing requirement was SEK 176 billion, which
coalition government together with two parties (the
represented a shift of more than SEK 300 billion com-
Left Party and the Greens) with no experience at all in
pared to the preceding year. This year, the requirement
government. The Swedish economy is also strong in an
will fall sharply. These large fluctuations are partly ex-
international perspective. Although the real economy has
plained by one-time effects that drove up the borrowing
shown poor growth in recent years, it will be difficult for
requirement by SEK 100 billion in 2009, primarily money
the opposition to convincingly blame the government for
provided to the Riksbank in order to increase its foreign
this in the election campaign. The government will likely
exchange reserve (about SEK 95 billion). In 2010 and
be able to cite good international reviews of its fiscal
2011, central government borrowing requirement is
management skills.
expected to be just over SEK 40 billion.
In light of this, the opposition will probably rely more
Sharper dividing lines before the election on classic left-right issues as weapons in order to
The red-green opposition is still slightly ahead of the Al- gain power. To a greater extent than the last Social
liance government in public opinion polls as the autumn Democratic government (2002-2006), for example, the
parliamentary election draws closer. The gap is not so red-green block will focus on social welfare issues and
wide, however, and the election campaign is only in its vulnerable groups, in the hope that a sufficient number
warm-up phase. Looking back at recent elections, at the of centrist voters and middle-income earners will not
same stage in 2006 the Alliance (then in opposition) had vote their pocketbook. The block will call for further tax
a lead of 3-5 per cent. Then its lead shrank, and just cuts for pensioners and the reversal of various Alliance
before the election public support for the two blocks reforms in the social insurance system. On the revenue
was relatively even, although most observers predicted side, at least one step in the earned income tax credit
a victory for the Alliance. In March 2002 (six months reform will be reversed. A new wealth tax will be intro-
before the election) the leftist block had a comfortable duced and environmental taxes raised.
The differences between the blocks with regard to in reforms, and possibly somewhat more in case of a red-
demand-oriented and supply-oriented policies will thus green victory. This will mean a continued expansionary
be extra clear. The leftist block generally has greater fiscal policy in 2011, equivalent to 0.6 per cent of GDP.
faith in demand-oriented policies. The Alliance, however,
has focused on supply side policies during the current A situation in which the right-wing populist Sweden
parliament (2006-2010): primarily in an effort to boost Democrats make it into Parliament and gain a kingmaker
the labour market participation rate through earned in- role between the main blocks would mean increased
come tax credits and lower compensation levels in social short-term uncertainty about economic policy, thus giv-
insurance systems. At the same time, the Alliance has ing rise to an extra risk premium related to interest rates
protected key social, health care and other public serv- and exchange rates. In a longer perspective, an agree-
ices by providing extra grants to local and regional gov- ment between parties from the two main blocks may
ernments. If the Alliance remains in power, further steps provide greater stability and continuity in policymaking.
to strengthen incentives to work, for example through The strong support enjoyed by the current fiscal policy
additional earned income tax credits, will remain an framework will also help strengthen stability in the short
important element of its policies, but it will probably and long term.
also focus on pensioners and other groups that have been
hard hit by the economic crisis.
Modest growth
Competitiveness is recovering in a row but are still down year-on-year. Partly because
home sales have recuperated significantly, we believe
Consumption is gradually climbing
that residential prices will continue to recover, buoyed
Low interest rate and yield spreads by continued low interest rates.
The Danish economy passed its low point last autumn, Unemployment looks set to peak by this summer at 4.5
aided in part by stimulus measures aimed at households. per cent, six months sooner and half a percentage point
Quarter-on-quarter and seasonally adjusted GDP rose 0.2 lower than our earlier estimate. In surveys, both the
per cent in the fourth quarter, the second consecutive manufacturing and service sectors are now showing bal-
quarter of modest growth. anced employment plans, though expansion will take
time. Given continued below-trend economic growth, we
The strong dynamic in other Nordic countries will
find it hard to foresee more than a marginal decline in
contribute to a decent export upturn ahead. Earlier
unemployment during the coming year.
competitiveness problems will also diminish because of
restrained pay increases and a weaker krone that will The upturn in joblessness has not been as sharp in Den-
benefit important Danish exports outside the euro zone, mark as in many other countries, indicating relatively
for example to Sweden and Norway. low cyclical sensitivity in the labour market. This is
something the IMF also highlighted in its latest World
Competitiveness is improving Economic Outlook, which studied this link over the past
Real effective exchange rate, index 100 = 2005
20 years in a number of countries.
107.5 107.5
105.0 105.0 The inflation rate quickly climbed above 2 per cent this
102.5 102.5
winter, largely due to higher energy prices and temporary
tax hikes, for example on alcoholic beverages and to-
100.0 100.0
bacco. The weaker krone will push up inflation a bit this
97.5 97.5 year, but low pay increases and fading one-off effects
95.0 95.0
eventually promise a slowdown. We predict HICP infla-
tion of 2.1 per cent in 2010.
92.5 92.5
90.0 90.0 The large budget deficit means fiscal tightening is neces-
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 sary, but given the still fragile recovery, we believe that
Source: BIS
the government will postpone this to 2011-2012, though
the 2011 election makes our fiscal forecast extra uncer-
Meanwhile the inventory cycle is contributing positively tain.
to growth, but recovery remains sluggish. The fall in
home prices and construction investments after earlier The central bank will keep the spread between its
overheating are restraining the upturn in domestic de- lending rate and the ECB’s refi rate at a low 5 basis
mand. Initially, consumption will rise at a leisurely pace. points. Next year there will be gradual normalisation
We expect households to remain thrifty for a while. The of spreads as the lending rate is adjusted upward in re-
household savings ratio, which was extremely low a cou- sponse to ECB hikes. The spread against 10-year German
ple of years ago, rose in the fourth quarter to 6.5 per sovereign bonds shrank somewhat this winter to about
cent, its highest since 2001. 30 points. Given relatively low public debt, it should be
possible to halve this spread by year-end.
We expect GDP to grow by 1.5 per cent this year and
1.8 per cent in 2011, after falling by nearly 5 per cent The question of Danish euro zone accession seems dis-
last year. tant. We expect no referendum during our forecast pe-
riod, but the turbulence surrounding Greece and the euro
Important to the recovery are stabilisation tendencies in do not seem to have had any negative impact on public
the housing and labour markets. opinion. In Statistics Denmark’s March survey, the Yes
side’s lead (including respondents who say “maybe yes”)
Prices for flats are now higher year-on-year for the first
had admittedly shrunk to 51.4-47.4 per cent, compared
time in three years, according to the Association of Dan-
to 54.2-42.7 in December 2009.
ish Mortgage Banks. House prices have risen two quarters
(far above trend) to a 0.6 per cent decline in 2009, the The manufacturing wage agreement has been copied for
increase in the labour force slowed markedly as well, other blue-collar workers in the private sector, but over-
denting the impact on unemployment. In fact, according all labour cost growth will be stronger, since increases for
to the Labour Force Survey measure, unemployment rose white collar workers (in manufacturing and elsewhere)
from a 21-year low of 2.4 per cent during most of 2008 and in Norway’s large public sector are likely to continue
to a still low 3.3 per cent in the fourth quarter of 2009 being higher. In all, we forecast 3.5 per cent wage and
and held steady in early 2010.Morover, registered unem- salary growth in 2010. Some acceleration is likely as the
ployment including those in labour market programmes recovery continues and the labour market improves.
trended marginally lower over the winter.
Core inflation to bottom out by summer
Unemployment shows signs of peaking Sharply higher electricity prices this winter pushed up
% of labour force % of labour force CPI inflation from 0.6 per cent last October to 3.4 per
8 8 cent in March. However, CPI-ATE core inflation (exclud-
7 7 ing taxes and energy) has eased steadily from its cyclical
high of 3.3 per cent last June to 1.7 per cent, the lowest
6 6
year-on-year rate since late 2007, with a broad-based
5 5 slowdown in domestic and import price increases.
4 4
Core inflation heading lower
3 3
% change (12M) % change (12M)
2 2 6.0 6.0
1 1 4.5 4.5
0 0 3.0 3.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1.5 1.5
LFS unemployment rate, 3 mth. average Registered unemployed
0.0 0.0
We are a bit hesitant to say joblessness has peaked just -1.5 -1.5
yet, while awaiting any signs of a turnaround in employ-
-3.0 -3.0
ment. Nonetheless, the LFS unemployment rate seems
to be topping out slightly lower than expected. It should -4.5 -4.5
95 97 99 01 03 05 07 09
average 3.4 per cent in 2010 and be broadly unchanged
CPI excl. taxes and energy
in 2011 as a growing labour force matches higher employ- Core CPI domestic goods and services
ment. Core CPI imported consumer goods
Wage growth decelerating further The decrease in imported inflation from 1.8 per cent
Economy-wide wage and salary growth slowed from 6.3 year-on-year in the second quarter of 2009 to -0.3 per
per cent in 2008 to 4.1 per cent in 2009, the lowest rate cent this March reflects the strong appreciation of the
in three years. It looks set to decelerate further in 2010. Norwegian krone since last summer, which will push
The trend-setting negotiations for blue-collar workers down such prices further. Core domestic inflation is 2.6
in manufacturing led to a contract calling for 3 per cent per cent on average in the first quarter but should trend
wage growth in 2010, down from 3.9 per cent in 2009 and lower in the near term as well. We expect core inflation
the slowest since 1994. However, the 3 per cent rate is to bottom out at 1.3 per cent by summer and average
based on certain assumptions for wage drift (local pay). 1.7 per cent for all of 2010 (versus 2.1 per cent in 2009).
In 2009, wage drift turned out higher than expected and Absent a further marked currency appreciation, core
as corporate profitability improves we might see a similar inflation should move up next year with the 2011-average
development this year. at 2.1 per cent.
and slower spending increases, among other things be- Norges Bank’s modus operandi of avoiding further NOK
cause of lower-than-expected unemployment. There will appreciation links monetary policy with economic devel-
be no tightening measures. The overall budget surplus opments elsewhere: the pace of adjustment will be con-
will also be boosted by higher oil prices. Cyclical fac- strained by how quickly, or more precisely, how slowly
tors will improve the budget in 2011, along with reversals the ECB will act. However, Norway is in quite a different
of last year’s “crisis” measures. Even with only a small position from the euro zone, with only a small negative
real fiscal tightening, the structural non-oil deficit should output gap, an unemployment rate one third as high,
thus be much closer to the fiscal policy rule’s 4 per cent stronger wage growth and no need for the severe fiscal
limit than the 5.7 per cent outcome in 2009. tightening faced by a number of (peripheral) euro zone
countries, which might imply very low key rates for lon-
Norges Bank foresees slower rate hike cycle ger. Keeping the key interest rate well below neutral
Norges Bank hiked its key deposit rate by 25 basis points for an extended period risks fuelling domestic infla-
last October and December to 1.75 per cent. The March tionary pressure in the medium term. Indeed, simple
Monetary Policy Report was surprisingly dovish, lower- rules presented in the bank’s Monetary Policy Report,
ing the optimal rate path by some 30bp by end-2010 and based on the output gap and inflation relative to target,
more than 50bp on average in 2011. The projected end- suggest that the deposit rate should already be above 3
2011 level was lowered from 4.00 per cent to 3.50 per per cent: only after putting external interest rates into
cent. the equation did the rules align with the bank’s rate
path.
Norges Bank deposit rate and rate path
Level, % Level, % Stronger NOK is denting inflation
10 10 % change (12M) % change (12M), reversed
9 9 6 -20
8 8 -15
4
7 7
-10
6 6 2
5 5 -5
4 4 0 0
3 3 5
2 2 -2
10
1 1
-4
0 0 15
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 -6 20
Norges Bank deposit rate Optimal rate path, MPR 1/10 99 00 01 02 03 04 05 06 07 08 09 10
Optimal rate path, MPR 3/09 Core CPI imported consumer goods (LHS)
NOK import-weighted index, 6 mth. earlier (RHS)
According to Norges Bank, inflation and capacity utilisa-
Consequently, we now expect more gradual rate hikes
tion “may for a period of time” be lower than expected,
and foresee the deposit rate at 2.50 per cent by end-
but the changes to the bank’s forecasts for growth and
2010 and 3.75 per cent by end-2011. Our forecasts are
inflation were comparatively modest: the trough for core
slightly above Norges Bank’s, but imply below-“neutral”
CPI was put somewhat lower, but from mid-2011 the tra-
real rates by the end of next year.
jectory was the same as previously, with inflation in line
with the 2.5 per cent medium-term target by mid-2012.
Hence, the sharply lower rate path was first and fore-
most due to a stronger NOK than previously expected
and lower global interest rate expectations. Norges
Bank thus emphasised that hiking its key interest rate too
far ahead of its peers “may entail a risk of a considerably
stronger-than-projected krone, resulting in inflation that
is too low.”
Above-trend growth
Leading indicators climbing higher facturing jobs has slowed, and such sectors as construc-
tion, information and communications technology (ICT)
Above-trend growth, despite dock strike and transport even reported rising employment early this
Pay increases decelerating year. The jobless rate, now just above 9 per cent, will
nevertheless keep rising for another few months, then
level off at around 9.5 per cent by mid-year. After that
Finland was hit very hard by last year’s global economic it will slowly fall, reaching an annual average of 8.8 per
slowdown. GDP declined by a full 7.8 per cent, the larg- cent in 2011, still well above the non-accelerating infla-
est downturn in the entire OECD. Exports fell 25 per tion rate of unemployment (NAIRU), which is about 7.5
cent and gross fixed investments by nearly 15 per cent, per cent according to the OECD.
while the downturn in private consumption was less than
Low resource utilisation in the economy as a whole will
2 per cent.
subdue pay and price hikes. Total pay hikes decelerated
to just below a 3 per cent rate in the fourth quarter
Service sector leading the upturn
Index of 2009. We expect further declines in 2010-2011. Pay
70 70 increases will average just above 2 per cent this year
50 50 and next.
30 30 Increased activity early in 2010
10 10
Per cent
90.0 16
-10 -10
85.0 14
-30 -30
Despite the strike, GDP will grow by 2.6 per cent this Favourable conditions at the outset, including low gov-
year, a marginal upward revision of our February fore- ernment debt and both budget and current account sur-
cast. Thanks to a weaker euro, exports will rise by more pluses, will help preserve the stability of the Finnish
than 6 per cent. Capital spending will rise by about 3 per economy, despite last year’s GDP decline. The deficit
cent and private consumption by nearly 1.5 per cent. The will reach a modest 3 per cent of GDP in 2010 and 2.5
economy will grow by 2.7 per cent in 2011. per cent in 2011, keeping sovereign debt below 50 per
cent of GDP in 2011.
The upturn in output will also help the labour market,
though with a time lag. Last year’s rapid drop in manu-
DENMARK
Yearly change in per cent
2009 level,
DKK bn 2008 2009 2010 2011
Gross domestic product 1,660 -0.7 -4.8 1.5 1.8
Private consumption 817 -0.2 -4.3 1.8 2.2
Public consumption 492 1.5 2.5 1.3 0.6
Gross fixed investment 312 -4.9 -13.2 -3.5 3.0
Stockbuilding (change as % of GDP) 0.4 -2.4 0.5 0.0
Exports 784 2.4 -10.3 3.0 4.0
Imports 727 3.0 -13.2 1.7 4.3
NORWAY
Yearly change in per cent
2009 level,
NOK bn 2008 2009 2010 2011
Gross domestic product 2,278 1.8 -1.5 2.0 2.3
Gross domestic product (Mainland Norway) 1,737 2.2 -1.5 2.3 3.0
Private consumption 952 1.3 0.0 4.5 3.7
Public consumption 489 4.1 5.2 2.8 2.2
Gross fixed investment 470 1.4 -7.9 -1.6 3.8
Stockbuilding (change as % of GDP) 0.5 -1.9 0.4 0.1
Exports 1,004 0.9 -4.3 1.4 1.6
Imports 638 2.2 -9.7 4.4 4.7
SWEDEN
Yearly change in per cent
2009 level,
SEK bn 2008 2009 2010 2011
Gross domestic product 3,156 -0.2 -4.9 3.0 2.7
Gross domestic product, working day adjusted -0.5 -4.7 2.7 2.7
Private consumption 1,467 -0.2 -0.8 2.9 2.6
Public consumption 834 1.4 2.1 1.0 0.9
Gross fixed investment 616 2.6 -15.3 3.0 5.0
Stockbuilding (change as % of GDP) 5 -0.3 -1.5 1.2 0.2
Exports 1,711 1.8 -12.5 6.8 7.1
Imports 1,477 3.0 -13.4 9.2 7.9
FINLAND
Yearly change in per cent
2009 level,
EUR bn 2008 2009 2010 2011
Gross domestic product 171 1.2 -7.8 2.6 2.7
Private consumption 94 1.3 -1.8 1.3 1.8
Public consumption 43 2.4 0.8 1.5 1.5
Gross fixed investment 34 -0.2 -13.4 2.9 4.3
Stockbuilding (change as % of GDP) -0.4 -0.9 0.3 0.0
Exports 62 6.6 -24.4 6.1 6.4
Imports 57 6.6 -22.3 5.1 5.9
EURO ZONE
Yearly change in per cent
2009 level,
EUR bn 2008 2009 2010 2011
Gross domestic product 8,979 0.5 -4.0 1.5 1.8
Private consumption 5,170 0.4 -1.0 0.2 0.9
Public consumption 1,975 2.1 2.3 1.4 1.7
Gross fixed investment 1,773 -0.9 -10.8 1.4 3.3
Stockbuilding (change as % of GDP) -0.1 -0.1 0.2 0.0
Exports 3,259 0.8 -12.8 4.1 4.9
Imports 3,140 0.9 -11.4 4.0 4.4
US
Yearly change in per cent
2009 level,
USD bn 2008 2009 2010 2011
Gross domestic product 14,454 0.4 -2.4 3.6 2.8
Private consumption 10,236 -0.2 -0.6 2.4 2.3
Public consumption 2,959 3.1 1.8 0.6 0.2
Gross fixed investment 1,708 -5.1 -18.4 2.7 8.4
Stockbuilding (change as % of GDP) -0.3 -0.6 1.3 0.2
Exports 1,680 5.4 -9.6 11.1 8.2
Imports 2,1230 -3.2 -13.9 8.5 7.9
EASTERN EUROPE
FINANCIAL FORECASTS
29 Apr Jun 10 Sep 10 Dec 10 Jun 11 Dec 11
Official interest rates
US Fed funds 0.25 0.25 0.25 0.50 1.50 2.00
Japan Call money rate 0.10 0.10 0.10 0.10 0.10 0.50
Euro zone Refi rate 1.00 1.00 1.00 1.00 1.50 2.25
United Kingdom Repo rate 0.50 0.50 0.50 0.75 1.50 2.00
Bond yields
US 10 years 3.73 3.73 3.65 3.75 4.00 4.10
Japan 10 years 1.29 1.35 1.40 1.50 1.50 1.65
Germany 10 years 3.00 3.00 3.00 3.10 3.25 3.40
United Kingdom 10 years 3.99 4.00 4.10 4.30 4.45 4.50
Exchange rates
USD/JPY 94 95 95 98 105 110
EUR/USD 1.32 1.32 1.30 1.25 1.20 1.20
EUR/JPY 124 125 124 123 126 132
GBP/USD 1.53 1.53 1.51 1.49 1.46 1.50
EUR/GBP 0.86 0.86 0.86 0.84 0.82 0.80
To get access to all other research and trading recommendations for Merchant Banking’s customers on the Internet at www.mb.se, a password
is needed that is exclusice to these clients. If you wish to get access to this web site, please contact Merchant Banking to receive the password.
Technical requirements
Most of our research is published in PDF format (Portable Document format). Adobe Acrobate software, which reads PDF documents, is free
of charge and can be downloaded from Adobe’s web site at: www.adobe.com.
This report is directed only at persons who (i) are outside the United Kingdom, (ii) have professional experience in matters relating to investments falling within
article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the “Order”), (iii) are persons falling within articles
49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Order or (iv) persons who are intermediate customers under chapter 4 of
the FSA conduct of business rules (all such persons being referred to as “relevant persons”).
This document does not constitute an offer or invitation to subscribe for or purchase any securities and neither this document nor anything contained herein
shall form the basis of any contract or commitment whatsoever. Recipients are urged to base their decisions upon such investigations as they deem necessary.
All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, express
or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. In addition SEB accepts no liability
whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.
Your attention is drawn to the fact that a member of, or any entity associated with SEB or its affiliates, officers, directors, employees or sharheolders of such
members may from time to time have a long or short position in, or otherwise participate in the markets for, the securities and the currencies of countries
mentioned herein.
Skandinaviska Enskilda Banken AB (publ) is incorporated in Stockholm, Sweden with limited liability and is a member of the Stockholm Stock Exchange; it is
regulated by the Financial Services Authority for the conduct of designated investment business in the UK; and is a member of the London Stock Exchange.
Transactions involving debt securities will be executed by or with the Bank unless you are informed otherwise at the time of dealing.
Confidentiality Notice
This report is confidential and may not be reproduced or redistributed to any person other than its recipient from the Bank.
Latvia
New York Denmark
Beijing
Lithuania
Dublin
Shanghai
London New Delhi
Poland
Germany
Warzaw
Ukraine
Paris Luxemburg
Kiev
Singapore
Geneve
Nice
São Paulo
SEB is a North European financial group serving some 400,000 corporate customers and
institutions and five million private individuals. SEB offers universal banking services in
Sweden, Germany and the Baltic countries – Estonia, Latvia and Lithuania. It also has local
presence in the other Nordic countries, Ukraine and Russia and a global presence through
its international network in major financial centres. On March 31, 2010, the Group’s
total assets amounted to SEK 2,285bn while its assets under management totalled SEK
1,382bn. The Group has about 19,000 employees.
Read more about SEB at www.sebgroup.com.
With capital, knowledge and experience, we generate value for our customers − a task in
which our research activities are highly beneficial.
Macroeconomic assessments are provided by our Economic Research unit. Based on
current conditions, official policies and the long-term performance of the financial market,
the Bank presents its views on the economic situation − locally, regionally and globally.
One of the key publications from the Economic Research unit is the quarterly Nordic
Outlook, which presents analyses covering the economic situation in the world as well as
Europe and Sweden. Another publication is Eastern European Outlook, which deals with
the Baltics, Poland, Russia and Ukraine and appears twice a year.
www.sebgroup.com