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Swedbank's Global Economic Outlook, 2011 March

Swedbank's Global Economic Outlook, 2011 March

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Published by Swedbank AB (publ)
Swedbank's Global Economic Outlook, 2011 March: The global recovery has gained a footing –
but the risk of a backlash remains.
Swedbank's Global Economic Outlook, 2011 March: The global recovery has gained a footing –
but the risk of a backlash remains.

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Published by: Swedbank AB (publ) on Apr 05, 2011
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Global Economic Outlook
by Cecilia Hermansson 29 March 2011
Economic sekretariatet, Swedbank AB (publ), 105 34 Stockholm, tfn 08-5859 7740E-post: ek.sekr@swedbank.se Internet: www.swedbank.se
Ansvarig ugivare: 
Cecilia Hermansson, 08-5859 7720Magnus Alvesson, 08-5859 1031,Jörgen Kennemar, 08-5859 7730, ISSN 1103-4897
The global recovery has gained a footing – but the risk of a backlash remains
The global recovery economy strengthened last year. We have revised our GDPforecast upward by a total of 0.3 percentage points to 4% per year in 2011 and2012. This still represents a slowdown compared with last year’s strong 4.7%.Tighter economic policies, higher commodity prices and rising inflation at theconsumer price level will lead to slower activity during the period. Emergingmarkets will remain growth engines.
Our risk outlook can be compared with the last lap of a 3000 m hurdle race. Thehurdles that have to be jumped include Japan's disaster, political turbulence inthe Middle East, rising commodity prices and their impact on inflation and interestrates, the debt crisis in advanced economies (water jump) and, lastly, the needfor changes in the world order to avoid imbalances and new financial crises.
We give our main, positive scenario – which assumes that the recovery willcontinue and policymakers manage the debt crisis in Europe and the increasinglydifficult policy mix to simultaneously tighten financial and monetary policyreasonably well – a combined likelihood of 50%. Two stronger scenarios (onesustainable and one less so) have a likelihood of 20%, and two weakerscenarios, with stagflation and a worsening debt crisis, have a likelihood of 30%.
The challenges to economic policy are growing. We urge that budgetconsolidation in Europe continue and begin as soon as possible in the US, andthat monetary policy is allowed to remain expansive a little longer while tighterfiscal policies slow growth. Quantitative easing, on the other hand, should bephased out to speed up debt consolidation and increase the focus on much-needed structural reforms. It is also important to break the vicious cycle betweenpublic debt crisis and banking crisis, which – in addition to budget consolidation – requires more ambitious stress tests and capitalisation of banks in Europe.
Cecilia Hermansson 
1. Favourable conditions in the global economy 22. In our main scenario the recovery continues 43. Many hurdles must be jumped 64. Our assumptions about commodity and financial markets 115. The optimal economic policy 176. Regions/countries: Most are downshifting 197. Conclusions for our home markets 35
Swedbank’s Global Economic Outlook 29 March 2010
1. Favourable conditions in the globaleconomy
In 2010 the global economy grew more strongly than we hadforecast. The difference can be explained by higher activity inemerging countries, particularly the BRIC countries, whichaccounted for two thirds of global GDP growth.
The positivetrend was also due to a surprisingly strong recovery in developedcountries such as Japan, Germany and Sweden. On the otherhand, GDP growth in the US and other euro zone memberslargely met our expectations at the beginning of last year.
Contribution to global GDP growth by various countries/regions, 2010
Seen through the rear view mirror, global economic developmentwas generally positive, and current conditions are characterisedby cautious optimism driven by strong global trade, relatively highprofits and increased access to credit in the corporate sector,which as a whole should lead to investments and new jobs.Conditions in many crisis-ridden economies are still weaker thannormal with respect to the housing, labour and credit markets.Despite improvements, there are remaining problems of a morelong-term, structural nature, which take time to resolve.The economic stimulus is still a having positive impact on theeconomy. In emerging countries, stimulus programs have gonetoo far, raising the possibility of an overheating. Here, policy hasto be tightened more than has been the case so far in order toslow growth to more sustainable levels going forward. Indeveloped countries, monetary policies have remained expansivewhile financial policies are being tightened, which will eventuallyimpact growth prospects more negatively.The major differences in how developed countries and emergingeconomies have handled the crisis are clearly evident in thediagram below, which compares industrial production in variouscountries/regions. The US and Europe are now back toproducing slightly more than their 2000 levels, while Japan is on
The BRIC countries refer to Brazil, Russia, India and China. Refers to GDP growthweighted with purchasing power parity (PPP). In dollar terms, the BRIC countriesaccounted for nearly half of global growth.
0,000,200,400,600,801,001,201,401,601,802,00US Euro
zoneUK Japan China India Brazil Russia2010
Last year the global economy grew faster than expected But the situation in crisis-ridden economies is weaker than normal 
Swedbank’s Global Economic Outlook 29 March 2010
its way to the same level. On the other hand, less is producedtoday than levels before the financial crisis. After a brief dip,production in emerging countries has continued to grow strongly,more than doubling the level of 2000, at the same time that theproduction increase compared with before the crisis is more than20%.
Industrial production in various countries/regions, Index 100 = 2000
There has been a lot of talk of a “two-speed world economy”. It isquite natural that emerging economies grow faster thandeveloped countries, since they are beginning from a lower leveloften with higher growth in productivity and the labour supply.What is different from previous periods is that the rate of growthin emerging countries has risen, while it has fallen in developedcountries.The latter have a number of Achilles heels, which are slowingdevelopment, including problems in the financial sector, whichare curtailing lending and investments; higher public debt, whichrequires tighter fiscal policies; and higher private debt, whichmust be cleaned up and is keeping consumption in check. That’sin addition to the structural problems in many labour and housingmarkets.
In summary, global economic conditions are better than expected. Growth is being driven mainly by countries in Asia,Latin America, the Middle East and Africa, while many developed countries are struggling with structural problems. The economic stimulus could cause overheating in emerging countries and must be phased out, at the same time that developed countries are entering a period of austerity. This will make it difficult to exceed the 2010 global growth rate.
2000m01 2002m01 2004m01 2006m01 2008m01 2010m01
Two-speed world economy 

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