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

7/30/2019 Nordea Bank, Economic Outlook, September 2013, "Turning Points"

1/35

Content

2 ECONOMIC OUTLOOKSEPTEMBER 2013 NORDEA MARKETS

Turning points

Sustainable upswing The global economy is on the threshold of a turna-

round. For the first time in many years there are signsof rising economic activity in the old industrialisedworld concurrently with waning growth in the newemerging economies in Asia and Latin America.

OVERVIEW 04TURNING POINTS

SWEDEN 08BRIGHTER OUTLOOK

USA 16BRIGHT FUTURE AHEAD

EURO AREA 18PROGRESS ON A LONG HARD ROAD

RUSSIA 25

PREPARE TO FIGHT SLOWDOWN

CHINA 29NOT A CYCLICAL SLOWDOWN

OIL AND COMMODITIES 33THE TRIPLE DIGIT BARREL IS HERE TO STAY

ECONOMIC

OUTLOOK

S E P T E M B E R 2 0 1 3

New Nordic ballgame Norway has led the growth race in the Nordicregion, closely followed by Sweden, while Fin-land and Denmark have trailed far behind. Butnow things might change.


2/35

Content


Data overview

Key figures............................. 6

Interest rates ......................... 7

Exchange rates ..................... 7

Visit us at:

www.nordeamarkets.com

Editor

Helge J. Pedersen,

Global Chief Economist

[email protected] +45 3333 3126

Editorial deadline

30 August 2013

SWEDEN

Brighter outlook ........................................................................................... 8

NORWAY

Higher inflation but somewhat weaker growth ..............................................10

DENMARK

Sudden thaw ............................................................................................... 12

FINLAND

Down to the last card ................................................................................... 14

Nordic economies

USA

Bright future ahead ...................................................................................... 16EURO AREA

Progress on a long hard road ....................................................................... 18

GERMANY

Rebalancing towards private consumption ...................................................20

FRANCE

Some structural and cyclical progress..........................................................21

UK

Broadening recovery ................................................................................... 22

JAPAN

Decision time .............................................................................................. 23

Major economies

POLAND

On recovery path ......................................................................................... 24

RUSSIA

Prepare to fight slowdown ........................................................................... 25

ESTONIA

Export-based (gradual) recovery in sight ......................................................26

LATVIA

Domestic demand unseats exports as key growth driver...............................27

LITHUANIA

Baltic tiger is showing its teeth .................................................................... 28

CHINA

Not a cyclical slowdown............................................................................... 29

INDIA

Glass half empty.......................................................................................... 31

BRAZIL

Gradual but bumpy recovery on track...........................................................32

Emerging Markets

OIL

The Triple Digit barrel is here to stay ............................................................ 33

METALS

Glimpse of optimism.................................................................................... 34

Commodities

Data sources are Reuters EcoWin,national statistical bureaus andown calculations unless otherwisenoted.

Data sources:

OVERVIEW

Turning points .............................................................................................. 4
http://www.nordeamarkets.com/http://www.nordeamarkets.com/


3/35

Overview


Turning points

The Nordic countr iesare poised for a possible economicturnaround. Over the past few years Norway has defiedall problems in the global economy and led the growth

race in the Nordic region, closely followed by Sweden,while Finland and Denmark have trailed far behind. But

now it seems that the Norwegian economy has reached apreliminary climax and is experiencing the same kind ofslowdown that other countries have encountered, includ-ing emerging signs of housing market weakness.

However, Norway will benefit from the expected recov-

ery of the global economy like the other Nordic coun-tries, not least Sweden and Finland that are more sensi-tive to fluctuations in the international economy. So willthe Danish economy and here we also see signs of stabi-lisation in the important housing market.

Despite the decelerating growth, the Nordic economiescan still boast very healthy public finances compared to

the rest of the world. Moreover, Denmark, Norway andSweden have substantial surpluses on their external bal-ances.

Unemployment remains very low in Norway, while aslight improvement is seen in the labour markets in Swe-

den and Denmark. Inflation is still relatively low in allthe countries, but recent data have shown an unexpected-ly sharp spike in core inflation in Norway where capacitypressures are strongest.

Capacity pressures, concern about overvalued housing

prices and high private-sector indebtedness will make thecentral banks in Sweden and Norway hike interest ratesrather early in the forecast period. These countries willthus be among the frontrunners in the global monetarypolicy cycle. This will also lead to renewed appreciationof the SEK and the NOK versus the EUR during the

forecast period.

The global economy is also on the threshold of a turna-round. For the first time in many years there are signs ofrising economic activity in the old industrialised world

concurrently with waning growth in the new emergingeconomies in Asia and Latin America.

The US seems to be heading for a self-sustaining up-swing and the Euro area has emerged from the recessionled by Germany in top shape. The aggressive fiscal poli-cy tightening in the Euro area is approaching an end.

This will support growth opportunities in the southernEuropean countries, which will slowly but surely strug-gle their way out of the recession during the forecast pe-riod when also the UK will finally emerge from the eco-nomic downturn. Japan also seems to be on the righttrack. The extremely expansionary economic policyknown as Abenomics has really fuelled hopes that Japan

will close the chapter on the past several years of weakeconomic growth and deflation.

China, on the other hand, has shown significant weak-ness so far this year. Excess capacity and uncertainty

about the stability of the financial sector and the housingmarket has led to an economic slowdown, which owingto Chinas importance as a leading global buyer of com-modities has spread to commodity-producing countriessuch as Brazil. However, we expect the setback in Chinato be temporary, as the authorities will stimulate the

economy, keeping growth largely in line with the annual7.5% target.

The Russian economy has also shown signs of weaknessthis year when growth is only propped up by continued

strong consumer spending. But slightly higher oil pricesand a more expansionary fiscal policy will shift theeconomy into a higher gear during the forecast period.

This will also stimulate growth in the Baltic economies,which have been hit on the export front, but on the otherhand have enjoyed stable growth in domestic demand atrend that we expect to remain intact in the coming years.

Sustainable upswing

We expect the nascent signs of improvement in the old-world economies to result in a sustainable upswing, but

with muted growth in the years ahead. Much indicatesthat the economic crisis had led to a lower potential

growth rate due to weak investment activity and higherstructural unemployment. Against this background,growth in the global economy will reach 3.1% this year,rising to around 4% in both 2014 and 2015, which are

now included in our forecast period, see the table below.

Real GDP growth, %

2011 2012 2013E 2014E 2015E

World 4.0 3.3 3.1 3.8 4.0

G3 1.3 1.5 0.9 2.0 2.3

BRIC 7.6 6.0 5.8 6.1 6.0

Nordics 2.5 1.0 1.0 1.9 2.1

Denmark 1.1 -0.4 0.3 1.3 1.7

Finland 2.7 -0.8 -0.5 1.5 2.3

Norway 2.5 3.4 2.0 2.3 2.4

Sweden 3.7 0.7 1.3 2.5 2.5 Note: For a description of the methodology behind the World GDP, see page 6

Tighter monetary policy

Given the prospect of a near-term turnaround in the glob-al economy, the monetary policy stance will also reverse

soon. For the monetary policy authorities in Europe andthe US, it will not be a question of whether monetarypolicy should be tightened, but rather when and howmuch.


4/35

Overview


The US will also be at the front in terms of monetary pol-icy. One of the summers major themes in markets hasbeen when Federal Reserve Chairman Ben Bernanke willannounce that the Fed has started tapering its monthlybuying of Treasuries and mortgage bonds, which current-

ly helps keep interest rates low. This will likely happen at

the September FOMC meeting. Note, however, that themonetary policy line will still be (extremely) lenient andthat an actual tightening will not take place until the Fedhikes its policy rate. We do not expect this to happen un-til 2015 at the earliest, where rates will be hiked by 100

bp in four steps of each 25 bp. In our baseline scenariowe assume that the dovish Janet Yellen takes over from

Ben Bernanke when he steps down at the end of January2014 as expected.

Later and less in Europe

In Europe the ECB will follow suit, raising its policy ratetowards the end of 2015 when the economic upswing has

become more stable also in this part of the world. But thepolicy rate will only be hiked by 50 bp. Inflation is still

low and with prospects of a weak labour market through-out most of the forecast period and comparatively stable

commodity prices, the ECB has no reason to take a moreradical approach.

The ECB has repeatedly stressed that it will support the

real economy and the very existence of the Euro area byany means possible and that the tool box is far from

empty. Lately the bank has also revised its communica-tion strategy, making forward guidance the newbuzzword. However, the ECBs statement that The

Governing Council expects interest rates to remain atpresent or lower levels for an extended period of time isonly indicative and a far cry from the open model known

in Norway and Sweden, which publish an interest ratepath that specifically states the central banks guidancefor its own interest rate policy given the expected eco-nomic trends.

The expected monetary policy tightening will also result

in higher market rates at the long end of the yield curve.However, in the case of the US this has already to somedegree been discounted during the summer when yieldson 10-year Treasuries backed up by nearly 125 bp. This

trend has also driven European government bond yieldshigher. In our view, US Treasury yields will rise to just

under 4% during the forecast period, while Europeanequivalents will remain below 3%.

Time for USD appreciation

The monetary policy stance also has a major impact ontrends in the FX markets. Recently this has been most ev-ident for a number of Emerging Markets currencies,which have been hit hard merely on expectations of aless expansionary US monetary policy going forward.Moreover, the currencies of the commodity-producingcountries have been hit by the slowdown in China, which

has caused demand for their main export products to de-

cline. The currency depreciation has led to rising infla-tion, and as many of the countries use inflation targetingto determine their monetary policy line, the central bankshave had to counter this development with higher interestrates. This is also one of the reasons for the weaker

growth pace at the moment. However, in step with the

recovery of the global economy, growth in the commodi-ty-producing countries will also accelerate.

We have long argued that economic fundamentals sug-gest a strengthening of the USD versus the EUR. How-

ever, so far this has failed to materialise; perhaps becausethe Euro area still has a large cyclical current account

surplus. But in step with this being reduced and the inter-est rate differential widening in favour of the US, theturnaround will move closer. Thus, we expect EUR/USDto drift towards 120 during the forecast period.

Risk scenarios

Several risks to our baseline scenario could affect thegrowth outlook in both a positive or negative direction.

Upside risks:

Lower oil prices maybe as a result of increas-ingly larger shale gas production.

Accelerating shift in economic sentiment. Later-than-expected tapering of the Feds bond-

buying programme drives the entire yield curvelower.

An easier fiscal policy line is accepted in theEuro area to support growth.

Successful implementation of the structuralmeasures in Japans reform programme.

China benefits from stronger-than-expected ex-port growth, with positive effects on the rest of

the world.

Downside risks:

The conflict in Syria and general unrest in theMENA region lead to drastic increases in oilprices.

A hard landing in China. The US defaults as Congress fails to raise the

debt ceiling.

More aggressive-than-expected monetary policytightening in the US and Europe, which hits thehousing markets and financial markets hard.

The Euro-area crisis flares up on uncertaintyover fiscal policy sustainability or disruptedbank union negotiations.

Growth dynamics fade from the Emerging Mar-kets economies.

In our view, the current risk outlook is largely balancedin terms of positive/negative risks.

Helge J. Pedersen, Global Chief Economist

[email protected] +45 3333 3126


5/35

Overview


rowt , n at on,2011 2012 2013E 2014E 2015E 2011 2012 2013E 2014E 2015E

World1) 4.0 3.3 3.1 3.8 4.0 World1) 5.0 4.0 3.5 3.7 3.8

USA 1.8 2.8 1.7 2.9 3.2 USA 3.1 2.1 1.6 2.1 2.3

Euro area 1.5 -0.5 -0.5 1.0 1.5 Euro area 2.7 2.5 1.4 1.3 1.7

China 9.3 7.8 7.5 7.3 7.0 China 5.4 2.6 3.0 3.5 4.0

Japan -0.6 2.0 1.6 1.3 1.0 Japan -0.3 0.0 0.2 0.8 1.3

Denmark 1.1 -0.4 0.3 1.3 1.7 Denmark 2.8 2.4 0.9 1.3 1.7

Norw ay 2.5 3.4 2.0 2.3 2.4 Norw ay 1.2 0.8 2.2 1.6 2.0

Sw eden 3.7 0.7 1.3 2.5 2.5 Sw eden 3.0 0.9 0.1 1.3 2.1

UK 1.1 0.2 1.2 1.8 2.0 UK 4.5 2.8 2.3 1.7 1.9

Germany 3.4 0.9 0.5 1.6 2.0 Germany 2.5 2.1 1.6 1.7 2.0

France 2.0 0.0 0.2 1.0 1.5 France 2.3 2.2 1.1 1.5 1.3

Italy 0.5 -2.4 -1.5 0.6 1.0 Italy 2.9 3.3 1.5 1.5 1.7

Spain 0.1 -1.6 -1.6 0.8 1.5 Spain 3.1 2.4 2.0 1.2 1.6

Finland 2.7 -0.8 -0.5 1.5 2.3 Finland 3.4 2.8 1.6 1.8 2.0

Estonia 8.3 3.2 1.9 3.6 3.7 Estonia 5.0 3.9 3.3 2.8 3.1

Poland 4.5 1.9 1.4 2.5 3.5 Poland 4.3 3.7 1.1 2.5 2.5

Russia 4.4 3.4 2.4 2.7 2.8 Russia 8.5 6.6 6.4 6.0 5.8

Latvia 5.5 5.6 3.9 4.4 3.2 Latvia 4.4 2.3 0.7 3.0 2.3

Lithuania 5.9 3.6 4.0 3.8 4.0 Lithuania 3.4 2.8 1.7 2.5 2.8

India 7.5 5.1 5.0 6.0 6.5 India 9.5 7.5 6.0 6.5 7.0

Brazil 2.8 0.9 2.0 2.7 2.6 Brazil 6.6 5.2 6.2 5.8 5.6

Rest of World 4.5 3.7 3.6 4.1 4.3 Rest of World 6.8 6.4 5.7 5.5 5.3

Public finances, % of GDP Current account, % of GDP2011 2012 2013E 2014E 2015E 2011 2012 2013E 2014E 2015E

USA -8.4 -6.8 -3.9 -3.1 -2.4 USA -2.9 -2.7 -3.0 -3.0 -3.0

Euro area -4.1 -3.7 -2.9 -2.7 -2.5 Euro area 0.3 1.8 2.5 2.7 2.3China -1.1 -1.6 -2.3 -2.0 -2.0 China 2.8 2.6 2.2 1.5 1.0

Japan -10.0 -10.2 -10.0 -9.5 -9.0 Japan 2.0 1.0 1.5 1.0 0.5

Denmark -2.0 -4.2 -1.4 -1.6 -2.0 Denmark 5.6 5.6 5.7 4.8 3.8

Norw ay 13.6 14.3 11.5 12.1 11.1 Norw ay 12.8 14.2 11.4 12.4 11.8

Sw eden 0.0 -0.6 -1.4 -1.4 -0.6 Sw eden 7.3 6.7 6.2 6.3 6.3

UK -7.8 -6.3 -6.5 -5.0 -3.0 UK -1.5 -3.8 -3.9 -3.5 -2.5

Germany -0.8 0.2 0.2 0.4 0.2 Germany 5.6 6.4 6.3 6.1 5.0

France -5.3 -4.9 -4.0 -3.8 -3.0 France -2.6 -1.8 -1.6 -1.7 -1.5

Italy -3.7 -2.9 -2.7 -2.3 -2.0 Italy -3.1 -0.5 1.0 1.1 1.3

Spain -9.4 -10.6 -6.5 -5.5 -4.1 Spain -3.7 -0.9 1.6 2.9 3.5

Finland -0.7 -1.8 -2.2 -2.0 -1.5 Finland -1.5 -1.8 -1.5 -1.4 -1.2

Estonia 1.2 -0.3 -0.6 -0.1 0.0 Estonia 2.1 -1.2 -0.8 -1.2 -1.3

Poland -5.0 -3.9 -4.4 -3.3 -2.9 Poland -4.8 -3.5 -0.8 -1.9 -2.5

Russia 7.0 -0.2 -0.3 -0.4 -0.4 Russia 5.4 4.3 2.5 2.0 1.7

Latvia -3.5 -1.5 -1.0 -0.5 0.0 Latvia -2.2 -1.7 -1.5 -2.2 -2.7

Lithuania -5.5 -3.0 -2.8 -2.4 -2.0 Lithuania -3.7 -0.5 -0.5 -1.5 -2.0

India -6.7 -5.5 -5.3 -5.5 -5.0 India -3.4 -5.1 -5.5 -5.3 -4.5

Brazil -2.6 -2.1 -3.3 -3.6 -3.0 Brazil -2.1 -2.6 -3.5 -3.2 -2.7

1) Weighted average of 184 countries. Weights f or all co untries and dat a for R est of Wor ld are fro m the most recent World Economic Outlo ok, by the IMF. The weights are calculated fr om PPP-

adjusted GDP-levels


6/35

Overview


Monetary policy rates Monetary policy rate spreads vs Euro area30.8.13 3M 30.06.14 31.12.14 31.12.15 30.8.13 3M 30.6.14 31.12.14 31.12.15

US 0.25 0.25 0.25 0.25 1.25 US -0.25 -0.25 -0.25 -0.25 0.25

Japan 0.10 0.10 0.10 0.10 0.10 Japan1 -0.15 -0.15 -0.15 -0.15 -1.15

Euro area 0.50 0.50 0.50 0.50 1.00 Euro area - - - - -

Denmark 0.20 0.20 0.35 0.50 1.25 Denmark -0.30 -0.30 -0.15 0.00 0.25

Sw eden 1.00 1.00 1.25 1.50 2.00 Sw eden 0.50 0.50 0.75 1.00 1.00

Norw ay 1.50 1.50 1.75 1.75 2.25 Norw ay 1.00 1.00 1.25 1.25 1.25UK 0.50 0.50 0.50 0.50 1.25 UK 0.00 0.00 0.00 0.00 0.25

Sw itzerland 0.00 0.00 0.00 0.00 0.75 Sw itzerland -0.50 -0.50 -0.50 -0.50 -0.25

Poland 2.50 2.50 2.50 3.50 4.50 Poland 2.00 2.00 2.00 3.00 3.50

Russia 8.25 8.00 7.75 7.50 7.50 Russia 7.75 7.50 7.25 7.00 6.25

China 6.00 6.00 6.00 6.50 6.50 China 5.50 5.50 5.50 6.00 5.50

India 7.25 7.00 6.75 6.75 7.00 India 6.75 6.50 6.25 6.25 6.00

Brazil 9.00 9.00 9.50 9.50 9.50 Brazil 8.50 8.50 9.00 9.00 8.50

3-month rates 3-month spreads vs Euro area

30.8.13 3M 30.6.14 31.12.14 31.12.15 30.8.13 3M 30.6.14 31.12.14 31.12.15

US 0.26 0.30 0.35 0.55 1.60 US 0.04 0.10 0.05 0.20 0.60


Denmark 0.28 0.30 0.45 0.50 1.20 Denmark 0.05 0.10 0.15 0.15 0.20

Sw eden 1.22 1.25 1.60 1.85 2.35 Sw eden 1.00 1.05 1.30 1.50 1.35

Norw ay 1.71 1.70 1.95 1.96 2.45 Norw ay 1.49 1.50 1.65 1.61 1.45

UK 0.52 0.50 0.50 0.60 1.40 UK 0.29 0.30 0.20 0.25 0.40

Poland 2.71 2.75 2.80 3.75 4.70 Poland 2.49 2.55 2.50 3.40 3.70

Russia 6.80 6.75 6.55 6.45 6.50 Russia 6.58 6.55 6.25 6.10 5.50

Latvia 0.27 0.20 0.30 0.35 1.00 Latvia 0.05 0.00 0.00 0.00 0.00

Lithuania 0.40 0.50 0.50 0.35 1.00 Lithuania 0.18 0.30 0.20 0.00 0.00

10-year government benchmark yields 10-year yield spreads vs Euro area30.8.13 3M 30.6.14 31.12.14 31.12.15 30.8.13 3M 30.6.14 31.12.14 31.12.15

US 2.77 2.55 2.90 3.25 3.90 US 0.94 0.80 0.80 0.85 1.15


Denmark 2.02 1.90 2.20 2.50 2.85 Denmark 0.18 0.15 0.10 0.10 0.10

Sw eden 2.44 2.15 2.85 3.15 3.50 Sw eden 0.61 0.40 0.75 0.75 0.75

Norw ay 2.98 2.84 3.29 3.50 3.59 Norw ay 1.15 1.09 1.19 1.10 0.84

UK 2.76 2.60 2.80 3.00 3.50 UK 0.92 0.85 0.70 0.60 0.75

Poland 4.43 4.50 4.80 5.00 5.20 Poland 2.60 2.75 2.70 2.60 2.45

Exchange rates vs EUR Exchange rates vs USD30.8.13 3M 30.6.14 31.12.14 31.12.15 30.8.13 3M 30.6.14 31.12.14 31.12.15

EUR/USD 1.32 1.30 1.25 1.25 1.20 -

EUR/JPY 129.9 125.6 131.3 137.5 132.0 USD/JPY 98.1 97.0 105.0 110.0 110.0

EUR/DKK 7.46 7.46 7.46 7.46 7.46 USD/DKK 5.63 5.76 5.96 5.96 6.21

EUR/SEK 8.73 8.45 8.20 8.20 8.20 USD/SEK 6.59 6.53 6.56 6.56 6.83

EUR/NOK 8.09 7.80 7.80 7.75 7.70 USD/NOK 6.11 6.02 6.24 6.20 6.42

EUR/GBP 0.85 0.83 0.82 0.82 0.80 GBP/USD 1.55 1.56 1.52 1.52 1.50

EUR/CHF 1.23 1.25 1.25 1.30 1.35 USD/CHF 0.93 0.97 1.00 1.04 1.13

EUR/PLN 4.27 4.15 4.05 4.00 3.95 USD/PLN 3.23 3.2 3.2 3.2 3.3

EUR/RUB 44.0 42.7 41.0 40.8 39.0 USD/RUB 33.2 33.0 32.8 32.6 32.5

EUR/LVL 0.70 0.70 0.70 0.70 0.70 USD/LVL 0.53 0.54 0.56 0.56 0.59

EUR/LTL 3.45 3.45 3.45 3.45 3.45 USD/LTL 2.61 2.67 2.76 2.76 2.88

EUR/CNY 8.11 7.90 7.50 7.44 7.02 USD/CNY 6.12 6.10 6.00 5.95 5.85

EUR/INR 88.2 77.7 75.0 72.5 63.6 USD/INR 66.6 60.0 60.0 58.0 53.0

EUR/BRL 3.12 2.91 2.88 2.94 2.88 USD/BRL 2.36 2.25 2.30 2.35 2.40


7/35

Sweden


Brighter outlook

More broadly-based growth as exports increase

Election budget benefits households

The Riksbank set to hike next year

SEK firming against the EUR

Recovery in sight

Trends in the Swedish economy have been weak over the

past two years. The dampening was significant in H12013 when GDP rose by a modest 1% on the year earlier.This slowdown is due to weaker international demand re-sulting from the turbulent situation in Europe. Conse-quently, exports have contracted and the heightened un-certainty has also held back business investment.

Much indicates that growth in the Swedish economy isaccelerating. The domestic economy is stimulated by anexpansionary economic policy line and households con-tinue to be the main growth engine. At the same time, wesee a turnaround in the export industry. Public consump-

tion is rising and next year investment activity shouldpick up as well as production rises. GDP is thus increas-ing at a decent pace outstripping the potential growthrate as of H2 this year. Growth will abate in 2015 in stepwith fading stimulus effects both in Sweden and interna-tionally.

Brighter export outlook

Market growth for the Swedish export industry declinedsharply last year. After a sluggish start to the year it will

fall further this year to a 20-year low except for the

plunge in 2009. The almost 2-year-long slump in the ex-port of goods will now come to an end, as demand in keyexport markets such as Germany, the US and the UK

picks up again. Exports of services have developed muchmore favourably than goods exports and are becoming an

increasingly important driver of economic growth. Overthe past ten years, exports of services have grown by anaverage 6% pa, and comparatively strong growth is alsoexpected in the coming years.

Strong households; government budget in the red

The favourable conditions for households are intact. Thesavings ratio is high and rising house prices and shareprices have boosted household wealth. In addition, realincome will rise by an average of 2.5% pa in 2013-2015.

Households concern over the economic situation in gen-

eral and labour market conditions in particular has alsostarted to ease. The conditions for a favourable trend inconsumption are thus in place.

One of the reasons behind households income gains next

year is lower taxes. This year unfunded fiscal policy re-forms of SEK 25bn have been launched, equivalent to

0.7% of GDP. We expect additional unfunded reforms ofa similar size in the election year 2014, most of them tar-geting households. The drawback is that the reforms willstrain public finances and lead to a shortfall in financial

savings of about 1.5% of GDP in both 2013 and 2014. In2015 the deficit will shrink as the economic recovery has

then progressed further. Nonetheless, public sector debtwill remain close to 40% relative to GDP in all the fore-cast years.

Sweden: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (SEKbn) 2011 2012 2013E 2014E 2015E

Private consumption 1,617 2.2 1.5 2.0 2.7 2.4

Government consumption 890 1.1 0.7 1.0 1.3 0.9

Fixed investment 602 6.4 3.2 -3.3 2.8 3.6

- industry 74 11.4 7.5 -6.2 2.8 4.9

- residential investment 110 14.7 -8.2 0.6 4.9 3.7

Stockbuilding* 23 0.5 -1.1 0.5 0.0 0.0

Exports 1,651 7.1 0.8 -2.0 3.9 4.6

Imports 1,445 6.3 0.0 -2.5 3.6 4.3

GDP 3.7 0.7 1.3 2.5 2.5

GDP, calendar adjusted 3.7 1.1 1.3 2.6 2.3

Nominal GDP (SEKbn) 3,338 3,500 3,562 3,638 3,783 3,942

Unemployment rate, % 7.8 8.0 8.0 7.8 7.6

Employment grow th 2.3 0.7 0.9 0.7 0.7

Consumer prices, % y/y 3.0 0.9 0.1 1.3 2.1

Underlying inflation (CPIF), % y/y 1.4 1.0 1.0 1.2 1.5

Hourly earnings, % y/y 2.7 2.9 3.1 2.8 3.2

Current account (SEKbn) 258 238 224 238 246

- % of GDP 7.3 6.7 6.2 6.3 6.3

Trade balance, % of GDP 2.6 2.6 2.3 2.5 2.5

General govt budget balance (SEKbn) 1 -20 -52 -53 -24

- % of GDP 0.0 -0.6 -1.4 -1.4 -0.6

Gross public debt, % of GDP 38.4 38.1 41.2 41.2 40.5

* Contribution to GDP growth (% points)


8/35

Sweden


Lower productivity growth

Productivity growth has been slow over the past twoyears. The main reason is probably the subdued econom-

ic trends, as weak production growth normally meansthat capacity utilisation is low. However, it is worth not-ing that the number of hours worked has risen over the

past year despite the low GDP growth. Actual and ex-pected deceleration of wage growth may have contribut-ed to more labour-intensive production and even to a de-

cline in the long-term productivity growth. The numberof people employed has risen even more than the numberof hours worked over the past two years when averageworking hours have declined. As a result, employmentgrew almost as fast as GDP in 2012, which is unusual.

The unexpected and seemingly new labour market trendsincrease uncertainties in the forecast. We expect absence

levels to decline somewhat and productivity growth torecover partially during the forecast horizon, which will

curb the upturn in employment. The working-age popula-tion continues to grow and unemployment therefore de-

clines at a slow pace.

Riksbank to hike despite low inflation

Continued idle labour resources suggest dampened wage

growth and modest domestic cost pressure. Coupled withthe persistent decline in import prices, this implies that

CPIF inflation will remain below the 2% target duringthe entire forecast period.

Despite low inflation and rising unemployment the Riks-

bank has left the repo rate unchanged this year. The

Riksbank argues that its monetary policy is already ex-pansionary and that its focus is on household indebted-ness. As the economic cycle appears to have bottomedand the outlook for the global economy has also bright-ened, further rate cuts are not likely. Next year the Riks-bank will hike rates to counter growing household in-debtedness at the same time as signs of rising capacity

utilisation will emerge. The subdued inflation speaks infavour of a gradual increase of interest rates during theforecast period.

SEK undervalued versus the EUR

The SEK has appreciated against most other currencies

during the summer, but not against the EUR, which hasbeen surprisingly strong in light of the fragile economicsituation in the Euro area. Given the prospect of highergrowth and comparatively stable public finances, the

Swedish economy is forecast to retain its relative strengthduring the forecast period. Early rate hikes from theRiksbank will increase the interest rate differential versusthe Euro area, which in turn indicates that the SEK willfirm against the EUR. On the other hand, the SEK willlike most other currencies weaken against the USD in

step with the US economy gathering strength.

Torbjrn [email protected] +46 614 8859

Exports to rebound

Some recovery of business productivity

Unemployment hard to shake

CPIF inflation remains below target


9/35

Norway


Higher inflation but somewhat weaker growth

Uptick in inflation earlier than expected

But growth outlook somewhat weaker

Tentative rate hikes from 2014

The biggest surprise since our June forecast is the sharpuptick in core inflation. We have therefore revised up our2013 and 2014 inflation forecasts. This could result in arate hike in H1 2014, somewhat sooner than forecasted in

June.

The growth outlook has dimmed somewhat, though.Mainland GDP for Q2 was significantly lower than ex-pected and weaknesses in the housing market have be-come more evident. We have revised down our 2013 and

2014 growth forecasts somewhat, mainly as a conse-

quence of weaker growth in household demand. In 2015,which is included in our forecast for the first time, welook for a more expansionary fiscal policy that will helpdrive growth slightly higher. Mainland GDP is projectedto grow by 2-2 % in 2014 and 2015.

Less impetus from consumers

Consumer spending disappointed in Q2 after very stronggrowth in Q1. We believe that the underlying trend inconsumer spending is still positive and expect growth toaccelerate somewhat again in the autumn. Next year con-

sumer growth is expected to be somewhat lower due tosignificantly lower real wage growth and slightly higher

interest rates. A somewhat weaker labour market and acooler housing market could also curb consumers pro-pensity to spend. The same trend of moderate con-sumerspending growth is likely to continue in 2015.

This summer house price trends were somewhat weaker

than expected and we now look for a slight decline inprices in the autumn. Tighter bank credit standards and ahigh price level are probably the main reasons for the

slowdown. We expect the moderate decline to continuethroughout 2014 and 2015, resulting in an average price

drop of 2-3% both years. This year price growth is esti-mated at roughly 4%. The subdued housing market willlead to lower residential construction and investment inresidential construction will reverse from a strong in-crease to having a moderately negative effect on GDPgrowth in 2014 and 2015.

But business investment will rebound

While consumer spending disappointed in Q2, mainlandbusiness investment rose quite sharply after some weak

quarters. Investment activity is at relatively low levels

both in the service sector and in the manufacturing indus-try, suggesting that business investment will increase ad-ditionally given the moderate growth in activity in theoverall economy.

For oil investment the picture is the opposite. Investmentgrowth is currently sky-high, but oil companies plans for

2014 indicate considerably lower growth next year. In2015 growth will likely decline further, but the picture isvery uncertain this far into the future. If, for example, oilprices decline, oil investment trends in 2015 could be

much weaker.

The momentum to the Norwegian manufacturing indus-try from domestic and international oil investments willabate. This may to some degree be offset by an expectedupturn in Norways traditional export markets. But given

the high cost level, Norway will not be able to benefit

Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)2010(NOKbn) 2011 2012 2013E 2014E 2015E

Private consumption 1,132 2.5 3.0 2.6 2.4 2.5Government consumption 591 1.8 1.8 2.3 2.5 3.0Fixed investment 537 7.6 8.0 5.7 1.6 2.0- gross investment, mainland 383 8.5 3.7 2.7 0.5 1.5- gross investment, oil 141 9.8 19.1 13.0 4.0 3.0Stockbuilding* 126 0.1 -0.2 -0.8 0.3 0.0Exports 1,141 -1.8 1.8 -1.4 1.7 1.0- crude oil and natural gas 562 -6.2 0.9 -4.5 2.0 0.0- other goods 316 0.0 2.6 1.2 1.5 2.0Imports 776 3.8 2.4 1.0 2.5 2.4GDP 2,750 1.2 3.1 1.2 2.2 1.9GDP, mainland 2,090 2.5 3.4 2.0 2.3 2.4

Unemployment rate, % 3.3 3.2 3.6 3.8 3.9Consumer prices, % y/y 1.2 0.8 2.2 1.6 2.0Core inf lation, % y/y 0.9 1.2 1.6 1.8 2.0

Annual w ages, % y/y 4.2 4.0 3.6 3.7 3.5Current account (NOKbn) 351.0 413.2 335.7 391.6 388.9- % of GDP 12.8 14.2 11.4 12.4 11.8Trade balance, % of GDP 13.3 13.2 10.5 11.5 10.9

General govt budget balance (NOKbn) 373.6 417.7 340.0 380.0 365.0

- % of GDP 13.6 14.3 11.5 12.1 11.1* Contribution to GDP growth (% points)


10/35

Norway


fully from this upturn.

Expansionary fiscal policy in 2015

Waning growth in oil investment and consumer demandin the mainland economy suggests that growth will berelatively moderate going forward. Moreover, we expect

immigration to remain relatively high in net terms, whichmeans that unemployment could increase somewhat.

With decelerating growth and slightly higher unemploy-ment, we expect fiscal policy to turn more expansionaryregardless of who wins the next election. The spendingrule for oil revenues will not be a hindrance since oil rev-enue spending is well below the limit. Notably in 2015growth in public spending and investment could be high.

Higher but stable inflation

A presumably more expansionary fiscal policy will curbthe decline in employment growth and make the uptick in

unemployment more moderate. Wage growth is estimat-ed to remain just under 4% and core inflation should be

roughly 2%. We assume that the NOK will remain rea-sonably stable so that growth in price on imported goodswill pick up further.Rent increases, which account fornearly 20% of inflation, have accelerated sharply this

year. We expect that growth in rents will remain relative-ly high as existing rents are gradually revised up in step

with the sharp increase in new rents.

Slightly earlier rate hike

Inflation rising earlier than expected suggests that Norges

Bank will bring its first rate hike forward to H1 2014.

Slowing growth and somewhat higher unemployment in-dicate that interest rates will be raised very cautiously.International interest rate movements will to a large ex-

tent determine interest rate levels also in Norway. In H22014 markets are expected to price in higher interest

rates internationally, and during 2015 policy rates areprojected to be hiked in both the US and the Euro area.This will likely be one of the factors prompting furtherrate hikes from Norges Bank.

Stable EUR/NOK over time

The NOK took a dive in June when Norges Bank sig-nalled a high probability of a rate cut in September. The

NOK weakening and higher inflation suggest that thepolicy rate is left unchanged and that Norges Bank will

revise up its interest rate path. This should boost theNOK to some degree. Subsequently, EUR/NOK is ex-pected to remain relatively stable. Oil prices will movesideways, and even in case of an earlier Norwegian poli-cy rate hike than in the Euro area, the expected interestrate differential, measured for instance by 2-year swap

rates, will not change much. Changes in this interest ratedifferential usually have a large impact on the EUR/NOKperformance.

Erik [email protected] +47 2248 4449

Katrine Godding [email protected] +47 2248 7977

Weaker housing market

Low business investment practically everywhere

Is retail price growth about to give in?

A rather weak NOK


11/35

Denmark


Sudden thaw

Consumers waking up

Tentative improvement in fragile housing market

Risk of jobless upswing

Investment knot unravelling

After more than four years of zero growth, a thaw is un-derway in the Danish economy. The harbinger of this canmainly be seen in the household sector where the combi-nation of higher disposable incomes and growing opti-mism paves the way for increased consumption. At the

same time we see good chances of consumer spendinggrowth being accompanied by an upturn in investmentactivity and higher exports in step with rising activity inkey export markets.

Viewed in this light we reiterate our forecast of accelerat-

ing growth in the Danish economy in the years ahead more specifically a growth rate of 0.3% this year, risingto 1.3% next year and 1.7% in 2015.

Consumers waking up

Since the crisis really took hold in late 2008, householdconsumption has been stagnant. As it makes up about50% of GDP, this is a crucial reason for recent years ze-ro growth in the Danish economy. However, recentmonths data for consumer confidence and Dankort debit

card sales indicate a renewed increase in activity among

Danish households. The reasons are higher disposableincomes thanks to tax cuts and positive real wage growthas well as households stronger confidence in the eco-nomic outlook. Coupled with a positive trend in house-hold wealth, the higher disposable incomes and growing

optimism mean that consumer spending will once again

become the main driver of economic growth.

The higher consumer spending will also cause imports to

accelerate and viewed in isolation this will put downwardpressure on the currently very substantial current account

surplus. However, this pressure will partly be offset by arenewed uptick in exports as the economic upswing gath-ers momentum in key export markets such as Sweden,Germany, the UK and the US.

Upswing aided by low inflation

During the summer the year-on-year rate of increase inDanish consumer prices has fallen to a 40-year low. Thedeclining rate of inflation is due to several factors coin-ciding: energy prices have stagnated, lower taxes and du-

ties have curbed increases in food prices and weak de-

mand and low wage growth have made it tougher forbusinesses to pass price increases on to consumers. Thelow inflation is definitely good news for the Danisheconomy; in addition to ensuring positive real wagegrowth, it also helps boost Denmarks competitiveness.

Risk of jobless upswing

The paradox in the Danish labour market is growing in-creasingly larger. For quite some time unemployment has

been falling in gross terms, although growth in the Dan-ish economy has been below the level that is normally

required for a stable number of unemployed. The devia-tions in employment and unemployment indicate a sig-

nificant outflux from the labour market that artificiallydrives unemployment lower.

Given the contracting labour force it is currently very dif-

ficult to assess how much damage the long period of fall-ing employment and low number of vacancies has done

Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (DKKbn) 2011 2012 2013E 2014E 2015E

Private consumption 858 -0.5 0.5 0.3 1.5 2.0Government consumption 510 -1.5 0.7 0.4 0.5 0.5Fixed investment 300 2.9 -0.1 0.3 3.5 2.4- government investment 38 4.2 10.7 -9.4 5.4 -7.9- residential investment 71 14.6 -8.6 -4.5 2.0 3.8- business f ixed investment 191 -1.6 1.2 3.9 3.8 4.0Stockbuilding* -5 0.5 -0.4 0.5 0.0 0.0Exports 887 6.5 0.2 0.4 2.8 3.7Imports 789 5.6 1.0 1.3 3.5 3.8GDP 1.1 -0.4 0.3 1.3 1.7Nominal GDP (DKKbn) 1,761 1,792 1,824 1,845 1,895 1,960

Unemployment rate, % 6.1 6.2 5.9 5.9 5.8Gross unemployment level, '000 persons 160 162 154 154 151Consumer prices, % y/y 2.8 2.4 0.9 1.3 1.7Hourly earnings, % y/y -2.8 1.5 1.4 1.7 2.0Nominal house prices, one-family, % y/y -2.8 -3.2 2.2 2.4 2.9Current account (DKKbn) 101 102 105 90 75- % of GDP 5.6 5.6 5.7 4.8 3.8

General govt. budget balance (DKKbn) -34.9 -77.5 -25.0 -31.0 -40.0

- % of GDP -2.0 -4.2 -1.4 -1.6 -2.0Gross public debt, % of GDP 46.4 45.6 44.1 43.8 44.4



12/35

Denmark


to the Danish labour market. And in turn it is also verydifficult to assess the current scope for fiscal policy ac-tion in the Danish economy. Given this uncertainty, thegrowing signs of improvement in consumer spending andthe risk of loss of credibility in the financial markets, we

still believe that fiscal policy should not be eased further

at this point. Not even although we do not expect em-ployment to rise until mid-2014.

Tentative improvement in fragile housing market

The housing market is still undergoing the necessaryconsolidation following recent years price plunge. Nota-bly in the greater Copenhagen area this has resulted inprice increases, led by the market for owner-occupiedflats. The rising prices give reason to hope that this posi-

tive trend will gradually spread to other parts of the coun-try. A trend that is supported by continued very low

mortgage rates, a historically low increase in new homesfor sale and prospects of labour market stabilisation.

However, the risk of a new setback still lurks beneath thesurface. The rising prices are thus based on a very low

turnover and the number of unsold homes is very high(both homes currently for sale and homes expected to be

put on the market when prices begin to rise). We there-fore expect nominal housing prices measured by the na-tional average rate to increase moderately in the comingyears. However, we will still see major geographical dif-

ferences. Improvements will mainly be concentrated indemographically growing areas of the country that sup-

port stronger demand.

Investment knot unravelling

Despite historically low interest rates and the opening ofa temporary tax window, business investment activityhas stagnated at a very low level. This poses a majorproblem, as it leaves a vacuum in demand and reducesfuture growth opportunities. However, going forward wesee good chances of business investment shifting into ahigher gear. Until the turn of the year this growth will

chiefly be driven by activity brought forward before theinvestment window closes. In 2014 we expect the up-trend in investment activity to continue as a result of thelow interest rates, growing demand and a large pent-upneed. The prospect of higher investment activity is alsosupported by a renewed increase in business loan demand

concurrently with the banks no longer tightening theircredit standards. However, it should be pointed out thatDanish investments are often made outside rather thaninside the country owing to the high domestic cost level a trend that has been evident over several years by now.

Helge J. [email protected] +45 3333 3126

Jan Strup [email protected] +45 3333 3171

Growth returns

Prospect of rising household consumption

Slow labour market reversal

Investment overhang


13/35

Finland


Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (EURbn) 2011 2012 2013E 2014E 2015E

Private consumption 99 2.6 0.2 0.4 1.1 1.8Government consumption 44 0.5 0.6 0.5 0.5 0.5Fixed investment 34 5.7 -1.0 -2.1 1.4 4.1

Stockbuilding* -1 1.5 -1.3 -0.2 0.2 0.0Exports 72 2.7 -0.2 -1.4 3.9 5.8Imports 70 6.2 -1.0 -2.1 3.8 5.5GDP 2.7 -0.8 -0.5 1.5 2.3Nominal GDP (EURbn) 178.7 188.7 192.5 197.3 203.1 211.3

Unemployment rate, % 7.8 7.7 8.2 8.3 7.8Industrial production (output), % y/y 3.8 -2.1 -5.0 2.0 4.0Consumer prices, % y/y 3.4 2.8 1.6 1.8 2.0Hourly w ages, % y/y 2.7 3.2 2.0 1.6 1.5Current account (EURbn) -2.7 -3.6 -2.9 -2.8 -2.6- % of GDP -1.5 -1.8 -1.5 -1.4 -1.2Trade balance (EURbn) -1.3 0.1 0.8 0.7 1.0- % of GDP -0.7 0.1 0.4 0.4 0.5

General govt budget balance (EURbn) -1.3 -3.4 -4.3 -4.1 -3.2- % of GDP -0.7 -1.8 -2.2 -2.0 -1.5

Gross public debt (EURbn) 92.8 103.1 111.2 119.2 126.3- % of GDP 49.2 53.6 56.4 58.7 59.8

Down to the last card

GDP in 2015 will still be below the 2007 level

Economic recovery depends entirely on exports

Employment will continue to weaken

Households will remain cautious

GDP in 2015 will still be below the 2007 level

The Finnish economy began to grow moderately in H12013. Initially, recovery will be very slow, gainingmomentum in 2014 and 2015 as international demandrecovers. The economic recovery will also be slower thisyear than the decline that preceded it, which continued

for most of 2012. In light of this information, weestimate overall production to shrink by 0.5% this year,but to hit a growth figure of 1.5% in 2014 and 2.3% in

2015 due to an increase in exports. The growth forecastsfor 2013 and 2014 have been maintained.

The losses in overall production suffered in recent yearshave been enormous. Under our forecast scenario, realGDP in 2015 will still be slightly lower than what it wasin 2007, for example.

Widespread weakness

With overall production on a slight upward track, theperception of current economic activity may be toopositive, as no clear-cut engine for growth has emergedyet. The latest foreign trade figures indicate that both

exports and imports are still declining. Exports aredecreasing at a slower rate than imports, so technicallyforeign trade should accelerate growth. Weak importfigures, on the other hand, signal that domestic demand(especially private consumption and investment) hasremained lacklustre and, with production shrinking,

companies need less and less intermediate products.Domestic production is hamstrung by the difficulties of

the manufacturing, retail and construction sectors. Thereis no quick fix on the horizon, as new orders for themanufacturing industry are still meagre. The lack of

economic growth will keep the employment rate low and unemployment high well into next year, putting a

damper on growth in households' purchasing power.

Economic recovery depends entirely on exports

The economic data on Finland is mostly grim, with

hardly any bright spots. But we may be experiencing thedarkest hour just before dawn, as recent developments inthe global economy and a number of leading indicatorspoint to more positive forecasts for exports.

The outlook for the global economy as a whole is

brighter for a change. The OECD's leading indicator and

the global purchasing managers' index have beenforecasting a moderate recovery in the world economyand global trade for a while. Now these forecasts arefinally gaining traction. Economic activity has clearlystarted to pick up in markets that are important for

Finland, such as the United States, the euro area, Swedenand the United Kingdom. We believe that strengthening

international demand will put exports on an upward tracktowards the end of this year. Initially, however, therecovery will be limited by a slowdown in Russia'seconomic growth and the considerable proportion of

investment goods in exports. Investment across the globewill only start to recover once old capacity is being

utilised sufficiently. How big a slice the Finnish exportindustry will gain from increased global demand willeventually be determined by its competitiveness.

The trade balance will remain in a mild surplus, as weakdomestic demand continues to slow down the import of

goods. The current account remains in a deficit becauseofdeficits in the trade in services and income transfers.



14/35

Finland


Employment will weaken further

The economic recession will weaken employment with alag. We expect the labour market to continue to

deteriorate, and the unemployment rate, adjusted forseasonal changes, to rise to 8.5% at the end of this year.Unemployment will remain high well into 2014 before

brisker activity begins to increase labour demand again.

The official statistics are confounding, as they indicate a

steep decline in the number of unemployed, the labourforce and the unemployment rate in June and July. Webelieve this to be more of a case of a temporary drop dueto higher-than-normal fluctuation in the labour forcesurvey than a permanent exit of the unemployed from thelabour market. Observations in the coming months are

likely to show a rising unemployment rate once again.

Households will remain cautious

Households' purchasing power will hardly improve this

year and next, as its rise is hampered by several factors.Employment will deteriorate further. In order to improve

the competitiveness of Finnish companies, the collectivebargaining negotiations this autumn are expected toresult in very low wage increases over several years,which will prevent incomes from rising much. Coupled

with modest inflation, this will also slow down the rise inpensions in the near future. Tax hikes on income and

consumption are also on the agenda. Preliminarydecisions by the authorities indicate that income taxbrackets will not be adjusted for inflation next year. Inaddition, many municipalities are expected to raise their

tax rate. Commodity taxes will be selectively raised.

The lack of improvement in purchasing power will keephouseholds cautious and growth in private consumptionslow. This cautiousness will most likely also curbhouseholds' debt appetite and the volume of housingtransactions despite the fact that interest rates areestimated to remain exceptionally low.

In H1 this year, the number of housing transactionsdeclined by more than 10% compared to the previousyear, partly due to higher taxes on such transactions, andthere has been no reversal in this trend yet. New housingloans drawn down by households were similarly on a

decline of more than 20%.

Household cautiousness will keep constructioncompanies on their toes and construction project start-upsbelow average for the time being. The shortage in thesupply of new residences will compensate for weak

demand, stabilising prices at a rise parallel to the increasein households' disposable income.

Pasi [email protected] +358 9 165 59942

There are early signs of a recovery

Euro area PMI suggests a pick-up in manufacturing

Export volumes lack symptoms of recovery

The fall in unemployment is temporary


15/35

USA


USA: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (USDbn) 2011 2012 2013E 2014E 2015E

Private consumption 10,201.9 2.5 2.2 2.0 2.8 2.9Government consumption and investment 3,174.0 -3.2 -1.0 -2.4 -0.7 -0.2Private fixed investment 2,039.3 6.2 8.3 4.7 7.8 8.0

- residential investment 381.1 0.5 12.9 13.3 12.4 12.6- equipment and softw are 731.8 12.7 7.6 3.7 7.5 7.4- non-residential structures 362.0 2.1 12.7 0.7 7.3 7.2

- intellectual property products 564.4 4.4 3.4 3.0 5.0 5.7Stockbuilding* 61.5 -0.2 0.2 0.0 0.0 0.0Exports 1,843.5 7.1 3.5 2.5 5.2 5.5Imports 2,362.0 4.9 2.2 1.6 4.8 5.3GDP 1.8 2.8 1.7 2.9 3.2Nominal GDP (USDbn) 14,958.3 15,533.8 16,244.6 16,764.1 17,545.4 18,465.6

Unemployment rate, % 8.9 8.1 7.4 6.5 5.6Industrial production, % y/y 3.4 3.6 2.5 3.5 3.8Consumer prices, % y/y 3.1 2.1 1.6 2.1 2.3

Consumer prices ex. energy and food, % y/y 1.7 2.1 1.8 2.2 2.4Hourly earnings, % y/y 2.0 1.9 2.0 2.5 2.8Current account (USDbn) -457.7 -440.4 -502.9 -526.4 -554.0- % of GDP -2.9 -2.7 -3.0 -3.0 -3.0

Federal budget balance (USDbn) -1,295.6 -1,087.0 -650.0 -550.0 -450.0- % of GDP -8.4 -6.8 -3.9 -3.1 -2.4Gross public debt, % of GDP 98.2 101.3 105.2 108.3 110.8

Bright future ahead

Expect stronger growth despite fiscal tightening

The US consumer is back deleveraging is over

Higher inflation pressures in 2014 and 2015

First Fed rate hike in early 2015

US data releases over the summer have made us evenmore confident in our optimistic economic outlook forthe US. Thus, the stronger-than-expected 2.5% GDPgrowth rate in Q2 was the fastest pace in three quarters.

The fact that the recovery has gained momentum despitesequester-related government spending cuts, higher taxesfor high-income earners and the expiration of the payrolltax holiday suggests the economy should accelerate laterthis year as the drag from fiscal tightening fades.

However, downward revisions to GDP over the pastquarters arithmetically necessitate reducing our overall2013 growth forecast by 20 bp to 1.7% even though westill expect 2-3% growth in H2 2013.

In 2014 and 2015 fiscal policy will continue to act as a

drag on growth, but less so than in 2013. Moreover,thanks to improved fundamentals in the private sector weexpect the recovery to gain even more pace over the nextfew years as pent-up demand is released, especially in theform of business investment but also stronger consumerspending. GDP growth is therefore projected to strength-

en to 2.9% and 3.2% in 2014 and 2015, respectively.

We are not concerned that the likely upcoming scalingback and subsequent termination of the Feds asset pur-chases (QE) will harm the economy excessively. First,the Fed has clearly communicated that it is only going to

start tapering its purchases if a stronger economy does

not require such further support. Second, even when theFed ceases to expand its balance sheet, US banks willremain flush with liquidity, already added to the banking

system by the Fed in the form of excess reserves.

Finally, rising mortgage rates as imminent QE taperinghas been priced into the market should not derail thehousing recovery. All else equal, higher mortgage rateswill obviously act as a drag on growth. Thus for a mort-gage on a median-priced single-family home (aroundUSD 200,000) with a 20% down payment, the recent rise

in mortgage rates represents an increase in the monthlymortgage payment of about 3% of median family in-come. However, in the current environment this negativeimpact is likely to be at least partly offset by increasedincentives for banks to lend because recently rising home

prices and employment imply a lower risk that mortgagesturn delinquent. Moreover, because of earlier postponedhousing demand we see potential for pent-up demand to

be released before rates and prices rise even further.

The US consumer is back

In the absence of new shocks, we believe that the US is

facing a strong cyclical recovery over the next few yearscompared to all other major advanced economies. Themain reason is that private-sector deleveraging seems tobe over. Households debt-to-disposable income ratio has

fallen to a decade low and along with still very low inter-est rates the sharp debt reduction has reduced the debt-

service ratio to the lowest level since records started in1980.

National homes price are expected to rise around 5% an-

nually over the next two years following the 10%+ paceobserved over the past year. Rising home prices, coupled

with gains in stock prices, low interest rates, an improv



16/35

USA


ing labour market and continued easing of banks lendingconditions are expected to lead to stronger consumptiongrowth going forward.

Moreover, with a very high level of corporate profit mar-

gins, stronger global growth, improved competitiveness,

partly due to a weak USD, easier credit conditions andreduced uncertainty as the nightmares of the Great Re-cession and Washington politics fade, the prospects forbusiness investments are also quite bright.

In addition, household formation growth suggests thathousing starts could double over the next few years,

reaching an annual pace around 2 million units.

First Fed rate hike in early 2015

Very encouragingly, the job market is clearly improving.

We expect employment growth to average 200,000 permonth in H2 2013, roughly in line with the trend so far

this year, and around 225,000 per month in 2014 and2015. With an assumed steady labour force participation

rate, unemployment is forecast to reach 7% by end-2013,6% by end-2014 and 5.2% by end-2015.

The Fed is expected to start reducing its monthly bondpurchases in September this year, with QE ending in Q12014. Given the Feds numerical rate guidance, the first

rate hike is expected in early 2015, and by end-2015 thefed funds rate is projected at 1.25%. Fed Vice Chairman

Janet Yellen is our favourite to replace Bernanke as Fedchairman in early 2014.

With full employment expected to be reached by late2014 or so, signs of stronger inflation pressures are pro-jected to emerge in the latter part of the forecast horizon.

Fiscal risks back in focus in H2 2013

In addition to continued global downside risks to the USoutlook, US fiscal risks are still a concern.

The debt ceiling is clearly the most important fiscal issuein H2 2013. In case of no agreement to raise the debtceiling, the US government defaults. The final deadlinefor raising the debt ceiling is most likely in October orearly November. Moreover, to avoid a partial govern-

ment shutdown Congress will have to pass a temporaryfunding measure before the current authority expires on30 September. The reason is that Congress once again seems unlikely to pass a budget before the new fiscalyear starts on 1 October.

However, because fighting over the debt ceiling hasproven to be a popularity-losing effort, our expectationcontinues to be that Congress will solve these fiscal is-sues with relatively little drama this time. Any impact onthe economy is believed to be minimal.

Johnny Bo [email protected] +45 3333 6178

Fiscal drag on growth expected to fade

The US consumer is back

Housing recovery has only just begun

Job market improvement expected to continue


17/35

Euro area


Progress on a long hard road

Recession is over, the crisis is not

Contraction in the periphery easing

The policy response has changed just a bit

ECB on hold, but low barrier for more easing

The good news about the Euro area is that the recessionseems to be over. The bad news is that the crisis is notover and that conditions for strong growth in output oremployment are not yet in place. The recovery should

gradually gain some strength over time but it remainsvulnerable to shocks and will need support from a verylenient monetary policy for a long time.

After six consecutive quarters of declining output, GDP

increased by 0.3% over the quarter in Q2. That was driv-en by growth in Germany and France but also by Italyand Spain contracting less than before. Constructionprobably picked up, to a large part due to a catch-up ef-fect after a long winter. Private consumption probably al-so rose. Many sentiment indicators are compatible withslow growth going forward, but catch-up effects should

have run out by now.

As GDP increased earlier this year than we expected, werevised up our growth forecast for this year to -0.5%from -0.8%. Actually, we are almost back to our Marchforecast (-0.4%). We still expect around 1% for next

year, mainly driven by domestic demand. Our first glanceinto 2015 assumes a further healing from the crisis with

growth strengthening to 1.5%. We expect the drivers forthat to be a less restrictive fiscal policy, further progresson deleveraging and structural reforms and a slightlyweaker euro supporting exports.

Improvement on the financial side

In our view, the relative calm in financial markets in re-cent months contributed to the stabilisation of the econ-

omy. Marked declines of peripheral countries bond yieldspreads over German Bunds yields more than compen-

sated the 50 bp increase of 10Y Bund yields this year.

Moreover, although banks still tightened lending stand-

ards in Q2, they did not do so more than in Q1. So all inall, there is improvement on the financial side that shouldsupport growth going forward.

but deleveraging still an impediment to growth

In contrast to the US, private sector deleveraging is notover. Consequently, private households will remain re-luctant to consume more given very high unemploy-ment and falling house prices in several countries and

companies will remain reluctant to take on more debt tofinance investment. At the same, public debt is still on anunsustainable path in several Euro-area countries. There-fore, there still is a need for growth-enhancing structuralreforms and at the same time for restrictive fiscal policy.However, in our view, tax increases and spending cuts

will be less of a drag on growth next year than this year

which is good news.

Political risks and event risks not gone

Political stability is especially important for countriesthat have to implement painful reforms over several

years. The risks to stability have not gone. Several gov-ernments for example those in Italy, Portugal andGreece look shaky and may fall. Greece may also needmore help with its public debt in one way or another.

And whether Portugal will be able to return to bond mar-kets next year remains to be seen. Small countries can

cause irritation on financial markets. But they can proba-bly not derail the Euro-area recovery if crisis manage-

ment by the ECB, European governments, the IMF andthe European Commission contains the damage which

we expect to happen.

The policy response has changed just a bit

The economic policy response seems to have changed

just a bit this year. Austerity, structural reforms and acentral bank not doing more than is absolutely needed is

still the mantra, but some countries have been allowed aslower pace of budget deficit reduction and the ECB hasgone further than most would have expected to help theeconomy back on a sustainable growth path.

What has changed? The significant drop in core inflation

Euro area: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (EURbn) 2011 2012 2013E 2014E 2015E

Private consumption 5,272 0.2 -1.3 -0.5 0.5 0.7Government consumption 2,017 -0.1 -0.4 0.0 0.2 0.3Fixed investments 1,740 1.5 -4.2 -2.5 3.5 4.5Exports 3,769 6.5 2.9 1.0 4.0 5.0Imports 3,648 4.3 -0.7 1.2 3.8 4.8Net exports* 121 0.9 1.5 0.0 0.3 0.2GDP 1.5 -0.5 -0.5 1.0 1.5Nominal GDP, EUR bn 9,425 9,490 9,674 9,761 9,986 10,309

Unemployment rate, % 10.2 11.4 12.1 11.9 11.6Consumer prices, % y/y 2.7 2.5 1.4 1.3 1.7

Current account, % of GDP 0.3 1.8 2.5 2.7 2.3General government budget balance, % of GDP -4.1 -3.7 -2.9 -2.7 -2.5General government gross debt, % of GDP 88.0 92.7 95.5 96.0 96.5



18/35

Euro area


during the early part of the year could be seen as a signthat there is more slack in the economy than policy mak-ers previously assumed. Estimates about the degree ofslack in the economy the output gap differ widely,ranging from around 1% when using a simple trend mod-

el to 4% as estimated by the OECD. It is very difficult to

know what the structural rate of unemployment actuallyis when unemployment rates differ hugely, from above25% in Spain to a 25-year low of 6.8% in Germany. Still,if the recent decline in price pressures is interpreted as asign of a slightly higher output gap, say about 2%, it

would explain why the economic policy response haschanged just a bit, with slightly more emphasis on fiscal

and monetary easing.

Looking ahead, more slack in the economy means that itwill take more time for inflation to return to target

(slightly below 2%) and hence that the first ECB ratehike could come later. We have revised our inflation

forecast down for next year and now believe the ECBsfirst policy rate hike could come in the second half of2015. It also means that core inflation and labour marketindicators will be even more important going forward. If

inflation falls too much the ECB should start to seriouslyworry about the risk of deflation and being too far behind

the curve.

Low barrier for more monetary easing

We expect the ECB to keep its key interest rates un-

changed until the second half of 2015. However, we alsobelieve that the barrier for more monetary easing is fairlylow at least for the remainder of this year. One last refi

rate cut to 25 bp could be sanctioned if key figures sur-prise on the downside and put to question the sustainabil-ity of the recovery. It would also be the ECBs likely first

response if market rates rise too fast.

ECB President Mario Draghi introduced forward guid-ance in July. The ECB now intends to keep policy ratesat current or lower levels for an extended period. TheFrankfurt version of forward guidance is fairly soft com-

pared with other big central banks and is more about try-ing to talk market rates down than about making any hardcommitments, in our view. Still, forward guidance is inplace and can easily be expanded. The easiest expansion

would probably be to indicate a time frame, where policyrates are intended to be kept at low levels. Unemploy-

ment thresholds like the Fed and the Bank of Englandhave introduced are less likely, but could happen, espe-cially if the ECB really starts worrying about deflation.We believe that a dovish ECB with all tools in place willlimit the pace at which market rates will rise over theforecast horizon.

Holger [email protected] +45 3333 1191

Anders [email protected] +45 3333 3951

Gradual recovery

No turnaround yet in bank lending

Low inflation for some time

One last interest rate cut still possible


19/35

Germany


Rebalancing towards private consumption

After a fairly weak period at the turn of the year, theGerman economy returned to the growth path in Q2. Partof the GDP increase (0.7% over Q1) was due to a catch-

up effect in construction after the unusually long winter.The underlying trend is probably around 0.3%.

On the demand side, the single most important driver ofthe German economy is now private consumption. Realdisposable income could rise by about 1% this year andthe next. In contrast to many other countries, consumerconfidence is at a healthy level, reflecting favourable la-

bour market trends with record-high employment. Giventhe very low interest rates, households spending onhousing construction should support growth. On the oth-er hand, favourable financing conditions have not yettranslated into strong capital spending on machinery and

equipment. By and large, companies are still reluctant toinvest as capacity utilisation rates in the industrial sectorare below normal levels and the uncertainty about the

outlook for the Euro area is still high.

We expect business activity in the Euro area to strength-en gradually so that German exports to Euro-area coun-

tries should increase slightly over the coming quarters.This should also have a positive impact on capex spend-

ing. We expect GDP to grow by 1.6% next year. Our firstestimate for 2015 is 2% again the highest rate amongthe larger Euro-area countries. Given the tightness of thelabour market, we expect wages and consumer prices to

increase by slightly more than the Euro-area average.

On 22 September, 61.8 mio eligible voters are called tothe polls to elect the new Bundestag. Judging from cur-rent polls, Angela Merkel is likely to stay in office aschancellor, either in the current centre-right/liberal coali-tion or heading a Grand Coalition with SPD. For more onthe election and what it could mean for Germany and for

Europe, see our research noteFour more years for Ange-la?, which is available on Nordea's website.


Back to growth

Consumer confidence at a healthy level

Outlook for manufacturing improving

Germany: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (EURbn) 2011 2012 2013E 2014E 2015E

Private consumption 1,433 1.7 0.7 1.0 1.3 1.7Government consumption and investment 488 1.0 1.2 1.0 1.0 1.0Fixed investment 435 6.4 -1.9 -0.7 4.8 5.5Exports 1,173 7.9 4.5 1.0 4.6 6.0Imports 1,034 7.5 2.6 1.4 5.0 7.0Net exports* 139 0.6 1.1 -0.1 0.1 -0.1GDP 3.4 0.9 0.5 1.6 2.0Nominal GDP (EURbn) 2,495 2,610 2,666 2,720 2,788 2,899


Current account, % of GDP 5.6 6.4 6.3 6.1 5.0General government budget balance, % of GDP -0.8 0.2 0.2 0.4 0.2Gross public debt, % of GDP 80.4 81.9 81.1 78.6 77.0

http://research.nordeamarkets.com/en/2013/08/13/a-guide-to-the-german-election/http://research.nordeamarkets.com/en/2013/08/13/a-guide-to-the-german-election/http://research.nordeamarkets.com/en/2013/08/13/a-guide-to-the-german-election/http://research.nordeamarkets.com/en/2013/08/13/a-guide-to-the-german-election/http://research.nordeamarkets.com/en/2013/08/13/a-guide-to-the-german-election/


20/35

France


Some structural and cyclical progress

In France things are finally moving in the right direction,albeit slowly. That applies both to progress on structuralmatters and the business cycle. Driven by final domestic

demand, GDP increased more strongly than expected inQ2 (0.5% q/q), ending a mild recession. The rise was on-

ly partly compatible with other data indicating a muchmore subdued recovery that still needs to be confirmed.While business confidence has risen from a low level,consumer confidence is still near its all-time low heldback by a continued rise in unemployment.

However, conditions for strong growth are not in place.One of the reasons is tight fiscal policy, as France is stillgoing through the Excessive Deficit Procedure. Taxmeasures contribute most to the adjustment of the target-ed adjustment of 1.8% points. In 2014 and 2015 fiscal

policy will probably be less restrictive. On a more posi-tive note, the ECBs easing has been transmitted to do-mestic lending rates so that the banking sector is not

holding back growth. Continued momentum in Germanyand a gradual further easing of the recession in neigh-bouring Italy and Spain should support French exports.To tackle the structural problem of low profit margins,

the government introduced a special corporate tax credit.This should support business investment mostly in 2014.

The shortfall in tax revenues will be partly funded by anincrease in VAT, probably from 1 January 2014. We ex-pect GDP growth of 0.2% for 2013, followed by a gradu-al strengthening in 2014 and 2015, mostly driven by do-

mestic demand.

On the structural side, pension reform will be this au-tumns hot topic. The recent labour market reform waslauded by the IMF as the broadest since the 1980s. Itgoes some way in increasing companies flexibility andreducing the duality between employees on short-termcontracts and those on permanent contracts. Incentivising

policies are still largely absent.


Growth: moderate expectations

Weak investment activity

Unemployment rate on the rise

France: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (EURbn) 2011 2012 2013E 2014E 2015E

Private consumption 1,045 0.5 -0.3 0.4 0.3 0.6Government consumption and investment 444 0.4 1.4 1.4 1.0 1.0Fixed investment 334 3.0 -1.2 -2.0 2.5 3.5Exports 466 5.6 2.5 1.0 4.0 4.5Imports 509 5.3 -0.9 1.2 4.0 4.0Net exports* -43 0.0 1.0 0.0 0.0 0.2GDP 2.0 0.0 0.2 1.0 1.5Nominal GDP (EURbn) 1,936 2,000 2,032 2,052 2,093 2,156


Current account, % of GDP -2.6 -1.8 -1.6 -1.7 -1.5General government budget balance, % of GDP -5.3 -4.9 -4.0 -3.8 -3.0Gross public debt, % of GDP 85.8 90.2 94.0 96.2 97.0



21/35

United Kingdom


Broadening recovery

Data so far this year offer some hope that a sustainablerecovery is materialising. GDP growth has picked up andthe recovery is broadening. The housing market is im-

proving, the labour market is improving and exports arefinally picking up at least to countries outside the Euro

area. Consumer spending remains the key driver of therecovery, while investment has yet to start recovering.High-frequency indicators suggest that growth momen-tum will remain decent in the remainder of 2013. Wehave revised our GDP forecast upwards for this year andfor 2014 and see growth in 2015 around 2%.

We believe the labour market will be the key to a sus-tainable recovery. In recent years, trend growth has beenclose to zero and the recovery has been called the slowestin 100 years. Still, employment has been growing and

was at an all-time high in May. Growing employmentwith no growth in production means that the productivitylevel has fallen this unusual pattern has been dubbed

the productivity puzzle. We expect a continued moderateimprovement in the labour market going forward, but seesome risks that the recovery could be jobless, weak anddriven solely by a normalisation of the productivity level.

For that reason, we have been quite surprised to see the

Bank of England (BoE) adopting a forward guidanceframework based on an unemployment threshold. Indeed,the central bank itself writes that the path of the unem-ployment rate in the expected recovery scenario is highly

uncertain. The BoE intends to keep the Bank rate at thecurrent level and the Asset Purchase Programme at least

at the current level until the unemployment rate reaches7%, unless there is a risk to financial stability or inflationexpectations rise too much. In August, the BoE projectedthe threshold to be reached in 2016, which clearly signalsits intention of keeping the Bank rate low for long andthereby support the economic recovery. We see the first

hike at the second half of 2015. We expect the GBP togradually strengthen against the EUR.

Anders [email protected] +45 3333 3951

Early signs of recovery

Non-Euro-area exports improving

The labour market is the key


United Kingdom: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (GBPbn) 2011 2012 2013E 2014E 2015E

Private consumption 959 -0.4 1.1 1.6 1.8 2.0Government consumption 337 0.0 2.8 1.0 -0.4 -0.7Fixed investment 221 -2.4 0.5 -2.3 5.5 4.1Stockbuilding* 2 0.5 -0.3 -0.3 0.0 0.0Exports 447 4.5 0.9 3.9 6.5 5.4Imports 480 0.3 2.8 1.7 6.4 4.4GDP 1.1 0.2 1.2 1.8 2.0Nominal GDP (GBPbn) 1486 1537 1562 1608 1669 1744

Unemployment rate, % 8.1 8.0 7.7 7.5 7.2

Consumer prices, % y/y 4.5 2.8 2.3 1.7 1.9Current account, % of GDP -1.5 -3.8 -3.9 -3.5 -2.5General govt budget balance, % of GDP -7.8 -6.3 -6.5 -5.0 -3.0Gross public debt, % of GDP 85.5 90.0 94.0 99.0 101.0


22/35

Japan


Decision time

The first two arrows of Premier Shinzo Abes ambitiousthree-pillar strategy, accommodative monetary and fiscalpolicy, have successfully lifted growth momentum and

inflation. The JPY has lost 20% in effective terms andregained its lost competitiveness. Household consump-

tion and net exports have been the main drivers. Latelythere have been signs of a turnaround in private invest-ment, which is positive given the huge wealth accumula-tion in the corporate sector. These factors are expected tosupport growth in the coming quarters, and the calmerdiplomatic relation to China helps the export outlook.

While we acknowledge Abenomics positive effects onshort-term growth, we remain cautious on the underlyingstrength in the medium to long run. Without structural re-forms, the third pillar in Abes plan, addressing a shrink-

ing labour force and declining productivity, Japans po-tential growth will remain at the current 1%. Unlike thepolicies undertaken so far, the structural reforms, such as

hiking the consumption tax, opening up the agriculturesector and encouraging female labour participation, arepolitically unpopular. Considering many of Japans failedreform attempts in the past, it is too early to label Abe the

great saviour of Japans economy.

The reforms announced in June were short of details andfailed to impress. Abe vowed to present another round ofreforms in the autumn. Although his party now enjoysparliamentary majority after the July election, resistance

to reforms will be strong from within the party. Currentlyall attention is on whether he decides to hike the con-

sumption tax as planned by the previous government.The last hike occurred in 1997 and has been unreasona-bly accused of having started Japans decade-long paral-ysis. The decision is due in mid-September. We expectAbe to give green light to the hike effective from April2014. It will have little effect in reducing public debt but

is a first step towards fiscal consolidation. More im-portantly, it shows Abes ability to make tough decisions.

Amy Yuan [email protected] +45 3333 5607

Strong momentum in the short term

Regained competitiveness

Sales tax hike: unpopular but necessary

Japan: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (JPYbn) 2011 2012 2013E 2014E 2015E

Private consumption 279,865 0.5 2.4 2.0 1.7 1.3Government consumption 95,188 1.4 2.4 1.4 0.8 1.1Gross f ixed capital formation 96,398 1.2 4.3 1.1 1.0 1.6Stockbuilding* -797 -0.5 0.0 -0.3 -0.2 -0.1Exports 73,270 -0.4 -0.1 3.5 3.5 3.2Imports 67,477 5.9 5.5 2.2 3.5 4.5GDP -0.6 2.0 1.6 1.3 1.0Nominal GDP (JPYbn) 482,442 470,774 475,713 485,228 494,932 504,831

Unemployment rate, % 4.6 4.4 3.8 3.5 3.0Consumer prices, % y/y -0.3 0.0 0.2 0.8 1.3

Current account, % of GDP 2.0 1.0 1.5 1.0 0.5General government budget balance, % of GDP -10.0 -10.2 -10.0 -9.5 -9.0



23/35

Poland


On recovery path

Following a sharp slowdown in economic growththroughout 2012, the Polish economy bottomed out inearly 2013. We predict that the recovery will continue in

the remainder of this year and further GDP growth accel-eration should be seen in 2014-2015.

The key driver of the pick-up in economic activity willbe improvement in the external environment (strong ex-posure to the Euro area, particularly Germany). Fixed in-vestment should rebound on stronger investment activityin the private sector (record-low interest rates, easier

lending conditions, reduced uncertainty regarding devel-opments in the Euro area) and revived activity in publicinvestment (reduced pace of fiscal consolidation and in-flow of fresh EU funds from 2014). Consumption growthwill be fostered by the already started improvement in

labour market conditions and increased consumer confi-dence.

The sharp inflation drop in late 2012 and H1 2013 has al-ready started to reverse. We predict that recovering do-mestic demand and low base effects will lead to a gradualrise in inflation towards the central banks 2.5% target.

However, as we do not expect the output gap to be closeduntil early 2015 (potential growth of about 3% will not

be exceeded by then), any significant underlying infla-tionary pressures are unlikely to occur earlier.

Moderate economic recovery and constrained inflation-

ary pressures should allow the Polish MPC to keep inter-est rates on hold well into 2014. We expect the first rate

hike in Q3 2014, and normalisation of Polands monetarypolicy should be a gradual process with the key policyrate at 3.5% at end-2014 and 4.5% at end-2015.

In the medium term the PLN will benefit from cyclicalrecovery of the Polish economy, but in the short term it is

vulnerable to a possible sell-off of Polish bonds by for-eign investors amid concerns about QE3 tapering.

Piotr [email protected] +48 521 3651

Economic growth has started to gain momentum

Inflation bottomed out

PLN dependent on developments in bond markets

Poland: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (PLNbn) 2011 2012 2013E 2014E 2015E

Private consumption 856 2.6 0.8 0.5 1.3 2.5Government consumption 268 -1.7 0.0 -0.1 0.5 2.5Gross f ixed capital formation 281 8.5 -0.8 -1.3 5.5 7.0Exports 598 7.7 2.8 3.2 3.9 4.5Imports 615 5.5 -1.8 0.3 3.6 4.5GDP 4.5 1.9 1.4 2.5 3.5Nominal GDP (PLNbn) 1,417 1,528 1,595 1,640 1,708 1,782

Unemployment rate, % 12.5 13.4 13.8 13.4 12.8Consumer prices, % y/y 4.3 3.7 1.1 2.5 2.5Current account, % of GDP -4.8 -3.5 -0.8 -1.9 -2.5General government budget balance, % of GDP -5.0 -3.9 -4.4 -3.3 -2.9


24/35

Russia


Prepare to fight slowdown

Markets and investors are unwillingly getting used to theslowing economic growth in Russia. The threat of stag-nation is not in our baseline scenario, however, decelera-

tion of growth appears to be more serious than previouslyanticipated.

Household consumption, accounting for more than 50%of GDP, still continues to be the major driver of econom-ic growth. Robust wage growth and low unemploymentalong with credit market activity spur consumption. Thesustainability of consumption growth is uncertain as sav-

ings may increase following weak business activity andoverall decreasing consumer confidence.

However, the major concern will be low investment ac-tivity. Capital investment growth rates slowed almost to

0% from 6.7% growth last year. Big companies remainreluctant to invest due to high interest rates and unpre-dictable and stagnant commodity market dynamics. Eco-

nomic growth will be supported at the end of 2013 by thefarming sector and positive base effects. In H1 2014 theOlympic Games may add two cents to growth but theoverall pace will likely be modest. We forecast 2.4%

GDP growth in 2013 and 2.7% in 2014.

In order to stimulate economic growth, higher budgetspending can be expected. The government is preparingto allot about USD 40 billion (almost 2% GDP) from thereserve fund to fund long-term infrastructure projects.

Moreover, until the end of 2013 the CBR will likely startto cut key interest rates, supporting business confidence

and stimulating investment. Our oil market forecast is al-so the supportive factor in the long run.

The rouble may stay under pressure near term given eco-nomic growth concerns and prospects of a more dovishmonetary policy. We are less optimistic over the RUB in

the coming period, but we still see a relatively stable cur-rency in the long run, as exporters activity and our oilprice forecast of USD 103-113/bbl for 2013 remain RUBsupportive, though periods with volatility may occur.

Dmitry [email protected] +7 495 777 34 77 4194

CBR shifts target basket band upward

Consumption is still robust

Investment activity is dragging growth down

Russia: Macroeconomic indicators (% annual real changes unless otherwise noted)2010 (RUBbn) 2011 2012 2013E 2014E 2015E

Private consumption 23,843 6.4 6.6 4.3 4.5 4.7Government consumption 8,671 1.2 0.0 0.3 0.4 0.3Fixed investment 10,014 8.3 6.7 2.5 3.0 3.0Exports 13,679 0.3 1.8 1.5 2.0 2.1Imports 9,790 20.3 8.7 3.6 4.0 5.0GDP 4.4 3.4 2.4 2.7 2.8Nominal GDP (RUBbn) 46,309 55,799 62,599 68,668 75,459 82,924

Unemployment rate, % 6.6 5.5 5.7 5.6 5.5Consumer prices, % y/y 8.5 6.6 6.4 6.0 5.8Current account, % of GDP 5.4 4.3 2.5 2.0 1.7Central govt budget balance, % of GDP 7.0 -0.2 -0.3 -0.4 -0.4


25/35

Estonia


Date post:	14-Apr-2018
Category:	Documents
Upload:	glenn-viklund
View:	218 times
Download:	0 times

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

Documents