SEB: Nordic Outlook: Balancing at the edge of a...

The situation is becoming more and more serious. Conflicting interests and
deficient problem awareness has blocked crisis management efforts and created
political dithering. The world economy will be close to recession in 2012.
Growth will be lacklustre in 2013 as well. The Gross Domestic Product (GDP) of
the 34 industria­lised OECD countries will grow by 1.2 per cent in 2012 and 1.8
per cent in 2013. The risk of worse performance is greater than the probability
of stronger GDP growth, mainly due to the euro zone crisis and worsened credit
con­ditions. The euro zone will show negative growth in 2012 (-0.4 per cent).
The US economy will grow more strongly. One bright spot in the economic gloom
will be China, with growth of about 8 per cent, but because of problems in the
construction sector, risks have increased in that country as well. The
conclusion we drew in the August issue of Nordic Outlook deserves to be
repeated: there is no quick fix for the problems of the world and the euro. The
jour­ney from imbalance to balance and greater normality will take several
years, will be troublesome and will squeeze living standards in the West.

Right now the world economy needs more stimulus. Slower growth will make the
task of achieving the estab­lished fiscal tightening targets more difficult and
will increase the political risk premium. But we do not anticipate further
austerity measures; the risks are too large and may create a downward economic
spiral, leading to further decline in growth and social unrest. We expect the
impact of fiscal austerity in the OECD countries to be more than 1 per cent of
GDP in both 2012 and 2013. Although there is very limited room for stimulus,
measures to combat high unemployment will enjoy high priority. Central banks are
under increasing political pressure to continue their ultra-loose monetary
policies: The European Central Bank (ECB) will use its limited manoeuvring room
to lower the key interest rate to 1.0 per cent and let its securities portfolio
expand by another EUR 500 billion during 2012. This monetary policy is possible
because underlying global inflation is falling. Meanwhile restructuring and new
regu­lations for the banking sector mean that there will be a greater risk of
credit contraction than expansion. The deter­mination and resilience of
political systems to implement necessary but impopular belt-tightening policies
will be emphatically tested in 2012. There is a great risk of continued
political uncertainty and turmoil on both the national and international level.

The euro project has a steep slope to climb in terms of credibility due to major
structural problems in some euro zone economies, weaknesses in the financial
system, unfinished euro zone institutions and increased political risks. The
future of the euro is uncertain, and this will hamper growth and force
businesses and financial institutions to prepare for the unthinkable: that the
euro in its current shape may disappear. This autumn's crisis solutions have
failed to gain credibility among international investors, including central
banks and large sovereign investment funds. By increasing its purchases of
sovereign bonds, the ECB will solve the short-term liquidity problems of
coun­tries and give political leaders time to solve the main problems -
solvency, competitiveness and euro zone institu­tions - but meanwhile also
decrease political pressure for change. Germany's Chancellor, Angela Merkel, has
more clearly begun to chart a path towards European political union, which will
be a necessary development in order to ensure the cohesiveness of the euro
project, but the citizens of the European Union must be persuaded of its
advantages.

In recent months, the US economy has performed somewhat better than expected,
and the risks of a recession have decreased. We expect growth of 1.7 per cent in
2012 and 2.3 per cent in 2013. High unem­ployment of around 9 per cent in the
next two years, and a housing market that has not yet bottomed out, are
squeezing the consumption capacity of households and - together with the euro
zone's problems - holding back US growth. There are major fiscal policy risks:
If Congress fails to extend the long-term unemployment benefits and tax cuts for
households that expire at year-end, the resulting cuts will have a tightening
effect on the economy totalling nearly 2 per cent of GDP in 2012. Problems in
creating a credible long-term plan for US fiscal policies will also contribute
to lower consumption and capital spending.

We expect Swedish economic growth in 2012 to reach 0.7 per cent, far below the
2-2.25 per cent trend level. Growth in 2013 will be 2.0 per cent. Finance
Minister Anders Borg's Swedish tiger economy will thus lose some of its stripes.
The ongoing labour market improvement will level out in the spring of 2012, and
by the end of 2013 unem­ployment will be 7.9 per cent. The weaker economy will
create political pressure on the government to take steps towards more
expansionary fiscal policy in 2012-13. We expect a stimulus dose of SEK 10
billion in 2012 and SEK 20 billion in 2013. Sweden's government finances will
remain strong, and sovereign debt is expected to fall further in relation to
GDP: from 39 per cent at the end of 2010 to 31.4 per cent at the end of 2013.

Meanwhile the Riksbank will lower its key interest rate from today's 2.0 per
cent to 1.25 per cent during 2012. These rate cuts will be possible because
inflation is expected to be lower than we anticipated in August, and the
quantity of idle resources in the economy will be larger during the next two
years as a consequence of higher unemployment. The new composition of the
Riksbank's Executive Board may have an impact on future interest rates, in a
more dovish direction. Sweden's credit and housing markets are gradually cooling
off. We are sticking to our forecast of a 10-15 per cent decline in home prices
during the next two years. High unemployment will push down home prices, while
lower interest rates will help sustain them. Historical experience indicates,
however, that home prices usually fall more than this much in downturn phases.
We thus foresee risks of an even large home price downturn; if so, this may have
significant consequences for consumption and growth. The underlying strength of
the krona will persist, but in the short term it will be hampered by
international uncertainty and slowing export growth. A year from now, the krona
will be traded at SEK 8.85 per euro and SEK 7.10 to the dollar (assuming an
EUR/USD exchange rate of 1.25).

Among the other Nordic countries, as usual Norway will weather the global
economic downturn best. We expect Norwegian GDP growth of 2.2 per cent in 2012
and 2.5 per cent in 2013. Like other central banks, Norges Bank will lower its
key interest rate late this year. It will leave this rate unchanged during most
of 2012, then raise it cau­tiously. The potential for good growth will depend on
fiscal manoeuvring room, but this policy carries risks of an excessively rapid
credit expansion and rising home prices. The situation in Denmark is more
worrisone and eco­nomic performance will be strongly affected by the growth
outlook in the euro zone and continued weaknesses in the housing market. We
expect growth of 1.0 per cent in 2012 and 1.4 per cent in 2013. Finland will
also be adver­sely affected by the global deceleration, but there will be no
need for further budget-tightening. The ECB's inte­rest rate cuts and a weaker
euro will help Finland, and we expect GDP growth of 1.2 per cent in 2012 and
2.0 per cent in 2013.

Estonia, Latvia and Lithuania are facing a clear export-led deceleration. Their
tough austerity policies and pay cuts were painful, but credible and succesful.
Their GDP growth will end up in the vicinity of 2-4 per cent annually in 2012
and 2013. Cautiously increasing domestic demand - helped among other things by
stronger purchasing power as energy and food price inflation fades - will help
sustain growth, but labour market improvements are occuring slowly and the
Baltic countries will not avoid the European downturn. Structural problems in
the labour market and alarming demographic trends pose threats to the long-term
economic growth prospects of the three countries.

   Key figures: International and Swedish economy

+---------------------------------------------------+----+----+----+----+
|International economy. GDP, year-on-year changes, %|2010|2011|2012|2013|
+---------------------------------------------------+----+----+----+----+
|United States                                      |3.0 |1.8 |1.7 |2.3 |
+---------------------------------------------------+----+----+----+----+
|Euro zone                                          |1.8 |1.6 |-0.4|0.8 |
+---------------------------------------------------+----+----+----+----+
|Japan                                              |4.1 |-0.3|2.0 |1.2 |
+---------------------------------------------------+----+----+----+----+
|OECD                                               |2.9 |1.7 |1.2 |1.8 |
+---------------------------------------------------+----+----+----+----+
|China                                              |10.4|9.1 |8.0 |8.2 |
+---------------------------------------------------+----+----+----+----+
|Nordic countries                                   |2.9 |2.5 |1.3 |2.0 |
+---------------------------------------------------+----+----+----+----+
|Baltic countries                                   |1.4 |6.0 |2.5 |3.5 |
+---------------------------------------------------+----+----+----+----+
|The world (purchasing power parities, PPP)         |5.1 |4.0 |3.2 |3.8 |
+---------------------------------------------------+----+----+----+----+
|Swedish economy. Year-on-year changes, %           |    |    |    |    |
+---------------------------------------------------+----+----+----+----+
|GDP, actual                                        |5.6 |4.3 |0.7 |2.0 |
+---------------------------------------------------+----+----+----+----+
|GDP, working day corrected                         |5.4 |4.3 |1.1 |2.0 |
+---------------------------------------------------+----+----+----+----+
|Unemployment, % (EU definition)                    |8.4 |7.4 |7.4 |7.9 |
+---------------------------------------------------+----+----+----+----+
|Consumer Price Index (CPI) inflation               |1.2 |3.0 |1.1 |1.4 |
+---------------------------------------------------+----+----+----+----+
|Government net lending (% of GDP)                  |-0.2|0.0 |-0.2|-0.1|
+---------------------------------------------------+----+----+----+----+
|Repo rate (December)                               |1.25|2.0 |1.25|1.25|
+---------------------------------------------------+----+----+----+----+
|Exchange rate, EUR/SEK (December)                  |8.98|9.30|8.85|8.60|
+---------------------------------------------------+----+----+----+----+


 For further information, please    Press contact
 contact                            Elisabeth Lennhede,  Press & PR
 Robert Bergqvist, [phone]  [phone]
 Håkan Frisén , [phone]     [e-mail]
 Daniel Bergvall, [phone]
 Mattias Bruér, [phone]
 Olle Holmgren, [phone]
 Mikael Johansson, [phone]
 Andreas Johnson, [phone]
 Tomas Lindström, [phone]


-------------------------------------------------------------------------------
 SEB is a leading Nordic financial services group. As a relationship bank, SEB
 in Sweden and the Baltic countries offers financial advice and a wide range of
 financial services. In Denmark, Finland, Norway and Germany the bank's
 operations have a strong focus on corporate and investment banking based on a
 full-service offering to corporate and institutional clients. The
 international nature of SEB's business is reflected in its presence in some
 20 countries worldwide. On September 30, 2011, the Group's total assets
 amounted to SEK 2,359 billion while its assets under management totalled
 SEK 1,241 billion. The Group has about 17,600 employees. Read more about SEB
 at www.sebgroup.com.






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