Nordic Outlook: A world economy that is stagger...

The global economic situation is serious but not unmanageable. Amid a sluggish
economic climate in the next couple of years, the OECD countries will achieve
annual GDP growth of only 1-2 per cent. Perceived economic risks are tilted
towards the downside, with a recession risk of 30 per cent. Unemployment,
especially among young people, will get stuck at high levels in many countries
and will be a source of social and political unrest. One bright spot in this
economic gloom is growth in China and elsewhere in Asia. The region will be
affected by the weakening of the US and European economies, but given the
absence of major debt problems its economic policy makers will have room for
flexibility. The outcome will be annual growth close to trend (6-8 per cent). A
number of important decisions, which must be made in the near future, will
determine whether the recession risk increases or decreases. Both when it comes
to long-term budget austerity and short-term stimulus measures, the US
Congress's willingness to work together will be tested. The euro zone countries
must approve the July 21 crisis agreement, after which their capacity to take
decisive action on common sovereign debt and fiscal policy issues will also be
tested. In addition, decision makers will have to address issues related to
government debt restructuring. Meanwhile a weakened banking sector must regain
its strength through recapitalisation.

There is no quick fix that will resolve these issues. The world has to deal with
deep-seated systemic problems, which will require systemic solutions
transcending national boundaries. The necessary adjustment processes will
continue for another few years. The world economic situation deteriorated this
summer due to negative interactions among various problems: 1. a continued need
for sovereign and household debt reorganisation; 2. a loss of economic dynamism
due to the fading effects of the enormous 2009-10 stimulus measures, plus the
increasing negative impact of shrinking wealth; 3. an almost empty economic
policy toolkit; 4. incomplete repairs in financial sector balance sheets
following the global recession, and 5. signs of weak political resolve at both
the national and international levels. This makes today's set of problems more
complex than the ones prevailing before the autumn 2008 crisis.

The future of the euro is being questioned, mainly in light of the currency
union's institutional weaknesses. The German economy has underlying strengths,
but because of the international slowdown it will show below-trend growth. This
will increased the strains on the euro and the need for aid from the Group of
20 and the International Monetary Fund. The choice today is between increasing
supranational authority or scrapping the euro. Every step that the euro zone
political system takes towards federalism without enlisting the support of the
citizenry for this whole concept will increase the risk of a severe political
and democratic hangover.

There is increasing pressure on central banks to maintain historically low,
near-zero interest rates as financial reorganisation policies are approved and
implemented. The inflation rate is falling in Western economies, giving the
central banks a degree of freedom to enact further stimulus measures. We expect
both the US Federal Reserve (Fed) and the European Central Bank (ECB) to leave
their key interest rates unchanged during the rest of 2011 and throughout 2012.
The Fed will not raise its key rate during 2013 either. Further stimulus
measures will be carried out using unconventional methods; for example, we
expect the Fed to buy an additional USD 1 trillion worth of government bonds
during the coming six months. The effects of these unconventional methods are
unclear, but such policies are not especially risky in the current economic
environment. Nor can it be ruled out that regulatory instruments will be used
for the purpose of ensuring credit flows to needy economic sectors. Combined
with low inflation pressure, this implies that long-term bond yields will remain
very low. We expect only a minor upturn from today's exceptionally depressed
levels.

Because of growing global problems, Sweden faces a new situation that will alter
the assumptions underpinning its economic policies. Due in part to the country's
cyclically sensitive export sector, growth will reach only 1.4 per cent in 2012
and then climb somewhat to 2.6 per cent in 2013. Unemployment will thus stop
falling during 2012 and will level out at a troublingly high 7 per cent. The
government's latest economic forecast thus strikes us as too optimistic in a
somewhat longer perspective. In the space of a few months, the circumstances
surrounding Sweden's 2011-12 wage round has changed. As a result, pay increases
in 2012 will now be 3.5 per cent, or half a percentage point lower than in our
previous forecast. The credit and housing markets have decelerated faster than
expected. We expect home prices to fall by 10 per cent during the next two
years, afrer a 200 per cent upturn since 1995. History shows a downside risk in
home prices, and this normally also has rather large consequences for
consumption and growth. The focus of economic policy will thus be on stabilising
the housing market, rather than on cooling it off.

Swedish government finances will remain strong, but will be somewhat weaker than
previously estimated. Privatisations of state-owned enterprises will be on hold
during 2012. General government gross debt will fall to 30 per cent of GDP in
2013. Fiscal policy will be less expansionary, and there will be gradually
increasing pressure on the Riksbank to be cautious about hiking its key interest
rate. Inflation expectations are troublingly high, which is one reason why the
Riksbank wants to await further signals of economic slowdown before ending its
current rate hiking cycle. But due to below-trend growth, downside risks in the
housing market, controlled low inflation and low key interest rates in other
countries, after a hike to 2.25 per cent this autumn the Riksbank can keep its
repo rate unchanged at that level throughout 2012. During 2013 it will hike the
key rate further to 2.75 per cent. The krona is stable and has room to
strengthen to SEK 8.70 per euro, which implies that the krona remains
undervalued.

The other Nordic countries have relatively good overall potential to show
resilience in the face of the international slowdown by virtue of their strong
economic fundamentals. In Denmark, growth will be slow in the near future, but a
more expansionary fiscal policy and pent-up consumption and capital spending
needs will lead to gradually rising economic activity and GDP growth of 1.7 per
cent in 2012 and 2.3 per cent in 2013. The Finnish economy is sensitive to
variations in global demand, but falling unemployment will result in stronger
potential consumption, lifting GDP growth to around 2.5 per cent annually in
2012 and 2013. The Norwegian economy has the best growth potential among the
Nordic countries thanks to solid public finances, oil income, capital spending
and a strong labour market. We estimate that Norway's GDP growth in Norway will
be just above the 2.5 per cent trend level both in 2012 and 2013.

After surprisingly strong growth in the three Baltic countries during the first
half of 2011, we foresee continued gradual recovery over the next two years. A
fading export boom will be replaced by a cautious upturn in domestic demand. We
expect Estonia and Lithuania to implement some fiscal stimulus measures as
inflation slows, which will stimulate purchasing power. GDP growth in Estonia,
Latvia and Lithuania will end up in the range of 4-5 per cent annually in 2012
and 2013.

Key figures: International and Swedish economy

+--------------------------------------------+------+------+------+------+
| International economy. GDP, year-on-year   | 2010 | 2011 | 2012 | 2013 |
| changes, %                                 |      |      |      |      |
+--------------------------------------------+------+------+------+------+
  United States                              | 3.0  | 1.5  | 1.8  | 2.7
---------------------------------------------+------+------+------+-------
  Euro zone                                  | 1.7  | 1.7  | 1.0  | 1.5
---------------------------------------------+------+------+------+-------
  Japan                                      | 4.0  | -0.6 | 2.9  | 2.2
---------------------------------------------+------+------+------+-------
  OECD                                       | 2.9  | 1.7  | 1.8  | 2.1
---------------------------------------------+------+------+------+-------
  China                                      | 10.3 | 9.2  | 8.4  | 8.8
---------------------------------------------+------+------+------+-------
  Nordic countries                           | 2.9  | 2.6  | 1.9  | 2.6
---------------------------------------------+------+------+------+-------
  Baltic countries                           | 1.4  | 5.7  | 3.7  | 4.4
---------------------------------------------+------+------+------+-------
  The world (purchasing power parities, PPP) | 5.1  | 4.0  | 3.5  | 3.9
+--------------------------------------------+------+------+------+------+
| Swedish economy. Year-on-year changes, %   | 2010 | 2011 | 2012 | 2013 |
+--------------------------------------------+------+------+------+------+
  GDP, actual                                | 5.7  | 4.3  | 1.4  | 2.6
---------------------------------------------+------+------+------+-------
  GDP, working day corrected                 | 5.4  | 4.3  | 1.8  | 2.6
---------------------------------------------+------+------+------+-------
  Unemployment, % (EU definition)            | 8.4  | 7.4  | 7.1  | 7.1
---------------------------------------------+------+------+------+-------
  Consumer Price Index (CPI) inflation       | 1.2  | 3.1  | 2.1  | 1.9
---------------------------------------------+------+------+------+-------
  Government net lending (% of GDP)          | -0.2 | 0.6  | 0.2  | 0.4
---------------------------------------------+------+------+------+-------
  Repo rate (December)                       | 1.25 | 2.25 | 2.25 | 2.75
---------------------------------------------+------+------+------+-------
  Exchange rate, EUR/SEK (December)          | 8.98 | 9.15 | 8.85 | 8.70
---------------------------------------------+------+------+------+-------


For further information, please     Press contact
contact                             Elisabeth Lennhede,  Press & PR
Robert Bergqvist, [phone]   +46 70 763 9916
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 June 30, 2011, the Group's total assets amounted to SEK 2,201
billion while its assets under management totalled SEK 1,356 billion. The Group
has about 17,500 employees. Read more about SEB at www.sebgroup.com.



Nordic Outlook: 


http://hugin.info/1208/R/1542164/472030.pdf

Press release (PDF): 


http://hugin.info/1208/R/1542164/472029.pdf




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