Broadened global growth despite cyclical and political threats

SEB has released its latest Nordic Outlook report this morning. The report contains SEB economists’ views on the Swedish and worldwide economic developments including key forecasts as well as an analysis of trends and political decisions that affect the world economy.

Continued Swedish boom

  • Industrial upturn will lift Swedish GDP but home price decline is a downside risk – GDP to increase by 3.2 % in 2017, 2.6 % in 2018 and 2.4 % in 2019
  • Despite strong economic growth, the Riksbank has signalled continued extremely low key interest rates and it will postpone its key interest rate hike until September 2018, with three further hikes occurring during 2019
  • Along with increased worries about the housing market, the interest rate delay will keep the Swedish krona weak during the first half of next year -EUR/SEK exchange rate will remain around 9.70 in H1 2018 and above 9.00 at year-end 2019

Broad-based acceleration of economic activity in euro zone

  • The Euro zone economy continues to surprise on the upside – fiscal policy is becoming more expansionary with the strong economy enabling the euro zone to continue reducing its overall deficit from 1.5% of GDP in 2016 to 0.9% in 2019
  • The ECB will further extend its loose monetary policies in the near term and rate hikes will not occur until 2019
  • The euro is enjoying a tailwind and will continue its upward trend – EUR/USD exchange rate will climb to 1.25 by the end of 2019

Underlying UK strength, but Brexit negotiating game poses risks

  • We expect Brexit agreement to be achieved but there is a major risk of new political crises emerging
  • GDP growth forecast at 1.5% in 2017 and 1.3% in 2018. In conjunction with EU withdrawal, 2019 growth will fall a bit further to 1.1 per cent. If negotiations fail, however, there is a risk of a more dramatic slowdown, especially during 2019
  • No further Bank of England (BoE) hikes appear likely in the near term, but if withdrawal from the EU occurs in controlled fashion, the BoE is expected to enact two further hikes during the second half of 2019
  • Assuming successful Brexit negotiations, the risk premium that is now part of the pound exchange rate will gradually disappear, leading to a strongersterling – GBP/SEK to reach 10.75 at the end of 2018 and 10.95 at the end of 2019

Above-trend US growth, but continued low inflation

  • The US economy will slow down a bit in 2019, but supply side restrictions will not generally stop the expansion – GDP will grow by 2.3% in 2017 and by 2.6% in 2018
  • Growth impact of tax cuts expected in 2018 will be limited, totalling 0.2-0.3% of GDP in 2018
  • We expect the Fed to hike key rate for the fifth time in December and three additional rate hikes are expected in 2018 and one in 2019

A link to the report can be found here.