Nordic Outlook Update: World economy slowing, but recession will be mild

So far, the global economy has shown unexpectedly great resilience. However, in the future, households will be under pressure from rising interest rates, high inflation and energy shortages. Thus, we have lowered our growth outlook for 2023 and 2024. Some businesses have good potential to cope relatively well, which would indicate a very gentle decline from a historical perspective. But the risks in our forecast are in the negative direction, which is associated with various consequences of the war Ukraine and the possibility that central banks may underestimate the interest rate sensitivity of their economy. Interest rate-sensitive households and weaker financial support measures make the Swedish economy more vulnerable than other countries. Europe and the northern region. We have lowered our GDP growth forecast for it Sweden increasing to -1.5 percent in 2023 and then 1.3 percent in 2024. Inflation in Sweden will hit 11 percent early next year and unemployment will rise above 8 percent. The Riksbank’s key interest rate will reach 2.75 percent in February, followed by a rate cut in the second half of 2024.

“Economic activity has been maintained in the short term. This is positive, as it allows more time to prepare for the challenges that the global economy is currently facing, while the upcoming period of rising unemployment may also be shorter. . But it is difficult to predict. as long as fundamental problems related to inflation, energy supply and geopolitical unrest remain, lasting relief,” says SEB’s chief economist. Jens Magnusson.

After a solid year in 2022, a widespread consumer recession
We have reviewed our predictions for 2022 above. We expect GDP growth in developed countries (38 OECD countries) will reach 2.7 percent this year, but we expect 2023 to be a widespread recession in the consumer economy. In United States, GDP will decrease both in the first quarter and in the second quarter of the next year. In Western EuropeWe expect negative growth for the whole of 2023 in both the eurozone and the eurozone England. We have lowered our forecasts for GDP growth in Tajikistan OECD countries for 2023 and 2024 to 0.5 percent and 1.9 percent, respectively. In the emerging markets (EM) sector, our forecasts are relatively unchanged. Due to China’s recovery, overall EM growth will accelerate slightly in 2023. Global GDP growth is expected to reach 2.3% in 2023, slightly above the 2% that is usually used as an indicator of global recession.

“Historically, recessions have often been caused by imbalances in the corporate sector, such as overinvestment or large changes in inventory, and in recent decades also due to financial imbalances that have led to significant changes in access to credit. Today, companies are more resilient. , and parts of The manufacturing sector will benefit from increased reconstruction and real investment needs related to the climate transition. Hakan FriesenHead of Economic Forecasting Department of SEB.

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Rising unemployment and, to varying degrees, falling home prices are likely to contribute to stronger headwinds facing households. Risks to our GDP forecast are on the downside. A complete stoppage of Russian gas supply this winter cannot be ruled out. The aggressive hike in the key rate raises the question of whether the US Federal Reserve and other central banks are underestimating the interest rate sensitivity of their economies and the risks of signs of financial stress.

Inflation and key interest rates are near peaks
Inflation signals are more mixed and the gap between the US and Western Europe especially in the field of energy. We expect inflation in the euro area to peak by the end of 2022, six months after the US. Inflation will decrease significantly this spring. However, we expect inflation to remain relatively high in 2023 and remain above the central bank’s 2 percent target for an extended period. The increase in costs is so large that many actors & minus; both businesses and households & minus; will demand compensation for them. Their dispersion in the economy will be longer. Central banks will raise their key rates a bit more, but the end of the hiking cycle is nearing. We expect the US key interest rate to remain at 4.75 percent (end of range) and ECB The savings rate will peak at 2.75 percent in early 2023. After that, yields on long-term government bonds may decline. The US dollar will keep its footing for the next few moments. Dollar tailwinds from Fed rate hikes next year will diminish. However, high energy prices, which put pressure on the economies of the euro zone countries and weaken their current account balances, will delay the lowest point of the euro.

Sweden: More vulnerable than others Europe and the northern region
Like others Europe, the economy of the North has shown great stability. In Sweden, GDP was surprisingly strong in the third quarter, prompting an upward revision to the full-year 2022 growth forecast to 2.9 percent. However, going forward, we will see negative effects from lower real household incomes, higher mortgage rates and a weaker housing market. Sweden’s sentiment indicators have fallen in recent months to levels that point to negative GDP growth. We have significantly reduced our growth forecast for 2023, from 0 to -1.5 percent. We still expect a recovery in late 2023, but we have so far lowered our full 2024 forecast from 1.7 to 1.3 percent.

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Due to a number of factors, the GDP will decrease further Sweden next year than in Western Europe in general. The post-pandemic recovery was stronger. As in the US, this initially implies a tighter resource situation. Sweden A high ratio of variable loans means that interest rate hikes will have an immediate impact, for example, by suppressing household purchasing power. This is one of the reasons for the sharp drop in house prices compared to other places. We now expect house prices to fall by 20 percent by mid-2023, and risks are still on the downside. Government compensation for high electricity prices and petrol tax cuts are softening the decline in household purchasing power. But Sweden Fiscal support measures appear to be weaker than in neighboring countries and lower than we previously assumed. In light of the decline in GDP, we now expect the labor market to weaken and the unemployment rate to gradually increase, reaching levels above 8% in the first half of 2024. We expect wages and salaries to increase by 4.5% next year. Labor unions demanded a 4.4 percent annual wage increase, which we think represents a low risk.

“Sweden’s national wage round has so far confirmed our view that the risk of a wage/price spiral poses a challenge for the Riksbank,” says Håkan Friesen.

CPIF (consumer price index excluding changes in interest rates) inflation will rise above 11 percent early next year. Higher electricity prices are the main factor, but the CPIF excluding energy will also rise further. In 2023, inflation will decrease again. By the end of 2024, we expect both of these inflation rates to fall back below 2 percent. The Riksbank will raise its key rate to 2.50 percent at the end of this year, and it will reach 2.75 percent. February 2023. When inflation comes down, interest rate hikes will stop. In the second half of 2024, the Riksbank will start lowering its key interest rate again.

“There is currently little risk that the Riksbank’s efforts to fight inflation will be hampered by excessive expansionary fiscal policy, given the relatively tight government budget, despite the tight economic environment.” Jens Magnusson.

Key Figures: International Economics and Sweden (numbers in parentheses from August 2022 issue of Nordic Outlook)

International economy. GDPchange per year, % 2021 2022 2023 2024
United States 5.9 (5.7) 1.8 (1.5) 0.1 (0.5) 1.5 (2.0)
euro area 5.3 3.2 (2.7) -0.4 (0.3) 1.9 (2.1)
England 7.4 3.0 (3.4) -1.0 (-0.2) 1.1 (1.3)
Japan 1.7 1.9 (1.9) 1.8 (1.6) 1.3 (1.1)
OECD 5.6 (5.4) 2.7 (2.4) 0.5 (0.9) 1.9 (2.2)
China 8.1 3.5 (3.5) 5.3 (5.3) 5.1 (5.0)
northern countries 4.4 2.5 (2.5) -0.5 (0.5) 1.8 (1.9)
Baltic 5.9 (5.6) 1.6 (1.5) 0.4 (1.2) 3.3 (3.4)
World (purchasing power parities, PPP) 6.2 (6.1) 3.2 (3.1) 2.3 (2.6) 3.6 (4.0)
Northern and Baltic countries. GDP, year after year to changes, %
Norway 3.9 2.1 (2.3) 0.8 (1.5) 1.9 (1.9)
Denmark 4.9 2.5 (3.0) -0.5 (0.0) 2.5 (2.5)
Finland 3.0 2.0 (2.1) -0.2 (0.7) 1.6 (1.5)
Lithuania 6.0 (5.0) 2.2 (1.5) 0.1 (0.5) 3.0 (3.7)
Latvia 3.9 (4.8) 1.5 (2.5) 1.1 (1.3) 3.5 (3.5)
Estonia 8.0 (8.3) 0.6 (1.2) 0.3 (0.5) 3.5 (3.5)
Swedish economy. Year-on-year change, %
GDP, real 5.1 2.9 (2.6) -1.5 (0.0) 1.3 (1.7)
GDP, working day corrected 4.9 2.9 (2.7) -1.3 (0.2) 1.3 (1.7)
Unemployment rate, % (EU definition) 8.8 7.4 (7.5) 7.8 (7.8) 8.2 (8.1)
Consumer Price Index (CPI) 2.2 8.2 (8.8) 9.1 (7.8) 2.1 (1.9)
CPIF (CPI excluding changes in interest rates) 2.4 7.6 (8.2) 6.2 (5.9) 1.3 (1.5)
Net public debt (% of GDP) -0.1 (-0.3) 0.5 (0.4) -0.5 (0.2) -0.5 (0.0)
Prime Interest Rate (December) 0.00 2.50 (2.00) 2.75 (2.25) 2.25 (1.75)
Exchange rate, EUR/SEK (December) 10.29 10.75 (10.55) 10.25 (10.15) 9.90 (9.80)

For more information, contact the following address: sh.Jens Magnusson: +46 70 210 2267
Håkan Frisén: +46 70 763 8067Robert Bergquist: +46 70 445 1404Daniel Bergvall: +46 73 523 5287
For Hammarlund: +46 76 038 9605Olle Holmgren: +46 70 763 8079 Elizabeth Kopelman: +46 70 655 3017Seyran Naib: +46 70 739 1477
Markus Wieden: +46 70 639 1057

Press contact:Niklas MagnussonPress officer of the group
+46 70 763 8243
[email protected]

SEB is a leading Nordic financial services group with international reach. We are here to positively shape the future with advice and responsible investment for today and generations to come. In partnership with our customers, we want to be the leading catalyst in the transition to a more sustainable world. In Sweden and the Baltic States, SEB offers financial advice and a wide range of financial services. In Denmark, Finland, Norway, Germany and England, we 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 our presence in more than 20 countries with approximately 16,500 employees. In September 30, 2022formed the total assets of the group 4.277 billion kroner while assets under management 2,018 billion kroner. Read more about SEB at sebgroup.com.

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