ekonomiska utsikter 4 sept 2013

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2 EKONOMISKA UTSIKTER │SEPTEMBER 2013 NORDEA MARKETS

Vändpunkt

ÖVERSIKT 04

VÄNDPUNKT

SVERIGE 08

LJUSNING

USA 16

BRIGHT FUTURE AHEAD

EURO AREA 18

PROGRESS ON A LONG HARD ROAD

RUSSIA 25

PREPARE TO FIGHT SLOWDOWN

CHINA 29

NOT A CYCLICAL SLOWDOWN

OIL AND COMMODITIES 33

THE TRIPLE DIGIT BARREL IS HERE TO STAY

EKONOMISKAUTSIKTER

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

Sverige tar täten i Norden

Tilltagande återhämtning ■ Den globala ekonomin står på tröskeln till en vändning. För första gången på många år syns tecken på stigande aktivitet i den ”gamla” industria-liserade världen samtidigt som utvecklingen i till-växtländerna dämpas.

■ Svensk ekonomi stärks då tillväxten breddas. Danmark skymtar äntligen ljus i tunneln medan Finland fortfarande saknar tillväxtmotorer. Norge tappar ledartröjan i tillväxtligan då en het bostadsmarknad kyls av.

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3 EKONOMISKA UTSIKTER │SEPTEMBER 2013 NORDEA MARKETS

Tabellsamling

Nyckeltal ................................. 6

Räntor och valutor ............... 7

Besök oss på: www.nordeamarkets.com

Redaktör Annika Winsth Chefekonom

[email protected] Tel +46 8 614 8608

Gått till tryck 30 augusti 2013

SVERIGE Ljusning ....................................................................................................... 8

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

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

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

Norden

USA Bright future ahead ...................................................................................... 16

EURO 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

Större industriländer

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

Övriga länder

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

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

Råvaror

Reuters EcoWin, officiell nationell statistik och egna beräkningar om inget annat anges.

Källor:

ÖVERSIKT Vändpunkt .................................................................................................... 4

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4 EKONOMISKA UTSIKTER │ SEPTEMBER 2013 NORDEA MARKETS

Vändpunkt USA:s tillväxt över den potentiella

Kina en riskfaktor

Europa på rätt väg, men det går trögt

Sverige har passerat botten

Bättre fart, men inte utan risker Det är nu fem år sedan Lehmankraschen. De akuta pro-blemen är lösta och en hel del av saneringsarbetet har fal-lit på plats. Nya regelverk håller på att tas fram för att undvika framtida finansiella kriser, samtidigt som flera länder har gjort strukturförändringar för att öka sin kon-kurrenskraft. Fortfarande brottas emellertid många län-der, inte minst inom euroområdet, med svag tillväxt eller recession. Återhämtningen efter en finanskris tar tid och en del av det ekonomiska tappet är förlorat för alltid. Nu tycks emellertid vändpunkten vara på väg och vi progno-serar en ljusare global konjunkturbild framöver. USA är redan på god väg tillbaka och vi räknar med en tillväxttakt på 3 procent nästa år. Det är ett gott tecken och USA väntas därmed bli en viktig motor för världse-konomin. Amerikanska centralbanken Federal Reserve (Fed) har under 2013 aviserat minskade stödköp av obli-gationer. Det är bra att Fed nu bedömer att den ameri-kanska ekonomin är så stabil att den kan stå på egna ben. Men riskerna med nedtrappningen kan inte negligeras. Fed:s agerande påverkar alla finansiella marknader och därmed tillväxten runt om i världen. På finansmark-naderna orsakade beskedet först oro och kraftigt minskad riskvilja. Börser runt om i världen föll i början av som-maren. Sedan dess har Fed nyanserat bilden, vilket lett till att riskaptiten kommit tillbaka. Räntor med längre löptider är klart högre idag än före uttalandet. Sommaren inleddes turbulent, men har därefter varit betydlig lug-nare än övriga somrar efter finanskrisen 2008 och den ef-terföljande skuldkrisen. På lite sikt slår högre räntekostnader igenom och dämpar konjunkturen globalt. Mindre likviditet i omlopp lär också slå mot tillväxtländerna, vars ekonomier redan är under press. Hur centralbankerna väljer att agera på högre räntekostnader lär bli en viktig fråga mot slutet av prognosperioden. Andra orosmoment är en lägre tillväxt i Kina och oroligheter i Syrien och Egypten. Efterfrågan på råvaror antas bli mer dämpad under de närmaste åren. Det påverkar i sin tur prisbilden och därmed råvarupro-ducerande länder negativt. Euroområdet står fortsatt också för nya utmaningar där både Grekland och eventu-ellt Portugal kan behöva ytterligare stöd, samtidigt som banksystemet inom euroområdet kan komma under press. På den ljusa sidan kan nämnas att ett bättre ekonomiskt klimat globalt kan få ökad spridning och leda till en posi-

tiv spiral. USA har överraskat många gånger och flexibi-liteten i ekonomin är en styrka. Något långsammare ned-trappning av Fed, men också en mindre åtstramande poli-tik i Europa skulle kunna lyfta tillväxttalen ytterligare. Lyckas Japan med sin ambition att få fart på ekonomin kan det också bidra till den globala tillväxten. Världstill-växten väntas bli cirka 4,0 procent både 2014 och 2015. BNP, procentuell förändring årstakt

2012 2013E 2014E 2015EVärlden 3,3 3,1 3,8 4,0USA 2,8 1,7 2,9 3,2Euroområdet -0,5 -0,5 1,0 1,5Japan 2,0 1,6 1,3 1,0Kina 7,8 7,5 7,3 7,0 USA – står på egna ben En tydlig återhämtning i USA gör landet till den motor omvärlden så väl behöver. Mycket har fallit på plats trots åtstramande finanspolitik. Den inhemska politiska risken har minskat betydligt. Riskerna tycks nu större utanför landet. På hemmaplan ser det emellertid ljust ut. Efter flera tuffa år finns ett uppdämt behov hos såväl företag som hushåll. Högre räntor kan komma att utgöra en broms. Samtidigt har tillgången på likviditet ökat. Hus-hållen har goda förutsättningar att öka konsumtionen då dess balansräkningar ser klart bättre ut. Samtidigt fortsät-ter sysselsättningen att öka i god takt och arbetslösheten väntas komma ned till 6 procent redan i slutet av 2014. Ingen vet exakt hur nedtrappningen av Fed:s stödköp ska gå till, men vi räknar med att centralbanken minskar kö-pen redan i september och att köpen avslutas helt under första kvartalet 2014. Därefter dröjer det ytterligare innan Fed låter lån gå till förfall, det vill säga att de faktiskt drar tillbaka kapital. I början av 2015 antas banken inleda en räntehöjningscykel. Centralbankschefen, Ben Ber-nanke, avgår i början av nästa år och vem ersättaren blir spelar stor roll. Just nu lutar det mot vice ordförande Ja-net Yellen, som klassas som än duvaktigare än Bernanke, eller Larry Summers som arbetat mycket nära Obama. Bättre fart i USA än i euroområdet och högre räntor bi-drar till att dollarn förstärks mot euron. I slutet av pro-gnosperioden väntas dollarkursen vara 1,20 mot euron. Kina – viss oro Redan i våras stod osäkerheten om styrkan i den kine-siska ekonomin i fokus och sedan dess har farhågorna för en svagare tillväxt ökat något. Det står allt mer klart att den nya kinesiska politiska ledningen med Li Keqiang i spetsen står fast vid strukturförändringar oavsett vad det kostar i form av dämpad tillväxt på kort sikt. Överkapa-citet och oro för en alltför generös kreditgivning ligger bakom ledningens nya fokus. En tillväxt runt målet på 7,5 procent bedöms rimlig i närtid och ner mot 7 procent i slutet av prognosperioden. För att undvika överhettning

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bromsas produktionen inte minst i statliga företag. Kapa-citetsutnyttjandet i industrin har därmed fallit till låga 60 procent. Svagare efterfrågan från Kina medför en dämp-ning av råvarupriserna. Kina är en stor konsument av rå-varor. På lång sikt är det emellertid bra att Kina genom-för strukturförändringar för att stärka ekonomin. Euroområdet – trög återhämtning Euroområdet fortsätter att hanka sig fram. Överraskande stark tillväxt i såväl Tyskland som i Frankrike och en mindre nedgång i Italien och i Spanien under andra kvar-talet lyfte euroområdet ur recessionen. Tyskland och möjligen Frankrike skapar optimism, men en tillväxt nå-got bättre än förväntat förklaras till viss del av återhämt-ningen efter en kall vinter. Den långsiktiga tillväxtför-mågan är fortsatt låg. Den privata sektorn har fortfarande behov av att spara och i flera av länderna är den offent-liga sektorns skulder höga, vilket talar för fortsatt åtstramning. Det gör att den inhemska efterfrågan är svag inom euroområdet förutom i Tyskland där inhemsk kon-sumtion tillsammans med ökad global efterfrågan bidrar till tillväxten. Arbetslösheten är oroväckande hög på många håll och pristrycket lågt. Vårt huvudscenario är att den europeiska centralbanken ECB ligger still med styrräntan fram till andra halvåret 2015. Inflationen har emellertid kommit ned och risken ökar för deflation. Det kan sätta press på ECB att vidta ytterligare åtgärder. Skillnaderna mellan länderna är dock stora där Tyskland spelar i en klart högre division än flera av medelhavsländerna. Tyskland går till val den 22 september. Sannolikt sitter Angela Merkel kvar som förbundskansler och den politiska in-riktningen lär därmed inte ändras nämnvärt. BNP, procentuell förändring årstakt

2012 2013E 2014E 2015ESverige 0,7 1,3 2,5 2,5Norge, fastland 3,4 2,0 2,3 2,4Danmark -0,4 0,3 1,3 1,7Finland -0,8 -0,5 1,5 2,3 Danmark – på rätt spår Drygt fyra år av stagnation går mot sitt slut. Hushållens efterfrågan är tillbaka, vilken väger tungt i dansk eko-nomi. Mycket låg inflation, den lägsta på 40 år, och en expansiv finanspolitik gör att reallönerna ökar samtidigt som framtidsförväntningarna ljusnar. Bostadsmarknaden är under fortsatt konsolidering, men i Köpenhamn ökar priserna igen. Omsättningen är dock fortsatt låg och ut-budet högt. Ökad global efterfrågan är positivt för expor-ten och investeringarna väntas öka igen men från en mycket låg nivå. Finsk ekonomi – nära botten Finsk ekonomi påbörjar återhämtningen, men från en låg utgångspunkt. Det räcker inte heller för att undvika re-cession i år och tillväxten blir måttlig även framöver. Än så länge finns inga tydliga drivkrafter för tillväxt. Fram-över antas dock exporten bidra positivt, medan hushållen

är fortsatt återhållsamma. Arbetslösheten är hög och för-väntas fortsätta stiga ytterligare i år. Hushållens köpkraft ökar mycket måttligt. Löneökningarna väntas bli låga och flera skattehöjningar är att vänta. Trots låga räntor väntas därmed efterfrågan på krediter vara låg och där-med även bostadsbyggandet. Norge – bromsar in Norsk ekonomi bromsar in något under prognosperioden. Framför allt är det hushållens efterfrågan som dämpats. Lägre reallöneökningar, högre ränta, en något försämrad arbetsmarknad samt en avkylning av bostadspriserna ta-lar för en dämpning av privat konsumtion. Inflationstak-ten steg överraskande mycket under sommaren. Den högre nivån gör att Norges Bank inleder räntehöjningar-na redan under första halvåret 2014. Oljepriset väntas ligga stabilt och så även den norska kronan. Mer markant fallande bostadspriser och ett klart lägre oljepris utgör de största riskerna för norsk ekonomi. Sverige – ökad export och valår ger god tillväxt Svensk ekonomi har passerat vändpunkten och tillväxten tilltar gradvis under prognosperioden. Ljusare globala ut-sikter gör att exporten går från att vara ett sänke till att bidra positivt till tillväxten redan under hösten. Hushålls-sektorn utgör dock fortfarande den främsta motorn. Hus-hållen har haft det väl förspänt en längre tid, men varit försiktiga och ökat sparandet. I takt med att osäkerheten om global och svensk ekonomi, samt oron för stigande arbetslöshet minskar tilltar privat efterfrågan. Regeringen väljer dessutom att föra en expansiv politik 2014, där en stor del av reformutrymmet riktas mot hushållen. Regeringens expansiva budget för 2013 och 2014 bidrar till underskott i de offentliga finanserna på cirka 1,5 pro-cent av BNP både i år och nästa år. Vi har haft en djup lågkonjunktur i Sverige och mot den bakgrunden är sti-mulanserna befogade. Tidpunkten kunde dock varit bättre och stimulanserna hade sannolikt gjort större nytta tidigare. För att inte tappa förtroendet för överskottsmålet på längre sikt är det centralt att röra sig mot målet 2015. Samtidigt som finanspolitiken är expansiv, i synnerhet mot hushållen, oroar sig flera ledamöter i Riksbanken för hög skuldsättning hos hushållen. Penningpolitiken är därmed mindre expansiv än den annars kunde ha varit. Att Finansinspektionen från och med nästa år får ökat an-svar för finansiell stabilitet bör på lite sikt bidra till att Riksbanken lägger mindre fokus på hushållens skuldsätt-ning. På kort sikt ändrar det dock inte förutsättningarna för Riksbanken. En bättre konjunktur och oro för hushål-lens skuldsättning är skälen till att Riksbanken höjer rän-tan i april trots att inflationen är låg. Kronan stärks mot euron under prognosperioden, men försvagas mot dollarn då återhämtningen i USA blir ännu mer påtaglig. Annika Winsth [email protected] +46 614 8608

■ Översikt


Growth, % Inflation, %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 2.3Euro area 1.5 -0.5 -0.5 1.0 1.5 Euro area 2.7 2.5 1.4 1.3 1.7China 9.3 7.8 7.5 7.3 7.0 China 5.4 2.6 3.0 3.5 4.0Japan -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 1.7Norw ay 2.5 3.4 2.0 2.3 2.4 Norw ay 1.2 0.8 2.2 1.6 2.0Sw 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 2.0France 2.0 0.0 0.2 1.0 1.5 France 2.3 2.2 1.1 1.5 1.3Italy 0.5 -2.4 -1.5 0.6 1.0 Italy 2.9 3.3 1.5 1.5 1.7Spain 0.1 -1.6 -1.6 0.8 1.5 Spain 3.1 2.4 2.0 1.2 1.6Finland 2.7 -0.8 -0.5 1.5 2.3 Finland 3.4 2.8 1.6 1.8 2.0Estonia 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 2.5Russia 4.4 3.4 2.4 2.7 2.8 Russia 8.5 6.6 6.4 6.0 5.8Latvia 5.5 5.6 3.9 4.4 3.2 Latvia 4.4 2.3 0.7 3.0 2.3Lithuania 5.9 3.6 4.0 3.8 4.0 Lithuania 3.4 2.8 1.7 2.5 2.8India 7.5 5.1 5.0 6.0 6.5 India 9.5 7.5 6.0 6.5 7.0Brazil 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 -3.0Euro 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 1.0Japan -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 3.8Norw ay 13.6 14.3 11.5 12.1 11.1 Norw ay 12.8 14.2 11.4 12.4 11.8Sw 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 5.0France -5.3 -4.9 -4.0 -3.8 -3.0 France -2.6 -1.8 -1.6 -1.7 -1.5Italy -3.7 -2.9 -2.7 -2.3 -2.0 Italy -3.1 -0.5 1.0 1.1 1.3Spain -9.4 -10.6 -6.5 -5.5 -4.1 Spain -3.7 -0.9 1.6 2.9 3.5Finland -0.7 -1.8 -2.2 -2.0 -1.5 Finland -1.5 -1.8 -1.5 -1.4 -1.2Estonia 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 -2.5Russia 7.0 -0.2 -0.3 -0.4 -0.4 Russia 5.4 4.3 2.5 2.0 1.7Latvia -3.5 -1.5 -1.0 -0.5 0.0 Latvia -2.2 -1.7 -1.5 -2.2 -2.7Lithuania -5.5 -3.0 -2.8 -2.4 -2.0 Lithuania -3.7 -0.5 -0.5 -1.5 -2.0India -6.7 -5.5 -5.3 -5.5 -5.0 India -3.4 -5.1 -5.5 -5.3 -4.5Brazil -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 for all countries and data for Rest of World are f rom the most recent World Economic Out look, by the IM F. The weights are calculated f rom PPP-adjusted GDP-levels

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Monetary policy rates Monetary policy rate 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 31.12.15US 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 -1.15Euro 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 0.25Sw eden 1.00 1.00 1.25 1.50 2.00 Sw eden 0.50 0.50 0.75 1.00 1.00Norw 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 0.25Sw itzerland 0.00 0.00 0.00 0.00 0.75 Sw itzerland -0.50 -0.50 -0.50 -0.50 -0.25Poland 2.50 2.50 2.50 3.50 4.50 Poland 2.00 2.00 2.00 3.00 3.50Russia 8.25 8.00 7.75 7.50 7.50 Russia 7.75 7.50 7.25 7.00 6.50China 6.00 6.00 6.00 6.50 6.50 China 5.50 5.50 5.50 6.00 5.50India 7.25 7.00 6.75 6.75 7.00 India 6.75 6.50 6.25 6.25 6.00Brazil 9.00 9.00 9.50 9.50 9.50 Brazil 8.50 8.50 9.00 9.00 8.50

1) Against the US

3-month rates 3-month 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 0.26 0.30 0.35 0.55 1.60 US 0.04 0.10 0.05 0.20 0.60Euro area 0.23 0.20 0.30 0.35 1.00 Euro area - - - - -Denmark 0.28 0.30 0.45 0.50 1.20 Denmark 0.05 0.10 0.15 0.15 0.20Sw eden 1.22 1.25 1.60 1.85 2.35 Sw eden 1.00 1.05 1.30 1.50 1.35Norw ay 1.71 1.70 1.95 1.96 2.45 Norw ay 1.49 1.50 1.65 1.61 1.45UK 0.52 0.50 0.50 0.60 1.40 UK 0.29 0.30 0.20 0.25 0.40Poland 2.71 2.75 2.80 3.75 4.70 Poland 2.49 2.55 2.50 3.40 3.70Russia 6.80 6.75 6.55 6.45 6.50 Russia 6.58 6.55 6.25 6.10 5.50Latvia 0.27 0.20 0.30 0.35 1.00 Latvia 0.05 0.00 0.00 0.00 0.00Lithuania 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 1.15Euro area 1.83 1.75 2.10 2.40 2.75 Euro area - - - - -Denmark 2.02 1.90 2.20 2.50 2.85 Denmark 0.18 0.15 0.10 0.10 0.10Sw eden 2.44 2.15 2.85 3.15 3.50 Sw eden 0.61 0.40 0.75 0.75 0.75Norw ay 2.98 2.84 3.29 3.50 3.59 Norw ay 1.15 1.09 1.19 1.10 0.84UK 2.76 2.60 2.80 3.00 3.50 UK 0.92 0.85 0.70 0.60 0.75Poland 4.43 4.50 4.80 5.00 5.20 Poland 2.60 2.75 2.70 2.60 2.45

Exchange rates vs SEK Exchange rates vs EUR and 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/SEK 8.732 8.450 8.200 8.200 8.200 EUR/USD 1.32 1.30 1.25 1.25 1.20USD/SEK 6.594 6.525 6.560 6.560 6.833 EUR/JPY1) 130 126 131 138 132

JPY/SEK1 6.724 6.727 6.248 5.964 6.212 EUR/GBP 0.85 0.83 0.82 0.82 0.80DKK/SEK 1.171 1.133 1.100 1.100 1.100 EUR/CHF 1.23 1.25 1.25 1.30 1.35NOK/SEK 1.079 1.083 1.051 1.058 1.065 EUR/SEK 8.73 8.45 8.20 8.20 8.20GBP/SEK 10.23 10.18 10.00 10.00 10.25 EUR/NOK 8.09 7.80 7.80 7.75 7.70CHF/SEK 7.094 6.760 6.560 6.308 6.074 EUR/PLN 4.27 4.15 4.05 4.00 3.95PLN/SEK 2.045 2.036 2.025 2.050 2.076 USD/JPY 98.1 97.0 105.0 110.0 110.0RUB/SEK 0.198 0.198 0.200 0.201 0.210 GBP/USD 1.55 1.56 1.52 1.52 1.50LVL/SEK 12.43 12.03 11.67 11.67 11.67 USD/CHF 0.93 0.97 1.00 1.04 1.13LTL/SEK 2.529 2.447 2.375 2.375 2.375 USD/SEK 6.59 6.53 6.56 6.56 6.83CNY/SEK 1.077 1.070 1.093 1.103 1.168 USD/NOK 6.11 6.02 6.24 6.20 6.421) Per 100 units USD/PLN 3.23 3.20 3.24 3.20 3.29

USD/CNY 6.12 6.10 6.00 5.95 5.85USD/INR 66.6 60.0 60.0 58.0 53.0USD/BRL 2.36 2.25 2.30 2.35 2.40

■ Sverige


Ljusning Tillväxten breddas när exporten vänder upp

Valbudget gynnar hushållen

Riksbanken höjer räntan nästa år

Kronan stärks mot euron

Återhämtning i sikte Svensk ekonomi har utvecklats svagt de senaste två åren. Avmattningen var påtaglig under första halvåret i år då BNP ökade med måttliga 1 procent jämfört med ett år ti-digare. Orsaken är den dämpade internationella efterfrå-gan och det turbulenta läget i Europa. Som en följd har exporten minskat och den ökade osäkerheten har även hämmat företagens investeringar. Mycket tyder på att tillväxten i den svenska ekonomin är på väg att växla upp. Den inhemska ekonomin stimuleras av en expansiv ekonomisk politik och hushållen fortsätter att vara den främsta tillväxtmotorn. Samtidigt sker en vändning i exportindustrin. Offentlig konsumtion ökar och nästa år vänder även investeringarna upp i samband med att produktionen stiger. BNP växer därmed i god takt, och från och med andra halvåret i år något snabbare än den potentiella tillväxttakten. Tillväxten dämpas 2015 då stimulanserna avtar både i Sverige och internationellt. Ljusare utsikter för exportörer Marknadstillväxten för svensk exportindustri dämpades markant i fjol. Efter en trög start på året faller den ytterli-gare i år till den långsammaste tillväxten på 20 år, bort-sett från det unika raset 2009. Den nästan två år långa

nedgången i exporten av varor bryts dock nu då efterfrå-gan på viktiga avsättningsmarknader som Tyskland, USA och Storbritannien stärks igen. Exporten av tjänster har utvecklats betydligt bättre än exporten av varor och är en allt viktigare drivkraft i ekonomin. Under de senaste 10 åren har tjänsteexporten vuxit med i genomsnitt 6 procent per år och den väntas växa förhållandevis starkt även kommande år. Starka hushåll men röda siffror i statsbudgeten De goda förutsättningarna för hushållen består. Sparandet är högt, förmögenheten har förbättrats av stigande hus-priser och högre börskurser. Dessutom ökar de reala in-komsterna med i genomsnitt 2,5 procent per år 2013-2015. Hushållens oro för konjunkturen i allmänhet och arbetsmarknaden i synnerhet har också börjat klinga av. Det är således upplagt för en god konsumtionsutveckling. En bidragande orsak till hushållens inkomstökning nästa år är sänkta skatter. I år har ofinansierade finanspolitiska reformer på 25 miljarder kronor sjösatts, motsvarande 0,7 procent av BNP. Vi räknar med ytterligare ofinansierade reformer i samma storleksordning valåret 2014 med mer-parten riktade till hushållen. Medaljens baksida är att re-formerna tynger de offentliga finanserna och orsakar ett underskott i det finansiella sparandet motsvarande ca 1,5 procent av BNP både 2013 och 2014. Under 2015 mins-kar underskottet då återhämtningen i ekonomin har kommit längre. Underskotten till trots kommer den of-fentliga sektorns skuld att ligga kvar på nära 40 procent i förhållande till BNP samtliga prognosår.

Sverige: Makroekonomiska nyckeltal (årlig tillväxt i procent om inget annat anges) 2010 (mdkr) 2011 2012 2013E 2014E 2015E

Privat konsumtion 1 617 2,2 1,5 2,0 2,7 2,4Offentlig konsumtion 890 1,1 0,7 1,0 1,3 0,9Fasta bruttoinvesteringar 602 6,4 3,2 -3,3 2,8 3,6 - industri 74 11,4 7,5 -6,2 2,8 4,9 - bostadsinvesteringar 110 14,7 -8,2 0,6 4,9 3,7Lagerinvesteringar* 23 0,5 -1,1 0,5 0,0 0,0Export 1 651 7,1 0,8 -2,0 3,9 4,6Import 1 445 6,3 0,0 -2,5 3,6 4,3BNP 3 338 3,7 0,7 1,3 2,5 2,5BNP, kalenderkorrigerad 3,7 1,1 1,3 2,6 2,3Nominell BNP (mdr SEK) 3 338 3 500 3 562 3 638 3 783 3 942

Arbetslöshet (% av arbetskraften) 7,8 8,0 8,0 7,8 7,6Sysselsättning 2,3 0,7 0,9 0,7 0,7Konsumentpriser (årsgenomsnitt KPI) 3,0 0,9 0,1 1,3 2,1Underliggande inflation (årsgenomsnitt KPIF) 1,4 1,0 1,0 1,2 1,5Timlöner (nationalräkenskaper) 2,7 2,9 3,1 2,8 3,2Bytesbalans (mdr SEK) 258 238 224 238 246 - % av BNP 7,3 6,7 6,2 6,3 6,3Handelsbalans (% av BNP) 2,6 2,6 2,3 2,5 2,5

Offentligt f inansiellt sparande (mdr SEK) 1 -20 -52 -53 -24 - % av BNP 0,0 -0,6 -1,4 -1,4 -0,6Offentlig bruttoskuld, % av BNP 38,4 38,1 41,2 41,2 40,5

* Bidrag till BNP-utvecklingen, procentenheter

■ Sverige


Lägre produktivitetstillväxt Produktiviteten har utvecklats långsamt de senaste två åren. Det förklaras sannolikt till stor del av den dämpade konjunkturen då en svag produktionsutveckling normalt medför att maskinparken inte utnyttjas fullt ut. Anmärk-ningsvärt är dock att antalet arbetade timmar har ökat under det senaste året trots den låga BNP-tillväxten. Fak-tisk och förväntad dämpning av löneökningstakten kan ha bidragit till en mer arbetskraftsintensiv produktion och även till att den långsiktiga produktivitetstillväxten har sjunkit. Antalet sysselsatta har ökat ännu mer än antalet arbetade timmar under de senaste två åren då frånvaron ökat och medelarbetstiden minskat. Det medförde bland annat att sysselsättningen steg nästan lika snabbt som BNP under 2012, vilket är ovanligt. De oväntade och till synes nya trenderna på arbetsmark-naden ökar osäkerheten i prognosen. Vi räknar med att frånvaron minskar något och att tillväxten i produktivite-ten delvis återhämtar sig under prognosperioden, vilket dämpar uppgången i sysselsättningen. Befolkningen i ar-betsför ålder fortsätter att öka och arbetslösheten sjunker därmed långsamt. Riksbanken höjer räntan trots låg inflation Fortsatt lediga resurser på arbetsmarknaden borgar för dämpade löneökningar och ett måttligt inhemskt kost-nadstryck. I kombination med den ihållande nedgången av importpriserna innebär det att KPIF-inflationen ligger kvar under 2-procentsmålet hela prognosperioden. Trots låg inflation och stigande arbetslöshet har Riksban-ken låtit reporäntan varit oförändad i år. Riksbanken framhåller att penningpolitiken redan är expansiv och har ögonen på hushållens skuldsättning. Då konjunkturen fö-refaller ha bottnat och ljusglimtar skymtar även i den globala ekonomin är ytterligare räntesänkningar inte tro-liga. Nästa år höjer Riksbanken räntan för att bromsa hushållens skulduppbyggnad samtidigt som det då finns tecken på stigande resursutnyttjande. Den envist höga ar-betslösheten och dämpade inflationen talar för att räntan endast höjs gradvis under prognosperioden. Kronan undervärderad mot euron Kronan har apprecierat mot ett flertal valutor under sommaren, dock inte mot euron. Euron har varit överras-kande stark med tanke på det sköra ekonomiska läget i euroområdet. Med en högre tillväxt och med förhållan-devis stabila offentliga finanser förutspås den svenska ekonomin bibehålla sin relativa styrka under prognospe-rioden. Tidiga räntehöjningar från Riksbanken medför att ränteskillnaderna mot euroområdet ökar, vilket i sin tur talar för att kronan stärks mot euron. Däremot försvagas kronan, liksom flera andra valutor, mot dollarn i takt med att den amerikanska ekonomin återhämtar sig. Torbjörn Isaksson [email protected] +46 614 8859

Återhämtning av exporten

Viss förbättring i näringslivets produktivitet

Arbetslösheten sjunker långsamt

KPIF-inflationen parkerar under målet

■ 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 sharp uptick in core inflation. We have therefore revised up our 2013 and 2014 inflation forecasts. This could result in a rate 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, we look for a more expansionary fiscal policy that will help drive growth slightly higher. Mainland GDP is projected to grow by 2-2 ½% in 2014 and 2015. Less impetus from consumers Consumer spending disappointed in Q2 after very strong growth in Q1. We believe that the underlying trend in consumer spending is still positive and expect growth to accelerate somewhat again in the autumn. Next year con-sumer growth is expected to be somewhat lower due to significantly lower real wage growth and slightly higher interest rates. A somewhat weaker labour market and a cooler housing market could also curb consumers’ pro-pensity to spend. The same trend of moderate consumer spending 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 in prices in the autumn. Tighter bank credit standards and a high price level are probably the main reasons for the slowdown. We expect the moderate decline to continue throughout 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 will lead to lower residential construction and investment in residential construction will reverse from a strong in-crease to having a moderately negative effect on GDP growth in 2014 and 2015. But business investment will rebound While consumer spending disappointed in Q2, mainland business 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 the overall economy. For oil investment the picture is the opposite. Investment growth is currently sky-high, but oil companies’ plans for 2014 indicate considerably lower growth next year. In 2015 growth will likely decline further, but the picture is very uncertain this far into the future. If, for example, oil prices decline, oil investment trends in 2015 could be much weaker. The momentum to the Norwegian manufacturing indus-try from domestic and international oil investments will abate. This may to some degree be offset by an expected upturn in Norway’s traditional export markets. But given the high cost level, Norway will not be able to benefit fully from this upturn.

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 2.0Annual 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)

■ Norway


Expansionary fiscal policy in 2015 Waning growth in oil investment and consumer demand in the mainland economy suggests that growth will be relatively moderate going forward. Moreover, we expect immigration to remain relatively high in net terms, which means that unemployment could increase somewhat. With decelerating growth and slightly higher unemploy-ment, we expect fiscal policy to turn more expansionary regardless of who wins the next election. The spending rule for oil revenues will not be a hindrance since oil rev-enue spending is well below the limit. Notably in 2015 growth in public spending and investment could be high. Higher but stable inflation A presumably more expansionary fiscal policy will curb the 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 goods will pick up further. Rent increases, which account for nearly 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 H2 2014 markets are expected to price in higher interest rates internationally, and during 2015 policy rates are projected to be hiked in both the US and the Euro area. This will likely be one of the factors prompting further rate 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 the policy rate is left unchanged and that Norges Bank will revise up its interest rate path. This should boost the NOK to some degree. Subsequently, EUR/NOK is ex-pected to remain relatively stable. Oil prices will move sideways, and even in case of an earlier Norwegian poli-cy rate hike than in the Euro area, the expected interest rate differential, measured for instance by 2-year swap rates, will not change much. Changes in this interest rate differential usually have a large impact on the EUR/NOK performance. Erik Bruce [email protected] +47 2248 4449

Katrine Godding Boye [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

■ 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 can mainly 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 spending growth being accompanied by an upturn in investment activity and higher exports in step with rising activity in key 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, rising to 1.3% next year and 1.7% in 2015. Consumers waking up Since the crisis really took hold in late 2008, household consumption has been stagnant. As it makes up about 50% of GDP, this is a crucial reason for recent years’ ze-ro growth in the Danish economy. However, recent months’ data for consumer confidence and Dankort debit card sales indicate a renewed increase in activity among Danish households. The reasons are higher disposable incomes thanks to tax cuts and positive real wage growth as 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 downward pressure on the currently very substantial current account surplus. However, this pressure will partly be offset by a renewed 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 in Danish consumer prices has fallen to a 40-year low. The declining 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 for businesses to pass price increases on to consumers. The low inflation is definitely good news for the Danish economy; in addition to ensuring positive real wage growth, it also helps boost Denmark’s 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 artificially drives 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 0.7 1.4 2.0Government consumption 510 -1.5 0.7 0.2 0.5 0.7Fixed investment 300 2.9 -0.1 -0.2 3.6 1.4 - 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 3.4 3.8 2.4Stockbuilding* -5 0.5 -0.4 0.5 0.0 0.0Exports 887 6.5 0.2 -0.2 2.5 3.7Imports 789 5.6 1.0 1.0 3.0 3.9GDP 1.1 -0.4 0.3 1.3 1.7Nominal GDP (DKKbn) 1,761 1,792 1,824 1,845 1,893 1,959

Unemployment rate, % 6.1 6.2 5.9 6.0 5.8Gross unemployment level, '000 persons 159.7 161.8 155.2 156.3 153.0Consumer prices, % y/y 2.8 2.4 0.9 1.3 1.7Hourly earnings, % y/y -2.8 1.5 1.5 1.7 1.9Nominal house prices, one-family, % y/y -2.8 -3.2 2.2 2.4 2.9Current account (DKKbn) 101.2 101.6 105.4 90.0 75.0 - % 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


■ Denmark


to the Danish labour market. And in turn it is also very difficult to assess the current scope for fiscal policy ac-tion in the Danish economy. Given this uncertainty, the growing signs of improvement in consumer spending and the 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 necessary consolidation following recent years’ price plunge. Nota-bly in the greater Copenhagen area this has resulted in price increases, led by the market for owner-occupied flats. 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 homes for sale and prospects of labour market stabilisation. However, the risk of a new setback still lurks beneath the surface. 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 coming years. However, we will still see major geographical dif-ferences. Improvements will mainly be concentrated in demographically growing areas of the country that sup-port stronger demand. Investment knot unravelling Despite historically low interest rates and the opening of a temporary tax window, business investment activity has stagnated at a very low level. This poses a major problem, as it leaves a vacuum in demand and reduces future growth opportunities. However, going forward we see good chances of business investment shifting into a higher gear. Until the turn of the year this growth will chiefly be driven by activity brought forward before the investment window closes. In 2014 we expect the up-trend in investment activity to continue as a result of the low interest rates, growing demand and a large pent-up need. The prospect of higher investment activity is also supported by a renewed increase in business loan demand concurrently with the banks no longer tightening their credit standards. However, it should be pointed out that Danish investments are often made outside rather than inside the country owing to the high domestic cost level – a trend that has been evident over several years by now. Helge J. Pedersen [email protected] +45 3333 3126

Jan Størup Nielsen [email protected] +45 3333 3171

Growth returns

Prospect of rising household consumption

Slow labour market reversal

Investment overhang

■ 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 4.1Stockbuilding* -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 -1.5Gross 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 H1 2013. Initially, recovery will be very slow, gaining momentum in 2014 and 2015 as international demand recovers. The economic recovery will also be slower this year than the decline that preceded it, which continued for most of 2012. In light of this information, we estimate 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 forecasts for 2013 and 2014 have been maintained. The losses in overall production suffered in recent years have been enormous. Under our forecast scenario, real GDP in 2015 will still be slightly lower than what it was in 2007, for example. Widespread weakness With overall production on a slight upward track, the perception of current economic activity may be too positive, as no clear-cut engine for growth has emerged yet. The latest foreign trade figures indicate that both exports and imports are still declining. Exports are decreasing at a slower rate than imports, so technically foreign trade should accelerate growth. Weak import figures, on the other hand, signal that domestic demand (especially private consumption and investment) has remained 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. There is no quick fix on the horizon, as new orders for the manufacturing 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 the darkest hour just before dawn, as recent developments in the global economy and a number of leading indicators point 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 been forecasting a moderate recovery in the world economy and global trade for a while. Now these forecasts are finally gaining traction. Economic activity has clearly started to pick up in markets that are important for Finland, such as the United States, the euro area, Sweden and the United Kingdom. We believe that strengthening international demand will put exports on an upward track towards the end of this year. Initially, however, the recovery will be limited by a slowdown in Russia's economic growth and the considerable proportion of investment goods in exports. Investment across the globe will only start to recover once old capacity is being utilised sufficiently. How big a slice the Finnish export industry will gain from increased global demand will eventually be determined by its competitiveness. The trade balance will remain in a mild surplus, as weak domestic demand continues to slow down the import of goods. The current account remains in a deficit becauseof deficits in the trade in services and income transfers.


■ Finland


Employment will weaken further The economic recession will weaken employment with a lag. We expect the labour market to continue to deteriorate, and the unemployment rate, adjusted for seasonal 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 labour force and the unemployment rate in June and July. We believe this to be more of a case of a temporary drop due to higher-than-normal fluctuation in the labour force survey than a permanent exit of the unemployed from the labour 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 collective bargaining negotiations this autumn are expected to result 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 in pensions in the near future. Tax hikes on income and consumption are also on the agenda. Preliminary decisions by the authorities indicate that income tax brackets will not be adjusted for inflation next year. In addition, many municipalities are expected to raise their tax rate. Commodity taxes will be selectively raised. The lack of improvement in purchasing power will keep households cautious and growth in private consumption slow. This cautiousness will most likely also curb households' debt appetite and the volume of housing transactions despite the fact that interest rates are estimated to remain exceptionally low. In H1 this year, the number of housing transactions declined by more than 10% compared to the previous year, partly due to higher taxes on such transactions, and there has been no reversal in this trend yet. New housing loans drawn down by households were similarly on a decline of more than 20%. Household cautiousness will keep construction companies on their toes and construction project start-ups below average for the time being. The shortage in the supply of new residences will compensate for weak demand, stabilising prices at a rise parallel to the increase in households' disposable income. Pasi Sorjonen [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

■ 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 f ixed 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 2.3Consumer 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 even more confident in our optimistic economic outlook for the US. Thus, the stronger-than-expected 2.5% GDP growth rate in Q2 was the fastest pace in three quarters. The fact that the recovery has gained momentum despite sequester-related government spending cuts, higher taxes for high-income earners and the expiration of the payroll tax holiday suggests the economy should accelerate later this year as the drag from fiscal tightening fades. However, downward revisions to GDP over the past quarters arithmetically necessitate reducing our overall 2013 growth forecast by 20 bp to 1.7% even though we still expect 2½-3% 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 we expect the recovery to gain even more pace over the next few years as pent-up demand is released, especially in the form of business investment but also stronger consumer spending. 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 scaling back and subsequent termination of the Fed’s 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 the Fed ceases to expand its balance sheet, US banks will remain 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 tapering has been priced into the market should not derail the housing recovery. All else equal, higher mortgage rates will obviously act as a drag on growth. Thus for a mort-gage on a median-priced single-family home (around USD 200,000) with a 20% down payment, the recent rise in mortgage rates represents an increase in the monthly mortgage payment of about 3% of median family in-come. However, in the current environment this negative impact is likely to be at least partly offset by increased incentives for banks to lend because recently rising home prices and employment imply a lower risk that mortgages turn delinquent. Moreover, because of earlier postponed housing 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 years compared to all other major advanced economies. The main reason is that private-sector deleveraging seems to be 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 in 1980. National homes price are expected to rise around 5% an-nually over the next two years following the 10%+ pace observed over the past year. Rising home prices, coupled with gains in stock prices, low interest rates, an improv


■ USA


ing labour market and continued easing of banks’ lending conditions are expected to lead to stronger consumption growth 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 and reduced uncertainty as the nightmares of the Great Re-cession and Washington politics fade, the prospects for business investments are also quite bright. In addition, household formation growth suggests that housing 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 per month in H2 2013, roughly in line with the trend so far this year, and around 225,000 per month in 2014 and 2015. 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 bond purchases in September this year, with QE ending in Q1 2014. Given the Fed’s numerical rate guidance, the first rate hike is expected in early 2015, and by end-2015 the fed funds rate is projected at 1.25%. Fed Vice Chairman Janet Yellen is our favourite to replace Bernanke as Fed chairman in early 2014. With full employment expected to be reached by late 2014 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 US outlook, US fiscal risks are still a concern. The debt ceiling is clearly the most important fiscal issue in H2 2013. In case of no agreement to raise the debt ceiling, the US government defaults. The final deadline for raising the debt ceiling is most likely in October or early November. Moreover, to avoid a partial govern-ment shutdown Congress will have to pass a temporary funding measure before the current authority expires on 30 September. The reason is that Congress – once again – seems unlikely to pass a budget before the new fiscal year starts on 1 October. However, because fighting over the debt ceiling has proven to be a popularity-losing effort, our expectation continues to be that Congress will solve these fiscal is-sues with relatively little drama this time. Any impact on the economy is believed to be minimal. Johnny Bo Jakobsen [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

■ 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 recession seems to be over. The bad news is that the crisis is not over and that conditions for strong growth in output or employment are not yet in place. The recovery should gradually gain some strength over time but it remains vulnerable to shocks and will need support from a very lenient 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 Italy and Spain contracting less than before. Construction probably 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 with slow growth going forward, but catch-up effects should have run out by now. As GDP increased earlier this year than we expected, we revised up our growth forecast for this year to -0.5% from -0.8%. Actually, we are almost back to our March forecast (-0.4%). We still expect around 1% for next year, mainly driven by domestic demand. Our first glance into 2015 assumes a further healing from the crisis with growth strengthening to 1.5%. We expect the drivers for that to be a less restrictive fiscal policy, further progress on deleveraging and structural reforms and a slightly weaker 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 yield spreads 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 in all, there is improvement on the financial side that should support growth going forward. … but deleveraging still an impediment to growth In contrast to the US, private sector deleveraging is not over. 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 to finance investment. At the same, public debt is still on an unsustainable path in several Euro-area countries. There-fore, there still is a need for growth-enhancing structural reforms 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 countries that have to implement painful reforms over several years. The risks to stability have not gone. Several gov-ernments – for example those in Italy, Portugal and Greece – look shaky and may fall. Greece may also need more 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 and the 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 a central bank not doing more than is absolutely needed is still the mantra, but some countries have been allowed a slower pace of budget deficit reduction and the ECB has gone further than most would have expected to help the economy back on a sustainable growth path.

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 1.7Current 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


■ Euro area


What has changed? The significant drop in core inflation during the early part of the year could be seen as a sign that there is more slack in the economy than policy mak-ers previously assumed. Estimates about the degree of slack 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 actually is when unemployment rates differ hugely, from above 25% in Spain to a 25-year low of 6.8% in Germany. Still, if the recent decline in price pressures is interpreted as a sign of a slightly higher output gap, say about 2%, it would explain why the economic policy response has changed just a bit, with slightly more emphasis on fiscal and monetary easing. Looking ahead, more slack in the economy means that it will take more time for inflation to return to target (slightly below 2%) and hence that the first ECB rate hike could come later. We have revised our inflation forecast down for next year and now believe the ECB’s first policy rate hike could come in the second half of 2015. It also means that core inflation and labour market indicators will be even more important going forward. If inflation falls too much the ECB should start to seriously worry 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 also believe that the barrier for more monetary easing is fairly low 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 ECB’s 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 rates at current or lower levels “for an extended period”. The Frankfurt 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 hard commitments, in our view. Still, forward guidance is in place and can easily be expanded. The easiest expansion would probably be to indicate a time frame, where policy rates are intended to be kept at low levels. Unemploy-ment thresholds like the Fed and the Bank of England have 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 will limit the pace at which market rates will rise over the forecast horizon. Holger Sandte [email protected] +45 3333 1191

Anders Svendsen [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

■ Germany


Rebalancing towards private consumptionAfter a fairly weak period at the turn of the year, the German economy returned to the growth path in Q2. Part of 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 of the German economy is now private consumption. Real disposable income could rise by about 1% this year and the next. In contrast to many other countries, consumer confidence is at a healthy level, reflecting favourable la-bour market trends with record-high employment. Given the very low interest rates, households’ spending on housing construction should support growth. On the oth-er hand, favourable financing conditions have not yet translated into strong capital spending on machinery and equipment. By and large, companies are still reluctant to invest as capacity utilisation rates in the industrial sector are 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 first estimate for 2015 is 2% – again the highest rate among the larger Euro-area countries. Given the tightness of the labour 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 to the polls to elect the new Bundestag. Judging from cur-rent polls, Angela Merkel is likely to stay in office as chancellor, either in the current centre-right/liberal coali-tion or heading a Grand Coalition with SPD. For more on the election and what it could mean for Germany and for Europe, see our research note Four more years for Ange-la?, which is available on Nordea's website. Holger Sandte [email protected] +45 3333 1191

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

Unemployment rate, % 7.1 6.8 6.8 6.6 6.5Consumer prices, % y/y 2.5 2.1 1.6 1.7 2.0Current 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


■ France


Some structural and cyclical progressIn France things are finally moving in the right direction, albeit slowly. That applies both to progress on structural matters and the business cycle. Driven by final domestic demand, GDP increased more strongly than expected in Q2 (0.5% q/q), ending a mild recession. The rise was on-ly partly compatible with other data indicating a much more 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 held back 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 still going through the Excessive Deficit Procedure. Tax measures 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 ECB’s easing has been transmitted to do-mestic lending rates so that the banking sector is not holding back growth. Continued momentum in Germany and 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 an increase 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-tumn’s hot topic. The recent labour market reform was lauded by the IMF as the “broadest since the 1980s”. It goes some way in increasing companies’ flexibility and reducing the duality between employees on short-term contracts and those on permanent contracts. Incentivising policies are still largely absent. Holger Sandte [email protected] +45 3333 1191

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

Unemployment rate, % 9.6 10.3 11.0 10.8 10.5Consumer prices, % y/y 2.3 2.2 1.1 1.5 1.3Current 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


■ United Kingdom


Broadening recoveryData so far this year offer some hope that a sustainable recovery is materialising. GDP growth has picked up and the recovery is broadening. The housing market is im-proving, the labour market is improving and exports are finally picking up – at least to countries outside the Euro area. Consumer spending remains the key driver of the recovery, while investment has yet to start recovering. High-frequency indicators suggest that growth momen-tum will remain decent in the remainder of 2013. We have revised our GDP forecast upwards for this year and for 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 been close to zero and the recovery has been called the slowest in 100 years. Still, employment has been growing and was at an all-time high in May. Growing employment with no growth in production means that the productivity level has fallen – this unusual pattern has been dubbed the productivity puzzle. We expect a continued moderate improvement in the labour market going forward, but see some risks that the recovery could be jobless, weak and driven 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 guidance framework 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 the current level and the Asset Purchase Programme at least at the current level until the unemployment rate reaches 7%, unless there is a risk to financial stability or inflation expectations rise too much. In August, the BoE projected the threshold to be reached in 2016, which clearly signals its intention of keeping the Bank rate low for long and thereby support the economic recovery. We see the first hike at the second half of 2015. We expect the GBP to gradually strengthen against the EUR. Anders Svendsen [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 7.2Consumer 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

■ Japan


Decision time The first two arrows of Premier Shinzo Abe’s ambitious three-pillar strategy, accommodative monetary and fiscal policy, have successfully lifted growth momentum and inflation. The JPY has lost 20% in effective terms and regained its lost competitiveness. Household consump-tion and net exports have been the main drivers. Lately there 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 to support growth in the coming quarters, and the calmer diplomatic relation to China helps the export outlook. While we acknowledge Abenomics’ positive effects on short-term growth, we remain cautious on the underlying strength in the medium to long run. Without structural re-forms, the third pillar in Abe’s plan, addressing a shrink-ing labour force and declining productivity, Japan’s po-tential growth will remain at the current 1%. Unlike the policies undertaken so far, the structural reforms, such as hiking the consumption tax, opening up the agriculture sector and encouraging female labour participation, are politically unpopular. Considering many of Japan’s failed reform attempts in the past, it is too early to label Abe the great saviour of Japan’s economy. The reforms announced in June were short of details and failed to impress. Abe vowed to present another round of reforms in the autumn. Although his party now enjoys parliamentary majority after the July election, resistance to reforms will be strong from within the party. Currently all 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 Japan’s decade-long paral-ysis. The decision is due in mid-September. We expect Abe to give green light to the hike effective from April 2014. It will have little effect in reducing public debt but is a first step towards fiscal consolidation. More im-portantly, it shows Abe’s ability to make tough decisions. Amy Yuan Zhuang [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 1.3Current 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


■ Poland


On recovery path Following a sharp slowdown in economic growth throughout 2012, the Polish economy bottomed out in early 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 will be improvement in the external environment (strong ex-posure to the Euro area, particularly Germany). Fixed in-vestment should rebound on stronger investment activity in the private sector (record-low interest rates, easier lending conditions, reduced uncertainty regarding devel-opments in the Euro area) and revived activity in public investment (reduced pace of fiscal consolidation and in-flow of fresh EU funds from 2014). Consumption growth will 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 gradual rise in inflation towards the central bank’s 2.5% target. However, as we do not expect the output gap to begin closing until early 2015 (potential growth of about 3% will not be exceeded by then), any significant underlying inflationary 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 Poland’s monetary policy should be a gradual process with the key policy rate at 3.5% at end-2014 and 4.5% at end-2015. In the medium term the PLN will benefit from cyclical recovery 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 Bujak [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

■ Russia


Prepare to fight slowdown Markets and investors are unwillingly getting used to the slowing 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 previously anticipated. 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 unemployment along with credit market activity spur consumption. The sustainability of consumption growth is uncertain as sav-ings may increase following weak business activity and overall 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 remain reluctant 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 the farming sector and positive base effects. In H1 2014 the Olympic Games may add two cents to growth but the overall 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 budget spending can be expected. The government is preparing to allot about USD 40 billion (almost 2% GDP) from the reserve fund to fund long-term infrastructure projects. Moreover, until the end of 2013 the CBR will likely start to 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 dovish monetary 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 oil price forecast of USD 103-113/bbl for 2013 remain RUB supportive, though periods with volatility may occur. Dmitry Savchenko [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

■ Estonia


Export-based (gradual) recovery in sight The Estonian economy is experiencing a temporary stag-nation with growth at about 1.1% y/y in the first half of the year (Q2: 1.3% y/y), disappointing against already pessimistic expectations. Robust domestic demand-led growth has been over for some time. However, the out-look is gradually improving. Exports are expected to re-gain broad-based strength only towards the second half of next year. Slower growth is a result of exceptionally strong (state) investment volumes from last year, but also due to per-sistent economic uncertainty in key export markets (in-cluding Finland, Sweden and Russia) and inflationary pressures emanating from high energy prices. Despite re-al growth of about 1%, the economy still expanded above 5% in nominal terms in the first half of the year. Growth will remain underpinned by resilient consump-tion, which is supported by real wage growth and im-proving employment prospects. Unemployment will reach 7.5% by 2015. Despite headwinds from slower global trade, exports and manufacturing volume continue to expand at a moderate pace. Exports and manufacturing volume exceeded pre-crisis highs already at the end of last year. The market remains challenging with weak ex-port orders. Foreign companies are eager to expand busi-nesses in Estonia at lower production costs. High inflation remains an impediment for the economy. As energy price effects fade and import prices trend low, we expect inflation to moderate into 2014. Convergence towards the Euro-area average inflation rate remains a challenge since higher wage increases and volatile food prices limit the disinflation process. Price pressures from global energy and food prices are assumed to be limited, but risks rise in 2015 as the economy regains strength. Overall, the economy is expected to re-accelerate into next year as export demand and investment appetite gradually return. Due to the slow recovery of Euro-area demand in H2, any pick-up in growth momentum for Es-tonia will likely remain muted in 2013. Tönu Palm [email protected] + 372 628 3345

Investments will cut into economic growth

Manufacturing outlook improves only gradually

Inflation decelerates into 2014

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

Private consumption 7.50 3.6 4.4 3.2 3.6 3.7Government consumption 2.99 1.4 4.0 0.8 0.9 1.0Fixed investment 2.73 25.9 20.9 -2.2 5.6 4.5Exports 11.38 23.4 5.6 5.0 6.3 5.1Imports 10.41 25.0 9.1 4.0 6.4 4.7GDP 8.3 3.2 1.9 3.6 3.7Nominal GDP (EURbn) 14.32 16.0 17.0 17.9 19.0 20.5

Unemployment rate, % 12.5 10.2 9.2 8.4 7.5Consumer prices, % y/y 5.0 3.9 3.3 2.8 3.1Current account, % of GDP 2.1 -1.2 -0.8 -1.2 -1.3General govt budget balance, % of GDP 1.2 -0.3 -0.6 -0.1 0.0

■ Latvia


Domestic demand unseats exports as key growth driver According to the recent flash estimate, the economy of Latvia grew by 3.8% y/y in Q2 2013 while the seasonally adjusted q/q growth slowed down from 1.4% in Q1 to 0.5% in Q2. The slowdown was mainly caused by strong headwinds in several key export markets as well as pro-duction stoppage at the steel plant Liepājas metalurgs, a key exporter. In Q2 services grew by 7% y/y, construc-tion by 5% y/y and trade by 3% y/y, while the predomi-nantly export-oriented processing industry recorded a de-cline by 0.6% y/y. The above data support our forecast that in 2013 domes-tic demand will at least temporarily unseat exports as the main driver of growth, and economic growth for the year as a whole will be below 4% – considerably lower than last year but still above most other EU member states. Growth should accelerate slightly in 2014 due to both improving demand for exports and positive effects from euro introduction. On 9 July 2013 the Ecofin Council voted to admit Latvia into the Euro zone from 1 January 2014 and fixed the changeover exchange rate at LVL 0.702804 per EUR, ie the mid-point rate maintained by the Bank of Latvia since the end of 2004. The consumer price index contracted in July m/m and in-flation in y/y terms is still at just 0.3% while the 12-month average inflation is at 0.8%. Annual inflation is expected to stay below 1% in 2013, but to accelerate considerably in 2014 due to basis effects and factors such as liberalisation of the electricity market for households. Latvia’s banking sector is well capitalised and liquidity is abundant. Deleveraging is now in its fifth year, with loans to residents declining further in H1 2013. Deposits are growing at a moderate pace and no additional influx of non-resident deposits as a result of the financial crisis in Cyprus has been observed so far. Andris Strazds [email protected] +371 67 096 096

Domestic demand driving growth in the short term

Unemployment sharply down, but still elevated

Steady increase in non-resident deposits

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

Private consumption 8,071 4.8 5.4 4.2 4.5 4.0Government consumption 2,349 1.1 -0.2 1.0 1.5 1.5Fixed investment 2,330 27.9 12.3 5.0 7.0 5.0Exports 6,847 12.7 7.1 2.5 4.0 5.0Imports 7,020 22.7 3.1 2.8 4.5 6.0GDP 5.5 5.6 3.9 4.4 3.2Nominal GDP (LVLmn) 12,784 14,275 15,520 16,250 17,450 18,500

Unemployment rate, % 16.2 14.9 11.7 10.0 9.0Consumer prices, % y/y 4.4 2.3 0.7 3.0 2.3Current account, % of GDP -2.2 -1.7 -1.5 -2.2 -2.7General govt budget balance, % of GDP -3.5 -1.5 -1.0 -0.5 0.0

■ Lithuania


Baltic tiger is showing its teeth Lithuanian GDP increased by 4.2% y/y in the first half of 2013 driven by robust industrial production (7.9% y/y) and retail sales (4.0% y/y) growth. This is in line with our forecast of 4.0% expansion in 2013 as a whole, which is truly impressive given an ongoing fiscal consol-idation and weak performance of Lithuania’s main export partners. Positive economic sentiment suggests that Lith-uanian economic growth will continue to be among the fastest in the European Union. Exports were a key economic growth driver in the first half of the year. However, they were boosted by tempo-rary one-off effects: a record-high wheat harvest and re-stored full oil refinery plant production capacity. Exclud-ing those effects, export growth would have been 4% in-stead of 14% in H1 2013. We expect export growth to stall in H2 2013 as these effects will fade away. Nevertheless, private consumption growth will keep momentum and offset the negative effect of stagnating exports on overall economic growth in 2013 H2. Rising wages, falling inflation and declining unemployment are boosting households’ real purchasing power. Consumer confidence is at record-high levels, suggesting that pri-vate consumption growth will remain robust. Lithuania is likely to join the Euro zone in 2015 – one year later than Latvia. Lithuania was not eligible to adopt the euro in 2014 since it failed to meet inflation and budget deficit criteria (both by a narrow margin of 0.2%). However, falling inflation (annual inflation fell to 0.6% in July) and rising tax revenues significantly strengthen Lithuania’s chances of meeting both criteria this year. The main challenges for the Lithuanian economy come from the East. In particular, the weakening Russian economy may have a significant negative impact on Lithuania’s export performance, since Russia is the top destination for Lithuanian exports. Žygimantas Mauricas [email protected] +370 612 66291

Baltics were immune to the Euro-zone recession

Domestic consumption supported by fundamentals

Lithuania is likely to adopt the euro in 2015

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

Private consumption 60,586 6.3 4.7 3.8 4.2 4.5Government consumption 19,475 0.5 0.7 1.6 2.0 2.5Fixed investment 15,589 18.3 -2.5 6.0 7.0 6.0Exports 64,792 14.1 11.2 8.0 6.0 5.0Imports 66,683 13.7 5.6 7.5 7.0 6.0GDP 5.9 3.6 4.0 3.8 4.0Nominal GDP (LTLmn) 95,323 106,370 113,471 119,371 126,892 135,774

Unemployment rate, % 15.3 13.2 11.2 9.8 8.8Consumer prices, % y/y 3.4 2.8 1.7 2.5 2.8Current account, % of GDP -3.7 -0.5 -0.5 -1.5 -2.0General govt budget balance, % of GDP -5.5 -3.0 -2.8 -2.4 -2.0

■ China


Not a cyclical slowdown Growth stabilisation in H2

The new premier has his heart set on reforms

Declining potential growth on structural factors

CNY liberalisation continues

Beijing’s unexpectedly radical change The development of the Chinese economy in H1 has not played out as we expected. Domestic and external de-mand has been sluggish. Surprisingly the authorities have chosen not to stimulate the economy to a larger extent us-ing investment stimulus. It reflects their tolerance for lower growth in order to rebalance the economy. Beijing’s radical change of attitude was not easy to pre-dict. China’s economic policy under Wen Jiabao, the preceding premier, has placed a high importance on maintaining economic stability and meeting growth tar-gets. Li Keqiang, the new premier, has been Wen Jia-bao’s right hand for five years. He was perceived to share Wen’s cautious stance and not be a hard-line reformist as he later proved to be. We believe that “Likonomics” will set the agenda going forward, aiming to control credit growth and bring down overcapacity in manufacturing, but only if the growth rate does not slip below the lower limit, which we still believe to be 7.5% for this year. Currently we are close to this pain threshold, which is the reason why the govern-ment has announced some help over the summer to pre-vent a further drop in economic activity. Beijing’s new standpoint makes it harder to read China’s crystal ball. It remains to be seen how much growth will be allowed to decline in the next two years when the tar-get is likely to be lowered to 7.0%, and whether local of-ficials will follow the new guidelines. Local officials’ evasion of central policies has been seen before. Improved cyclical sentiment in sight Thanks to cyclical improvement and the mini stimulus, such as tax breaks for small firms and eased credit to ex-

porters, the Chinese economy is unlikely to drop much further in H2. We expect the recent pause in the CNY strengthening and a brighter outlook for the advanced economies to lead to higher export growth. Imports to China will benefit as well given the relatively large share of imports used in producing exports. Given the exten-sive destocking during H1, manufacturers will soon pro-duce again to refill inventories. We only see a stabilisation and not a recovery for struc-tural reasons. After years of rapid growth, the catching-up effect becomes smaller and China’s growth potential will naturally fall. In addition, the driving forces behind the growth miracle created some problems, which require a lower growth to be addressed. Structural issues lower potential growth According to the IMF’s calculation, capital has account-ed for about half of China’s potential output growth over the past 20 years. Most of the capital went cheaply to the state-owned enterprises (SOE). This has caused overin-vestment and overcapacity, particularly in the heavy in-dustrial sectors such as steel, shipbuilding and mining, which the SOEs dominated. The problem became worse after the 4 trillion yuan investment stimulus in 2009. The IMF has estimated the capacity utilisation rate in China to be as low as 60% in 2011, compared to 76% in the US and 86% in Germany. The evil twin to overcapac-ity is deflation, which is reflected by the persistently neg-ative growth in PPI, despite double-digit growth in la-bour costs. The low pricing power is then followed by shrinking profits. Several studies have shown that some industrial SOEs are not profitable once government sup-ports such as cheap loans, rent-free land and direct subsi-dies are stripped away. In 2012 the SOEs realised profits of 6% of GDP but employed 10% of the labour force, implying relatively low productivity. Unfortunately there is no painless solution to reduce overcapacity. It will lead to higher bankruptcy and push up non-performing loans (NPL). The regulators will be careful in designing the so-lution, so NPL will be kept at a manageable level. Fur-thermore, Beijing needs to curb the SOEs’ monopoly

China: Macroeconomic indicators (% annual real changes unless otherwise noted) 2010 (CNYbn) 2011 2012** 2013E 2014E 2015E

Private consumption 14,076 9.4 8.3 8.0 8.2 8.5Government consumption 5,336 9.7 8.2 8.0 7.0 7.0Fixed investment 18,362 9.5 9.2 8.5 7.5 7.3Stockbuilding* 999 0.7 -0.1 -0.6 0.0 -0.1Exports 12,292 8.8 7.0 7.5 7.5 7.0Imports 10,720 4.8 10.4 9.0 10.0 10.0GDP 9.3 7.8 7.5 7.3 7.0Nominal GDP (CNYbn) 40,151 47,310 51,932 56,606 61,418 66,331

Unemployment rate, % 4.1 4.1 4.1 4.1 4.1Consumer prices, % y/y 5.4 2.6 3.0 3.5 4.0Current account, % of GDP 2.8 2.6 2.2 1.5 1.0General government budget balance, % of GDP -1.1 -1.6 -2.3 -2.0 -2.0 * Contribution to GDP growth (% points), **National account details for 2012 still not released

■ China


power and promote fair competition with the private businesses. This is the only way to obtain efficient capi-tal distribution and investment. Another issue keeping the leaders awake at night is shad-ow banking. In a separate analysis we found China’s total credit outstanding to be 220% of GDP at the end of 2012, whereas non-official bank lending accounted for nearly half. While the risk of a financial collapse is small be-cause the state owns assets worth more than 300% of GDP and holds the world’s largest foreign exchange re-serves of USD 3.5 trillion, it would be a good idea to keep it under control. Overcapacity and shadow banking are the reasons why we expect credit conditions to be tightened, especially in the non-official financial sectors. All else equal, this will cause the potential output to drop. A deteriorating demo-graphic situation will also act as a drag, which is not easy to reverse. Many researches have argued that China has passed the Lewis turning point, which implies less sur-plus labour. The manufacturing sector will slow down as cheap labour is no longer available. The female labour participation is already high. Relaxing the one-child poli-cy will provide benefits only in the very long term. What is left is to boost old-aged employment by lifting the re-tirement age, currently 50 for female blue collars and 60 for male blue collars. Productivity needs also to be raised to maintain a high potential growth. Productivity catch-up related to industrialisation may have peaked already. Even though the educated share of the labour force has increased, the quality has reportedly fallen. Education devaluation has become a widespread phenomenon. CNY stays away from the currency war Unlike most other Emerging Markets currencies, the CNY has not been hit very hard by the speculation over Fed tapering. The CNY has gained 5.7% year to date (latest data from June) in effective terms, while the JPY lost 20%. Beijing’s reluctance to weaken the CNY against the USD can be interpreted as a wish to continue the renminbi liberalisation. Several official and unofficial stories during the spring indicated that a series of reforms need to be in place be-fore capital control can removed. The State Council said in May that quotas on foreign investment in domestic fi-nancial markets would be raised to give domestic com-panies better access to foreign funding. Deputy Governor at the PBoC revealed that the CNY trading band may be widened from the current +/- 1% in the near future. The benchmark lending rate floor was removed at the end of July, a first step to liberalised interest rates. All in all, we expect the financial liberalisation to continue and the CNY to strengthen. Amy Yuan Zhuang [email protected] +45 3333 5607

Growth stabilisation in sight

Industrial turnaround fuelled by restocking

Serious overcapacity problem in China

CNY strengthening continues as wished

■ India


Glass half empty India’s economic growth usually moves in the same di-rection as the global economy. However, this relationship broke down in early 2012 when internal challenges dark-ened economic prospects. At a recent gathering of senior officials Premier Manmohan Singh admitted that the economy faces “very difficult circumstances.” Investor confidence in India has eroded over the past year and re-cently took a plunge due to the speculation over Fed ta-pering. Capital flowed out of the country and the rupee fell. The capital controls introduced on the 14 August to reverse the trend backfired and subsequently caused the INR to lose 2.3% vs the USD in one day. For a country that relies on portfolio flows rather than foreign direct investment to fund its current account deficit, such a plunge could be fatal. Fuel subsidies are one of the factors to blame for India’s elevated fiscal and current account deficit (5.5% and 5.1% of GDP in 2012, respectively). About 70% of the country’s oil consumption is imported and demand could have been contained if the subsidies were cut and admin-istered prices raised. However, it is a politically unpopu-lar topic and the government has faced strong headwinds in proposing the change. Other challenges faced by India are an inefficient retail sector dominated by mom and pop shops and heavy regulation in the labour market. A young and growing working population and an ex-pected productivity catch-up speak in India’s favour. In-dia has one of the world’s highest potential growth rates, about 7% according to the IMF and OECD. Structural re-form to liberalise the economy is the only way to realise its full potential. With a coalition government that lacks a parliamentary majority and an election looming (May 2014), it is clear that radical reform will not happen in the near future. Unfortunately, India’s political paralysis is far more inherent, reflected in the profound ambiva-lence of India’s ageing rulers and a tricky political cli-mate dominated by family networks. Thus, India’s future remains clouded. Amy Yuan Zhuang [email protected] +45 3333 5607

Domestic concerns weigh on growth

One of the world’s largest current account deficits

No rest for the rupee

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

Private consumption 43,499 8.0 4.0 5.5 6.5 7.5Government consumption 8,910 8.6 3.9 5.0 4.0 4.0Fixed investment 24,745 11.1 -29.8 9.0 9.5 10.0Exports 17,102 15.3 3.0 4.0 7.0 10.0Imports 20,502 21.5 6.8 8.0 10.0 12.0GDP (production approach) 7.5 5.1 5.0 6.0 6.5Nominal GDP (INRbn) 77,953 89,749 100,206 109,225 119,055 129,770

Wholesale prices, % y/y 9.5 7.5 6.0 6.5 7.0Current account, % of GDP -3.4 -5.1 -5.5 -5.3 -4.5General government budget balance, % of GDP -6.7 -5.5 -5.3 -5.5 -5.0

■ Brazil


Gradual but bumpy recovery on track The Brazilian economy shows some signs of recovery. Industrial production is gaining momentum after bottom-ing out in 2012 and investment has finally begun to pick up after a prolonged slump. However, risks remain on the downside as expectations of US tapering, a prolonged Chinese slowdown, and increased policy uncertainty threaten the still fragile recovery. We expect growth to come out at around 2% y/y in 2013 and accelerate throughout the forecast horizon. 2014 is election year in Brazil, and we will likely see the Rousseff government boost fiscal spending in order to increase its chances of re-election. This will likely help support growth in the medium term. Nonetheless, the story of Brazil is now one of low growth, high inflation and a weak currency. Fiscal and monetary goals are increasingly at conflict. On the one hand, fiscal policy is dedicated to accommodate econom-ic activity, while on the other hand monetary policy is trying to reduce inflation by tightening the monetary stance. A weaker currency is partly to blame for the con-flicting policy goals, as the depreciating real threatens to drive up inflation even further. So far this year, inflation has climbed above the upper band of the inflation target (2.5-6.5%) twice, forcing the BCB to begin its first rate hike cycle since 2010. The Selic was raised at the past four central bank meetings by a total of 175 bp and is currently at 9.00%. Despite the BCB’s efforts to tame inflation it remains stubbornly high, indicating that more rate hikes are necessary. Look-ing ahead, we expect the BCB to continue hiking the Selic throughout 2013 and subsequently stabilise in 2014 and 2015. While risks are tilted towards further rate hikes given that inflation pressures are not contained, the BCB will likely be less aggressive due to concerns regarding a deteriorating current account deficit and the slump in growth. Deanie Haugaard Jensen [email protected] +45 3333 3161

Recovery on track

Inflation in the comfort zone – hikes in sight

BRL at a 4-year low

Brazil: Macroeconomic indicators (% annual real changes unless otherwise noted)

2010 (BRLbn) 2011 2012 2013E 2014E 2015EPrivate consumption 1,816 4.1 3.2 1.7 1.9 1.6Government consumption 541 2.0 3.2 2.3 5.6 2.5Gross f ixed capital formation 580 4.8 -1.9 5.9 3.8 6.3Exports 342 4.5 0.7 -0.7 6.3 6.7Imports 413 10.0 4.0 9.7 5.0 6.4GDP 2.8 0.9 2.0 2.7 2.6Nominal GDP (BRLbn) 3,770 4,143 4,403 4.736 5.061 5.405

Unemployment rate, % 6.0 6.0 5.5 5.7 5.6Consumer prices, % y/y 6.6 5.2 6.2 5.8 5.6Current account, % of GDP -2.1 -2.6 -3.5 -3.2 -2.7General government budget balance, % of GDP -2.6 -2.1 -3.3 -3.6 -3.0

■ Oil


The Triple Digit barrel is here to stay Oil prices have remained stubbornly high in 2013 as growth in global supply disruptions, mainly in the MENA region, has outpaced growth in US tight oil pro-duction. In the forecast period we expect the global sup-ply/demand balance to soften somewhat and reduce the upward pressure on oil prices mainly due to healthy growth in North American oil production and a slow-down in the Chinese economy. The risk of supply losses remains high after the resumption of the unrest in the MENA region. Further supply outages can clearly push oil prices above our forecast while a hard landing in Chi-na can cause a sharp fall in oil prices. The global oil market has undergone remarkable changes in the past few years. While sustained high oil prices have triggered a surge in tight oil and oil sand production in North America, political turbulence in the aftermath of the Arab spring has blurred the production capacity out-look for countries such as Libya, Egypt, Syria and Iraq. The natural decline in oil production from the world's mature oil fields such as the North Sea is to a greater de-gree replaced by oil from more expensive production ar-eas such as Canadian oil sands and US shale oil and to a lesser extent by oil from less expensive production areas like the Middle East. This has pushed up the replacement cost of oil noticeably over the past few years. Going for-ward escalating costs are expected to be a huge challenge for capacity expansions, which in a worst case scenario can cause new projects to be put on hold if margins come under pressure and/or profitability is squeezed. We expect the long-term trend for OECD oil demand to be in structural decline. Oil intensity is expected to con-tinue to fall as high oil prices gradually make an impact on consumer choices and fuel efficiency requirements. Non-OECD oil demand is expected to surpass OECD demand within the forecast period driven by income growth, economic activity and population growth espe-cially in Asia and the Middle East. The transportation sector accounts for around 60% of total oil demand and this share is expected to rise due to increasing vehicle ownership and subsidised fuel prices in many countries. New sulphur cap regulation within the SECA region ef-fective from 2015 can push prices on gasoil/diesel higher as ship operators will start competing with car owners and airlines for better fuel grades. We expect climate issues will move high on the agenda again before the important 2015 global climate talks. Although we do not expect major changes in neither in-vestment nor consumption before this meeting, the out-come can clearly change the outlook for the oil market and oil prices in the longer term. Thina M. Saltvedt [email protected] +47 2248 7993

Oil price forecast Brent – baseline (USD/barrel) Q1 Q2 Q3 Q4 Year

2012 118 109 109 110 112

2013E 113 103 108 107 108

2014E 108 104 108 107 107

2015E 107 103 106 108 106 Source: Nordea Markets

Oil price forecast, high and low price scenario

Chinese oil import share increased sharply

Sulphur Cap regulations for the shipping industry

■ Metals


Glimpse of optimism As expected, growth in base metals prices during the previous months was capped by low demand and sup-ply catching up. After weak Chinese growth indicators during the first half of 2013, the forecasts for base metals prices have been slightly lowered. However, the Chinese economy is expected to stabilise towards the end of the year, but at a lower growth pace. Com-bined with improvement in the US industry and recent positive indicators from the Euro area, this suggests tighter markets in 2014 and price growth. Supply is expected to be fairly constant throughout the year, possibly decreasing in 2014 and 2015. The aluminium market is still oversupplied and we do not forecast reduced production in the short term. On the demand side we see rapid growth, particularly due to high demand from aircraft manufacturers. As the market remains in surplus, we forecast a slight price decline during the autumn of 2013 until demand catches up, the market tightens and prices gradually increase. Due to consumers’ stock building we expect demand for copper to increase during the second half of 2013 and therefore prices to rise towards the end of the year. For the next two years we forecast that prices will vary about USD 7,500. The rather substantial negative financial positions in the market support this price growth. Fundamentals remain weak and hence prices of nickel are expected to remain at subdued levels at least into the first half of 2014. Supply is forecast to remain high due to low production costs in China, and weakening demand for stainless steel amplifies the surplus. As the zinc market is expected to remain well supplied until the first half of 2014, near-term prices are likely to remain subdued. However, the combination of few high-quality projects providing additional supply and a substantial volume fading out implies a forecast of un-dersupply towards the second half of 2014 and thus a gradual increase in zinc prices. Marte Andresen [email protected]

Thina M. Saltvedt [email protected] +47 2248 7993

LME Metals index down, but not a dive

Copper resilient, while aluminium struggles

Zinc prospects to rise, while nickel looks weak

■ Economic Research Nordea


Sweden:

Annika Winsth, Chief Economist Sweden [email protected], +46 8 614 86 08

Torbjörn Isaksson, Chief Analyst [email protected], +46 8 614 88 59

Andreas Wallström, Senior Analyst [email protected], +46 8 534 910 88

Bengt Roström, Senior Analyst [email protected], +46 8 614 83 78

Lena Sellgren, Senior Analyst [email protected], +46 8 614 88 62

Siri Pettersson, Assistant Analyst [email protected], +46 8 614 80 03

Rickard Bredeby, Assistant Analyst [email protected], +46 8 614 80 03

Markus Adolfsson, Assistant Analyst [email protected], +46 8 614 80 03

Estonia:

Tönu Palm, Chief Economist Estonia [email protected], +372 628 3345

Latvia:

Andris Strazds, Chief Economist, Latvia [email protected], +371 67 096 096

Lithuania:

Zygimantas Mauricas, Chief Economist Lithuania [email protected], +370 5 2657 198

Russia:

Dmitry A. Savchenko, Chief Economist Russia [email protected], +7 495 777 34 77 4194

Dmitry S. Fedenkov, Head of Research, Russia [email protected], +7 495 777 34 77 3368

Poland:

Piotr Bujak, Chief Economist Poland [email protected], +48 22 521 36 51

Economic Research Nordea

Denmark: Helge J. Pedersen, Global Chief Economist [email protected], +45 3333 3126

Johnny Bo Jakobsen, Chief Analyst [email protected], +45 3333 6178

Anders Svendsen, Chief Analyst [email protected], +45 3333 3951

Holger Sandte, Chief Analyst [email protected], +45 3333 1191

Jan Størup Nielsen, Senior Analyst [email protected], +45 3333 3171

Amy Yuan Zhuang, Senior Analyst [email protected], +45 3333 5607

Aurelija Augulyte, Senior Analyst [email protected], +45 3333 6437

Deanie Haugaard Jensen, Assistant Analyst [email protected], +45 3333 3161

Heidi Østergaard, Assistant Analyst [email protected], +45 3333 6102

Henrik Lorin Rasmussen, Assistant Analyst [email protected], +45 3333 4007

Daniel Freyr Gustafsson, Assistant Analyst [email protected], +45 3333 5115

Finland: Aki Kangasharju, Director, Head of Research [email protected], +358 9 165 59952

Pasi Sorjonen, Chief Analyst [email protected], +358 9 165 59942

Annika Lindblad, Analyst [email protected], +358 9 165 59940

Norway: Steinar Juel, Chief Economist Norway [email protected], +47 2248 6130

Erik Bruce, Chief Analyst [email protected], +47 2248 4449

Thina M. Saltvedt, Chief Analyst [email protected], +47 2248 7993

Katrine Godding Boye, Senior Analyst [email protected], +47 2248 7977

Bjørnar Tonhaugen, Senior Analyst [email protected], +47 2248 7959

Marte Andresen, Assistant Analyst [email protected], +47 2248 7969

Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the cur-rent views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of fu-ture results. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets. Nordea, Markets Division Nordea Bank Norge ASA 17 Middelthuns gt. PO Box 1166 Sentrum N-0107 Oslo +47 2248 5000

Nordea AB (publ) 10 Hamngatan SE-105 71 Stockholm +46 8 614 7000

Nordea Bank Finland Plc Aleksis Kiven katu 9, Helsinki FIN-00020 Nordea +358 9 1651

Nordea Bank Danmark A/S 3 Strandgade PO Box 850 DK-0900 Copenhagen C +45 3333 3333

ekonomiska utsikter 4 sept 2013

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