Swedbank Economic Outlook - August 21, 2012
Dancing on the edge of danger
- The world economy is cooling, and the euro area is near recession. We have revised downwards global GDP growth to 3% in 2012 and 3.1% in 2013, from 3.1% and 3.4% in our April forecast. Given that our “muddling-through” scenario holds, growth will increase to 3.4% in 2014.
- The main negative forecast risk is a worsening of the crisis in the euro area, but the US’s falling off the “fiscal cliff,” a hard landing in China, and higher commodity prices could also generate a weaker outcome. On the contrary, faster crisis resolution could lead to higher growth.
- Real growth rates picked up significantly in the first half of 2012, driven mainly by net exports. Domestic demand was also robust on the back of a better-than-expected labour market. The external slowdown, however, indicates that the rate of expansion will slow significantly the rest of the year.
- The sharp rise in the krona poses significant challenges for export-oriented companies and for economic policymaking. We expect the repo rate to be kept too high, while fiscal policy will not be able to make up for the slack in demand in the short term. Although growth will pick up to 2.4% in 2014, following the 1.6% gain in 2013, unemployment will remain high, at 7.6%.
- Economic growth slowed in the first half of 2012, and growth is increasingly being generated by the domestic economy, while export growth has slowed. Unemployment continued to decrease in the first half of 2012, to 10.8% on average.
- We are raising our GDP forecast for this year from 2.7% to 3.0% due to the better outcome for both foreign and domestic demand, and are revising growth for 2013 downwards from 4.2% to 4.0%. Growth is expected to reach 4.3% in 2014 as global growth accelerates. Inflation will slow from 3.9% in 2012 to 2.7% in 2014. Public finances will remain solid.
- The economy expanded by a remarkable 6% in the first half of 2012. Quarterly growth has remained at solid 1% over the last three quarters. Both exports and domestic demand are contributing to growth, owing to robust confidence, gains in competitiveness, and EU fund support.
- We are raising the growth forecast to 4% (2.5% before) in 2012, while keeping it at 3.5% in 2013. Growth is expected to pick up to 5.2% in 2014, as global conditions improve and local labour tax cuts support consumption. Inflation will remain at 2.5% in 2012-2013, but rise to 3.5% in 2014 due to rising global energy prices and strengthening domestic demand.
- In line with expectations, GDP growth has slowed this year and probably bottomed out in the second quarter. Budget revenues continue to exceed the plan, indicating that the goal of cutting the deficit to 3% of GDP this year will be met. Inflation has kept declining but is likely to pick up somewhat next year.
- Although uncertainties remain, we expect growth to reach 4.1% in 2013 (slightly lower than previously forecast) and accelerate to 4.5% in 2014. Unemployment was volatile in the first half of this year, but is expected to decline and reach 9.3% in 2014.