Ekonomiska Utsikter, Nordea, September 2010

Ekonomiska Utsikter September 2010

Innehåll

Tabellsamling Nyckeltal .................................6

Räntor och valutor ...............7

Besök oss på www.nordea.se/analys

Redaktör Annika Winsth, Chefekonom

[email protected] Tel +46 614 8608

Gått till tryck 25 August 2010

DENMARK

Norden

Economy back on the growth track ...............................................................................10

NORWAY Consumer spending disappoints..................................................................12

FINLAND Recovery at fluctuating speed ......................................................................14

USA Weak growth, but no new recession ............................................................ 16

EURO AREA Recovery continues as sovereign debt crisis smoulders .............................. 18

UK Economy is losing steam ............................................................................ 20

Större industriländer

Övriga länder

OIL Risk appetite back in the limelight ................................................................35

OTHER COMMODITIES Only temporary price dips............................................................................36

Reuters EcoWin och officiell natio-nell statistik om inget annat anges.

Källor:

ÖVERSIKT Bärkraftig tillväxt trots allt............................................................................. 4

SVERIGE Svensk ekonomi varvar upp .......................................................................... 8

POLAND Bright economic outlook, but less so........................................................... 21

RUSSIA Growth returning but public finances strained ............................................. 23

ESTONIA Recovery gaining strength .......................................................................... 25

LATVIA Towards brighter times ............................................................................... 26

LITHUANIA Gradual economic recovery......................................................................... 27

HUNGARY Considerable uncertainty ............................................................................ 28

CZECH REPUBLIC A good start for the new government........................................................... 29

CHINA Economic activity is slowing as intended by the authorities ......................... 30

INDIA Healthier - but not healthy - outlook for public finances ................................ 32

BRAZIL Overheating fears abating ........................................................................... 33

TURKEY Amazing recovery ....................................................................................... 34

Råvaror

3 September 2010 Ekonomiska Utsikter

Översikt

Bärkraftig tillväxt trots allt • Dämpad riskaptit i närtid

• USA i fokus – recession undviks

• Svensk ekonomi varvar upp

Osäkerheten på finansmarknaderna är fortsatt påtaglig och riskviljan dämpad. Flera åtgärder har emellertid vid-tagits för att mildra de risker som är förknippade med statsskuldsproblematiken i Europa och till viss del har de fått önskad effekt. I stället finns en ny oro för deflation och lägre tillväxt i USA, vilket har pressat ned långrän-torna till historiskt mycket låga nivåer. Svagare makrodata i närtid

92 94 96 98 00 02 04 06 08 1025

50

75

100

125

150

175

200

225

250

25

50

75

100

125

150

175

200

225

250

Tillväxt-länder

Världshandel Index, 2000=100

Industrialiseradeländer

Totalt

Index, 2000=100

Flera ledande indikatorer har vänt ned och bedöms vara fortsatt svaga i närtid. Det får sannolikt genomslag på riskviljan i höst och psykologi kan komma att spela en stor roll. Det betyder inte att vi står inför en ny global konjunkturnedgång, utan snarare en dämpad tillväxt ett antal kvartal. Vi står därmed fast vid att 2011 blir ett sva-gare år än 2010 vad gäller global tillväxten. I år lyfts till-växten på många håll av stimulanser och omslag i lager-cykeln. Nästa år blir därmed ett mellanår, då tillväxten tar bättre fart igen 2012. USA är inte allt Utvecklingen i USA är givetvis central då det är världens största ekonomi, men USA är inte allt. Grafen över världshandeln visar att handeln i tillväxtländerna redan är klart över den nivå som gällde innan länderna gick in i finanskrisen 2008, men även de utvecklade länderna är på god väg tillbaka. Tillväxten i Kina dämpas något framöver, men då det i första hand beror på politiska åt-gärder är vi mindre oroliga för att det ska få stora negati-va spridningseffekter. Kina kommer tillsammans med övriga BRIC länder att vara en fortsatt viktig motor för världsekonomin under hela prognosperioden. Vi räknar med tillväxttal för Kina och Indien på strax under 10 pro-cent under de närmaste åren.

BNP, procentuell förändring årstakt 2009 2010 2011 2012

Världen -1.0 4.1 3.5 4.1USA -2.6 2.5 2.0 3.0Euroområdet -4.1 1.6 1.4 1.8Japan -5.2 2.4 1.8 2.0Kina 9.1 9.8 8.6 8.9 USA – undviker recession Den amerikanska ekonomin växer nu långsammare och även om det till viss del var väntat är marknadsreaktio-nerna tydliga och riskaptiten har minskat. Lagerupp-byggnaden som hittills varit central i återhämtningen, går nu mot sitt slut. Samtidigt står såväl delstaternas som den federala budgeten inför stora besparingar då underskotten i de offentliga finanserna växt till oroväckande höga ni-våer under krisen. Kalifornien är en av världens större ekonomier och problemen där kan få genomslag på såväl tillväxt som riskaptit. Alla delstater är dock inte lika illa ute. Det är dessutom kongressval i november i år i USA och det kan givetvis komma att sätta käppar i hjulen för Obama-administrationen. Samtidigt som det finns flera oroshärdar är vår bedöm-ning att den amerikanska ekonomin inte faller tillbaka i recession. I stället tar tillväxten bättre fart igen i början av nästa år. Återhämtningen i den globala ekonomin är givetvis viktig, men hushållens sparkvot har också stigit till drygt 6 procent och hushållen har därmed kommit en bit på vägen när det gäller att komma till rätta med sin ekonomiska situation. Penningpolitiken är fortsatt myck-et expansiv och vi räknar med att Fed inte inleder ränte-höjningscykeln förrän under fjärde kvartalet 2011. Bo-stadspriserna lär dock falla tillbaka ytterligare med 5-10 procent, vilket dämpar tillväxten med runt en halv pro-centenhet. Euroområdet – bättre än befarat Europa står inför fortsatt stora utmaningar, men i närtid räknar vi med en viss stabilisering. De utfästelser som EU tillsammans med IMF och ECB har gjort talar för att inget av euroländerna rekonstruerar sina statsskulder i närtid då de länder som är värst ute har säkerställt sin fi-nansiering de närmaste åren. Därutöver har stresstesterna av de europeiska bankerna ökat transparensen samtidigt som de regleringar som är på väg, i kölvattnet av finans-krisen, tycks bli något uppmjukade och möjligen ligga lite längre fram i tiden. Euroområdet har uppvisat en överraskande stark tillväxt under andra kvartalet och i synnerhet tysk ekonomi växer kraftfullt. En svagare euro, men också en ökad världs-handel spelar givetvis roll för en exportberoende nation som den tyska. Även de två andra stora, Frankrike och Italien, bidrar med en hygglig tillväxt. Flera länder inom Euroområdet står inför besparingar, men det tycks inte dämpa tillväxten lika mycket som först befarats. Framför allt tycks effekterna inte bli så betungande för de tre stora


Översikt


länderna. Frankrike har större behov av att sanera statsfi-nanserna än de två andra, men tyngdpunkten på åtstram-ningarna ligger i första hand efter prognosperiodens slut. Risken att euron stärks och därmed dämpar tillväxten samt låg inflation och gott om lediga resurser gör att även ECB väntar till slutet av 2011 med att höja reporäntan. ECB går dock något långsammare fram än Fed när de väl inleder sin räntehöjningscykel. Det ger en förstärkning av dollarn mot euron till 1,15 i slutet av prognosperioden. Norden – en stark region Danmark som var först in i krisen och som också har haft en kraftig korrigering av bostadsmarknaden visar nu allt tydligare tecken på återhämtning. Såväl statsfinanser som hushållens finanser har dock påverkats ordentligt av kri-sen och återhämtningen bedöms därmed bli något mer dämpad än i övriga Norden. Finland, som likt Sverige, drabbades mycket hårt när världskonjunkturen vek växer snabbt igen. Norge har klarat sig väl genom krisen. Hus-hållen har emellertid ökat sitt sparande och konsumtio-nen växer därför relativt långsamt. BNP, procentuell förändring årstakt

2009 2010 2011 2012Danmark -4.7 1.4 1.8 2.0Finland -8.0 3.5 3.0 3.5Norge -1.4 1.5 2.3 3.2Sverige -5.1 4.2 2.8 3.1 Sverige sticker ut Från att vara ett av de länder där tillväxten föll mest un-der finanskrisen, sticker Sverige ut med en återhämtning som ligger i toppskiktet. Vi närmar oss i snabb takt ett normalt konjunkturläge då vi räknar med en tillväxt på 4,2 procent i år och med 2,8 samt 3,1 procent under 2011-2012. Resursutnyttjandet ökar därmed snabbt. Inhemsk ekonomi fortsätter att vara en viktig motor framöver, men tillväxten breddas nu och såväl exporten som investeringarna bidrar mer tydligt de kommande åren. Trots att vi räknar med en långsammare global ef-terfrågan under nästa år är vår prognos att svensk varu-export redan till nästa sommar är tillbaka på de nivåer som rådde före finanskrisen. Investeringarna tog bättre fart under andra kvartalet 2010 och omfattar flera sekto-rer, vilket indikerar att företagen nu ser behov av att byg-ga ut kapaciteten. Hushållssektorn har det fortsatt väl förspänt med låga räntor, ökad sysselsättning och ett högt sparande. Vi räk-nar dessutom med att hushållen får finanspolitiska stimu-lanser framöver, om än i mindre omfattning, då statsfi-nanserna väntas nå balans redan i år. Hushållens förtro-ende ligger på en hög nivå och konsumtionen väntas öka med 3 procent i år och med 2,5 procent de kommande åren. När ekonomin växer så starkt förbättras också arbets-marknaden i snabb takt. Hittills har det tagit uttryck i sti-gande sysselsättning, medan arbetslösheten inte fallit till-

baka i någon större omfattning. Vår syn är dock att det sker en omsvängning framöver där utbudet av arbetskraft ökar långsammare och arbetslösheten därmed dämpas mer tydligt. Vår prognos är en arbetslöshet under 7 pro-cent i slutet av prognosperioden, vilket även det är ett ut-tryck för att resursutnyttjandet stiger i ekonomin. Förra avtalsrörelsen slöts under finanskrisen. I den kom-mande avtalsrörelsen, som troligen inleds redan nästa höst, bedöms löneökningarna landa betydligt högre. Kompensationskrav för det låga utfallet sist, höga vinster och den överraskande snabba återhämtning vi nu ser framför oss ligger bakom den bedömningen. I prognosen ligger löneökningar på 3 respektive 4 procent under 2011 och 2012. Ökat resursutnyttjande, stigande löner och råvarupriser får KPIF-inflationen att nå Riksbankens mål på 2 procent under 2012. Det finns därmed flera inhemska skäl för Riksbanken att höja räntan. Vi räknar med att de fortsät-ter med räntehöjningar om 25 räntepunkter på var och ett av de tre återstående mötena i höst. Därefter går de något långsammare fram, då den globala efterfrågan dämpas och kronan stärks. Ekonomisk fundamenta, som starka statsfinanser och god tillväxt, samt en högre styrränta talar för en förstärkning av kronan. Det är dock inte omöjligt att kronan försvagas på kort sikt då ökad riskaversion kan påverka kronan till-fälligt. Långsiktigt räknar vi med en krona på 9,10 mot euron. Risker - i första hand globala Det går inte att utesluta att skuldkrisen i euroområdet förvärras igen. USA, Storbritannien och Euroområdet står dessutom inför fortsatt konsolidering. En svagare in-ternationell konjunktur kan få negativt genomslag på börsen och därmed dämpa tillväxten än mer, då börsut-vecklingen är central i flera avseenden inte minst för många svenska hushåll. För svensk del tillkommer dess-utom valet, där möjligen en osäker parlamentarisk situa-tion kortsiktigt kan påverka framför allt stämningsläget på finansmarknaderna negativt. Å andra sidan är det inte heller omöjligt att när väl den amerikanska ekonomin tar fart så växer den snabbare än vad som ligger i vår pro-gnos. Sannolikt finns det då ett uppdämt behov för såväl privat konsumtion som investeringar efter en tid med be-sparingar. Annika Winsth [email protected] +46 8 614 8608

Översikt


Growth, % Inflation, %2008 2009 2010 2011E 2012E 2008 2009 2010 2011E 2012E

World1) 2.3 -1.0 4.1 3.5 4.1 World 4.7 0.7 2.5 2.2 2.1

BIG-32) 0.0 -3.5 2.1 1.8 2.4 BIG-3 3.3 -0.3 1.1 1.1 1.3USA 0.0 -2.6 2.5 2.0 3.0 USA 3.8 -0.3 1.6 1.4 1.3Japan3) -1.2 -5.2 2.4 1.8 2.0 Japan3) 1.4 -1.4 -1.4 -0.5 0Euro area 0.4 -4.1 1.6 1.4 1.8 Euro area 3.3 0.3 1.5 1.5 1.6

Germany 0.7 -4.7 3.0 1.8 2.2 Germany 2.8 0.3 1.2 1.4 1.6France 0.1 -2.5 1.6 1.5 1.8 France 3.2 0.1 1.6 1.4 1.7Italy -1.3 -5.1 1.0 1.1 1.5 Italy 3.5 0.6 1.6 1.7 1.6

Spain 0.9 -3.6 -0.6 0.0 0.8 Spain 4.2 -0.3 1.8 1.3 1.0Netherlands 1.9 -3.9 2.0 1.8 2.2 Netherlands 2.2 1.0 1.2 1.5 1.6Belgium 1.0 -2.8 1.8 1.6 2.0 Belgium 4.5 0.0 2.0 1.7 1.6Austria 2.2 -3.4 1.6 1.8 2.1 Austria 3.2 0.4 1.5 1.5 1.6Portugal 0.0 -2.6 0.8 0.7 1.0 Portugal 2.7 -0.9 0.9 1.1 1.2Greece 2.0 -2.0 -4.5 -2.6 1.0 Greece 4.3 1.3 4.4 1.3 1.0Finland 0.9 -8.0 3.5 3.0 3.5 Finland 4.1 0.0 0.8 2.0 2.5Ireland -3.0 -7.1 -0.5 1.0 2.5 Ireland 3.1 -1.7 -1.6 0.1 1.0

Denmark -0.9 -4.7 1.4 1.8 2.0 Denmark 3.4 1.3 2.2 1.8 2.0Sweden -0.4 -5.1 4.2 2.8 3.1 Sweden 3.4 -0.3 1.1 2.0 2.9Norway 1.8 -1.4 1.5 2.3 3.2 Norway 3.8 2.1 2.3 1.3 2.1Iceland 5.6 1.3 -7.3 -4.9 2.3 Iceland 5.0 12.4 12.0 6.0 2.0

UK -0.1 -4.9 1.5 1.5 2.0 UK 3.6 2.2 3.0 2.5 1.5Switzerland

.1

3) 1.8 -1.5 1.5 1.8 1.8 Switzerland3) 2.4 -0.4 0.7 1.0 1.0

Russia 5.6 -7.9 5.7 4.8 5.2 Russia 14.1 11.7 6.7 6.9 7.3Poland 5.1 1.8 3.4 3.0 3.7 Poland 4.4 3.8 2.7 3.1 2.3Estonia -3.6 -14.1 1.8 4.2 4.5 Estonia 10.6 -0.1 2.6 3.0 2.7Latvia -4.6 -18.0 -1.8 3.0 4.3 Latvia 15.3 3.6 -0.8 2.2 3.0Lithuania 2.8 -14.9 0.9 3.2 4.0 Lithuania 11.1 4.2 1.2 2.0 2.8

China 9.6 9.1 9.8 8.6 8.9 China 6.0 -0.7 3.3 3.0 3.0India 5.1 7.7 9.1 8.8 9.6 India 9.1 2.1 9.0 5.0 4.0Brazil 5.1 -0.2 7.6 4.6 5.1 Brazil 5.7 4.9 5.4 4.8 4.51) Weighted average of countries in this table. Accounts for 70.5% of world GDP. Weights calculated using PPP adjusted GDP levels for 2007 according to the IMF's World Economic Outlook

2) US, Japan and the Euro area

3) Source: IIMF WE O April 2010

Public finances, % of GDP Current account, % of GDP2008 2009 2010 2011E 2012E 2008 2009 2010 2011E 2012E

BIG-3 -2.9 -8.7 -8.2 -7.2 -5.6 BIG-3 - - - - -USA -3.2 -10.0 -9.5 -8.5 -6.2 USA -4.7 -2.7 -3.0 -2.5 -2.5Japan3) -4.2 -10.3 -9.8 -9.1 -8.5 Japan3) 3.2 2.8 2.8 2.4 2.1Euro area -2.0 -6.3 -5.8 -4.7 -3.5 Euro area -1.7 -0.8 -0.5 -0.2 -0.1

Germany 0.0 -3.3 -4.3 -3.3 -2.3 Germany 6.6 5.0 6.1 6.5 7.0France -3.3 -7.5 -7.9 -6.5 -5.8 France -2.3 -2.0 -1.9 -1.8 -1.6Italy -2.7 -5.3 -4.9 -3.5 -2.7 Italy -3.4 -3.2 -3.0 -2.9 -2.7Finland 4.2 -2.5 -2.5 -0.5 0.0 Finland 3.1 1.3 1.6 2.0 2.0

Denmark 3.4 -2.8 -4.9 -4.6 -3.7 Denmark 2.0 4.0 3.5 2.8 2.8Sweden 2.2 -1.0 0.0 0.5 1.1 Sweden 8.8 7.2 6.4 6.6 6.8Norway 19.3 9.9 12.4 14.6 18.0 Norway 17.7 14.2 15.3 15.7 19.0Iceland 5.4 -13.6 -15.0 -10.0 -5.0 Iceland -20.6 -42.2 -10.0 3.0 5.0

UK -4.9 -11.5 -10.5 -8.0 -6.0 UK -1.5 -1.3 -1.1 -1.0 -0.5Switzerland3) 0.8 1.4 -1.0 -0.9 -0.9 Switzerland3) 2.4 8.7 9.5 9.6 9.8

Russia 4.1 -5.3 -5.2 -3.5 -2.8 Russia 6.2 3.9 5.0 4.5 3.0Poland -3.7 -7.1 -6.0 -5.0 -3.5 Poland -5.0 -1.6 -2.2 -1.6 -0.6Estonia -2.7 -1.7 -2.2 -1.9 -1.5 Estonia -9.1 4.6 4.0 2.0 0.8Latvia -4.1 -9.0 -7.2 -5.8 -3.0 Latvia -13.0 9.4 7.0 4.0 3.3Lithuania -3.2 -8.9 -7.8 -6.0 -3.0 Lithuania -11.9 3.8 3.0 2.5 1.5

China -0.4 -2.1 -3.0 -2.2 -1.8 China 9.6 6.1 4.5 4.1 3.7India -6.0 -6.5 -5.5 -5.0 -4.5 India -2.2 -2.1 -2.2 -2.0 -2.3Brazil -1.6 -3.2 -2.7 -2.0 -1.8 Brazil -1.8 -1.5 -2.5 -3.0 -3.0

Översikt


Monetary policy rates Monetary policy rate spreads vs Euro area24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M

US 0.25 0.25 0.25 0.25 2.00 US -0.75 -0.75 -0.75 -0.75 0.00Japan 0.10 0.10 0.10 0.10 0.50 Japan1 -0.15 -0.15 -0.15 -0.15 -1.50Euro area 1.00 1.00 1.00 1.00 2.00 Euro area - - - - -Denmark 1.05 1.05 1.05 1.05 2.25 Denmark 0.05 0.05 0.05 0.05 0.25Sweden 0.50 1.00 1.25 1.75 3.00 Sweden -0.50 0.00 0.25 0.75 1.00Norway 2.00 2.00 2.00 2.25 3.50 Norway 1.00 1.00 1.00 1.25 1.50UK 0.50 0.50 0.50 0.50 2.00 UK -0.50 -0.50 -0.50 -0.50 0.00Switzerland 0.25 0.25 0.25 0.50 1.00 Switzerland -0.75 -0.75 -0.75 -0.50 -1.00Poland 3.50 3.50 3.75 4.25 4.75 Poland 2.50 2.50 2.75 3.25 2.75Czech Rep. 0.75 0.75 0.75 1.00 2.00 Czech Rep. -0.25 -0.25 -0.25 0.00 0.00Hungary 5.25 5.25 5.25 5.75 6.50 Hungary 4.25 4.25 4.25 4.75 4.50Turkey 7.00 7.00 7.00 8.00 8.50 Turkey 6.00 6.00 6.00 7.00 6.50Russia 7.75 7.75 7.75 8.25 9.00 Russia 6.75 6.75 6.75 7.25 6.75China 5.31 5.31 5.31 5.31 5.31 China 4.31 4.31 4.31 4.31 3.31India 5.75 6.00 6.25 6.50 6.50 India 4.75 5.00 5.25 5.50 4.50Brazil 10.75 11.75 11.75 11.75 11.75 Brazil 9.75 10.75 10.75 10.75 9.75

1) Spread vs US

3-month rates 3-month spreads vs Euro area24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M

US 0.32 0.40 0.50 0.80 2.35 US -0.57 -0.50 -0.50 -0.40 0.10Euro area 0.89 0.90 1.00 1.20 2.25 Euro area - - - - -Denmark 1.14 1.25 1.35 1.70 2.60 Denmark 0.25 0.35 0.35 0.50 0.35Sweden 1.03 1.45 1.65 2.05 3.15 Sweden 0.14 0.55 0.65 0.85 0.90Norway 2.64 2.55 2.55 2.79 3.80 Norway 1.75 1.65 1.55 1.59 1.55UK 0.72 0.75 0.75 0.80 2.30 UK -0.17 -0.15 -0.25 -0.40 0.05Poland 3.81 3.90 4.25 4.75 5.25 Poland 2.92 3.00 3.25 3.55 3.00Czech Republic 1.24 1.25 1.25 1.60 2.50 Czech Republic 0.35 0.35 0.25 0.40 0.25Hungary 5.34 5.30 5.60 6.25 7.00 Hungary 4.45 4.40 4.60 5.05 4.75Russia 3.75 3.80 4.00 4.50 6.00 Russia 2.86 2.90 3.00 3.30 3.75Estonia 1.18 1.05 1.00 1.20 2.25 Estonia 0.29 0.15 0.00 0.00 0.00Latvia 1.25 1.10 1.30 1.80 2.00 Latvia 0.36 0.20 0.30 0.60 -0.25Lithuania 1.70 1.80 2.20 2.50 2.80 Lithuania 0.81 0.90 1.20 1.30 0.55

10-year government benchmark yields 10-year yield spreads vs Euro area24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M

US 2.52 2.50 2.70 3.20 3.75 US 0.34 0.20 0.05 0.00 0.35Euro area 2.18 2.30 2.65 3.20 3.40 Euro area - - - - -Denmark 2.25 2.40 2.75 3.30 3.50 Denmark 0.07 0.10 0.10 0.10 0.10Sweden 2.32 2.45 2.80 3.35 3.75 Sweden 0.14 0.15 0.15 0.15 0.35Norway 3.12 3.12 3.38 3.87 4.25 Norway 0.94 0.82 0.73 0.67 0.85UK 2.88 2.90 3.20 3.75 4.10 UK 0.69 0.60 0.55 0.55 0.70Poland 5.43 5.50 5.60 5.70 5.75 Poland 3.24 3.20 2.95 2.50 2.35Czech Rep. 3.47 3.60 3.75 4.25 4.50 Czech Rep. 1.29 1.30 1.10 1.05 1.10Hungary 6.96 7.10 7.00 7.25 7.50 Hungary 4.78 4.80 4.35 4.05 4.10

Exchange rates vs EUR Exchange rates vs USD

24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24MEUR/USD 1.261 1.32 1.27 1.20 1.15 -EUR/JPY 105.9 114 114 118 127 USD/JPY 84.02 86.0 90.0 98.0 110EUR/DKK 7.449 7.46 7.46 7.46 7.46 USD/DKK 5.908 5.65 5.87 6.21 6.48EUR/SEK 9.421 9.45 9.20 9.10 9.10 USD/SEK 7.472 7.16 7.24 7.58 7.91EUR/NOK 7.953 8.00 7.90 7.70 7.70 USD/NOK 6.307 6.06 6.22 6.42 6.70EUR/GBP 0.818 0.83 0.82 0.80 0.77 GBP/USD 1.541 1.59 1.55 1.50 1.49EUR/CHF 1.314 1.34 1.30 1.28 1.28 USD/CHF 1.042 1.02 1.02 1.07 1.11EUR/PLN 4.020 4.10 3.90 3.90 3.70 USD/PLN 3.189 3.1 3.1 3.3 3.2EUR/CZK 24.91 25.3 25.0 24.8 24.0 USD/CZK 19.75 19.1 19.7 20.6 20.9EUR/HUF 285.7 280 270 265 270 USD/HUF 226.6 212 213 221 235EUR/TRY 1.93 2.00 2.00 2.10 2.10 USD/TRY 1.53 1.59 1.59 1.67 1.67EUR/RUB 38.97 39.3 37.5 34.3 31.6 USD/RUB 30.91 30.0 29.5 28.6 27EUR/EEK 15.65 15.6 15.6 15.6 15.6 USD/EEK 12.41 11.9 12.3 13.0 13.6EUR/LVL 0.708 0.71 0.70 0.70 0.70 USD/LVL 0.562 0.54 0.55 0.58 0.61EUR/LTL 3.453 3.45 3.45 3.45 3.45 USD/LTL 2.738 2.62 2.72 2.88 3.00EUR/CNY 8.570 8.91 8.51 7.80 6.96 USD/CNY 6.797 6.75 6.70 6.50 6.05EUR/INR 59.13 59.4 57.2 52.8 51.8 USD/INR 46.90 45.0 45.0 44.0 45.0EUR/BRL 2.244 2.48 2.39 2.20 2.07 USD/BRL 1.780 1.88 1.88 1.83 1.80

.5

Sverige


Svensk ekonomi varvar upp • BNP-tillväxten är hög men dämpas 2011

• Resursutnyttjandet stiger

• Reporäntan höjs till 2 procent 2011

Återhämtningen i den svenska ekonomin fortgår. Den in-hemska efterfrågan började repa sig redan i mitten av 2009 och när exportindustrin växlade upp under första halvåret i år vann uppgången i styrka. BNP beräknas öka med drygt 4 procent i år. Den globala ekonomin går in i en lugnare återhämtningsfas under de närmaste kvartalen, vilket med viss eftersläpning även påverkar den svenska ekonomin. Tack vare gynnsamma inhemska förhållanden kan BNP-tillväxten ändå upprätthållas på en god nivå även nästa år. Med en accelererande internationell efter-frågan stärks tillväxten igen 2012. Ökad efterfrågan på svensk export Den globala handeln har återhämtat sig snabbt det senas-te året, vilket har medfört en kraftig ökning av svensk export. Än så länge förbättras orderingången, vilket tyder på en fortsatt god utveckling under återstoden av året. Så småningom kommer dock dämpningen i den internatio-nella tillväxten även påverka den svenska exporten. Trots det räknar vi med att varuexporten redan i mitten av 2011 är tillbaka på de nivåer som gällde innan krisen slog till för två år sedan. Längre fram är prognosen behäftad med stor osäkerhet. Då framför allt den amerikanska ekono-min växlar upp så väntas den globala efterfrågan skjuta fart igen, vilket också den svenska exportindustrin kom-mer att dra nytta av mot slutet av prognosperioden. Inhemsk ekonomi viktig motor Hushållen tog täten i återhämtningen då konsumtionen började öka redan i mitten av 2009. Mycket talar för att den kommer att vara en viktig tillväxtmotor även fram-

över. Inte minst innebär förbättringen på arbetsmarkna-den att inkomsterna stiger. Vi räknar också med skatte-lättnader för hushållen på cirka 15 miljarder kronor de kommande två åren. Då sparandet i utgångsläget är högt och hushållens tillförsikt inför är god väntas hushållen utnyttja det ekonomiska utrymmet till konsumtion. Hus-priserna har planat ut något i år efter uppgången ifjol. Nya regler om bolånetak, osäkerhet om fastighetsskatten och signaler om kommande räntehöjningar kan ha bidra-git till dämpningen. Räntorna bedöms förvisso stiga framöver, men eftersom ränteuppgången är relativt mått-lig och förutsättningarna för hushållen i övrigt är mycket gynnsamma bedöms effekterna på såväl huspriser som konsumtion bli begränsade. I kontrast till avmattningen i huspriserna har bostadsin-vesteringarna skjutit fart igen, vilket visar att hushållen är fortsatt aktiva på bostadsmarknaden. Ökade om- och ny-byggnationer av bostäder var en bidragande orsak till att investeringarna i näringslivet vände upp redan under andra kvartalet i år. Uppgången var bred. Utöver bostads-investeringarna så expanderade såväl industrin som flera tjänstebranscher. De ökade investeringarna speglar ökad produktion, högre vinster och att företagen hyser tillför-sikt inför framtiden. Investeringsmiljön väntas vara god även framöver. Arbetslösheten faller snabbt Den snabba och breda uppgången i ekonomin har ökat efterfrågan på arbetskraft. Allt fler lediga platser på lan-dets arbetsförmedlingar och företagens mycket optimis-tiska anställningsplaner skvallrar om att uppgången fort-sätter. Hittills har den ökade sysselsättningen inte slagit igenom i arbetslöshetstalen i någon större omfattning. Orsaken är att tillströmningen av arbetskraft har varit ovanligt kraftig under det senaste året. En bidragande or-

Sverige: Makroekonomiska nyckeltal (årlig tillväxt i procent om inget annat anges)2007 (mdr. SEK) 2008 2009 2010E 2011E 2012E

Privat konsumtion 1,460 -0.1 -0.8 3.0 2.5 2.5Offentlig konsumtion 797 1.3 1.7 1.1 0.9 0.7Fasta bruttoinvesteringar 612 1.7 -16.0 3.8 6.5 7.0 - industri 95 2.7 -22.3 -2.8 12.4 11.3 - bostadsinvesteringar 121 -9.5 -23.4 15.6 9.8 6.3Lagerinvesteringar* 23 -0.5 -1.5 1.5 0.0 0.0Export 1,621 1.4 -12.4 11.4 6.7 6.0Import 1,388 2.9 -13.2 12.6 7.2 6.0BNP -0.4 -5.1 4.2 2.8 3.1Nominell BNP (mdr SEK) 3,126 3,214 3,108 3,264 3,397 3,564

Arbetslöshet (% av arbetskraften) 6.2 8.3 8.4 7.7 7.1Sysselsättning 1.2 -2.1 0.9 1.1 1.0Konsumentpriser (årsgenomsnitt KPI) 3.4 -0.3 1.1 2.0 2.9Underliggande inflation (årsgenomsnitt KPIF) 2.7 1.9 1.9 1.4 1.9Timlöner (nationalräkenskaper) 3.9 3.0 2.3 3.0 4.0Bytesbalans (mdr SEK) 283 224 210 225 244 - % av BNP 8.8 7.2 6.4 6.6 6.8Handelsbalans (% av BNP) 3.8 3.5 3.1 3.3 3.5

Offentligt finansiellt sparande (mdr SEK) 71 -32 -1 17 40 - % av BNP 2.2 -1.0 0.0 0.5 1.1Offentlig bruttoskuld, % av BNP 37.6 41.5 38.1 37.6 36.2

* Bidrag till BNP-utvecklingen, procentenheter

Sverige

sak är att antalet personer i arbetsmarknadspolitiska pro-gram har ökat. Eftersom dessa i allt större utsträckning är inriktade på jobbsökande har både arbetskraften och ar-betslösheten stigit. Jobbskatteavdraget och sjukförsäk-ringsreformen torde också ha bidragit till att fler har sökt sig ut på arbetsmarknaden. Arbetskraften ökar i betydligt lugnare takt framöver eftersom bland annat antalet per-soner i arbetsmarknadspolitiska program stabiliseras. Det innebär att sysselsättningsuppgången kommer att få allt större genomslag på arbetslöshetstalen. Osäkerhet om den långsiktiga jämviktsnivån på arbets-lösheten är stor. Det finns anledning att tro att den har höjts under de senaste åren. Förvisso dröjer det innan ar-betslösheten sjunker till de låga nivåerna innan krisen, men en arbetslöshet på mellan 6 och 7 procent har histo-riskt varit förenlig med svårigheter för företagen att re-krytera personal. Bristen på arbetskraft har redan börjat öka och låg nära det historiska genomsnittet redan andra kvartalet i år, vilket kan vara en indikation på att nivån på den strukturella arbetslösheten har stigit. Stigande inflation på sikt Begynnande brist på arbetskraft är en konsekvens av den höga tillväxten och är ett av flera tecken på att återhämt-ningen i den svenska ekonomin går snabbt. Uppgången av investeringarna visar också att resursutnyttjandet sti-ger då företagen uppenbarligen redan har behov av att öka produktionskapaciteten. Den stigande aktiviteten in-nebär att de offentliga finanserna förbättras och bedöms vara i balans redan i år. Goda finanser talar för ytterligare finanspolitiska stimulanser kommande år. Inflationstrycket är för närvarande måttligt. Ett stigande resursutnyttjande påverkar dock inflationsutsikterna läng-re fram. Till exempel kommer läget att vara väsentligt annorlunda vid nästa avtalsrörelse som av allt att döma inleds hösten 2011. Det talar för att löneökningarna blir betydligt större 2012 jämfört med årets historiskt sett låga ökningstakt och medför att det inhemska kostnads-trycket ökar. Det finns således starka skäl för Riksbanken att höja reporäntan från de mycket låga nivåer som eta-blerades under 2009. Vi räknar med att reporäntan ligger på 1,25 procent vid det kommande årsskiftet och på 2,00 procent i slutet av 2011. Riksbankens räntehöjningar be-döms bidra till att kronan stärks. Kronan handlas till strax över 9 kronor mot euron om ett år enligt vår prognos. Valet - en risk Riskerna i prognosen är framför allt förknippade med den globala ekonomin. Till de inhemska riskerna hör det kommande riksdagsvalet. Ett regeringsskifte, eller om valet skulle resultera i en oklar parlamentarisk situation, skulle åtminstone kortsiktigt kunna medföra att kronan försvagas. Även börsutvecklingen är ett osäkerhetsmo-ment bland annat då det påverkar hushållens finanser. Torbjörn Isaksson [email protected] +46 8 614 8859

Svensk export ökar i linje med global handel

94 96 98 00 02 04 06 08 10 12100

125

150

175

200

225

250

275

300

325

350

375

55

65

75

85

95

105

115

125

135

145USD mdr. SEK mdr.

Prognos

Global handel,industriländer, fasta priser

Svensk exportav varor, säsongsrensat,höger

Hushållens inkomster stiger

02 03 04 05 06 07 08 09 10 11 125

6

7

8

9

10

11

12

13

-1

0

1

2

3

4

5

6% y/y

Prognos

Konsumtion

Realainkomster

Sparkvot,höger

% av disp. inkomst

Arbetslösheten faller, ökad brist på arbetskraft

00 01 02 03 04 05 06 07 08 09 10 11 125.5

6.0

6.5

7.0

7.5

8.0

8.5

9.04

9

14

19

24

29

34

39

44 Prognos

Företag med bristpå arbetskraft(omvänd skala)

%

Arbetslöshet, höger

% av arbetskraften

Underliggande inflation bottnar 2011

02 03 04 05 06 07 08 09 10 11 12-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

Prognos

% y/y

KPIF

KPI

% y/y


Denmark


Economy back on the growth track • Consumers out of the shadow of the financial crisis

• Public sector passing the baton to the private sector

• Employment set to grow in 2011

• Tentative housing market pick-up

The Danish economy has slowly but steadily returned to the growth path. The improvement has been aided by consumers now emerging from the shadow of the financial crisis and starting to loosen their purse strings again after being bolstered by income tax cuts and record-low interest rates. Moreover, exporters have finally started to benefit from the decent global upswing. And public spending is still making a positive contribution to growth, albeit on borrowed time. Public spending under pressure A sharp increase in public spending and investment during the crisis has to some degree offset the decline in private-sector activity. The automatic stabilisers kicked in, with the economic setback leading to shrinking tax receipts and rising transfer income expenses. Consequently, public budgets have deteriorated sharply. We expect this year’s deficit to reach 4.9% of GDP, which is the largest deficit in 25 years. With the EU’s covergence programme as a guideline, the government has initiated a sweeping restoration plan, aiming at low growth in public spending from 2011 to 2013. However, given the past difficulty in reaching long-term goals, we expect the election year of 2011 to bring a moderate increase in public spending of 0.8%, while in 2012 we see a good chance of a minor drop once growth in the global economy accelerates again.

Private sector to drive growth in future The public sector is thus passing the “growth baton” to the private sector, which is to drive economic growth going forward. So far private consumption and exports have provided the first signs of the private sector being able to run with the baton. But we have not yet seen positive growth in business investment and residential construction. Fortunately, the arrow points in the right direction for business investment. The manufacturing sector’s order books are starting to fill up again concurrently with a rise in capacity utilisation. The conditions thus seem in place for an uptick in business investment as early as next year. At the same time destocking may stop as early as this year, which may contribute positively to growth. Residential investment, on the other hand, is unlikely to provide any help until 2012. In 2009 housing starts had plunged to a 59-year low and the number of completed units in 2010 therefore looks set to be the lowest in the almost 60 years on record. Unemployment curve to break in early 2011 During the severe economic downturn, labour market trends have been subject to much mystery. At first glance total employment has dropped by just over 180,000 per-sons from its peak, while official unemployment figures have only edged higher by 70,000. The significant devia-tion is due to the combination of the surge in persons en-gaged in labour market schemes, a large number of per-sons not eligible for unemployment benefits and a shrinking labour force, with the pool of available labour being reduced by the outflow of foreign labour. Going forward the gross number of unemployed (including people in labour market schemes) is expected to increase moderately during the autumn. The increase will first and foremost be triggered by continued low capacity utilisa-

Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (DKKbn) 2008 2009 2010E 2011E 2012E

Private consumption 822 -0.2 -4.6 3.2 2.2 1.7Government consumption 439 1.6 3.4 1.2 0.8 -0.2Fixed investment 380 -4.7 -13.0 -6.0 3.7 2.7 - government investment 31 -2.9 12.4 19.3 1.0 -7.6 - residential investment 117 -14.2 -18.1 -8.9 -0.3 1.6 - business fixed investment 231 -0.1 -13.9 -9.0 5.6 5.3Stockbuilding* 10 0.3 -1.7 0.8 0.3 0.0Exports 886 2.4 -10.2 3.3 5.1 5.4Imports 845 3.3 -13.2 5.2 6.6 4.3GDP -0.9 -4.7 1.4 1.8 2.0Nominal GDP (DKKbn) 1,691 1,737 1,662 1,714 1,767 1,840

Unemployment rate, % 1.8 3.4 4.4 4.7 4.5Unemployment level, '000 persons 48.1 92.2 118.2 128.0 122.3Gross unemployment level, '000 persons 74.2 130.6 170.4 189.5 179.6Consumer prices, % y/y 3.4 1.3 2.2 1.8 2.0Hourly earnings, % y/y 4.5 2.9 2.4 2.1 2.2Nominal house prices, one-family, % y/y -4.5 -13.2 4.0 2.0 2.0Current account (DKKbn) 35.2 65.9 60.0 50.0 52.0 - % of GDP 2.0 4.0 3.5 2.8 2.8

General govt. budget balance (DKKbn) 59.8 -47.0 -85.0 -81.0 -68.0 - % of GDP 3.4 -2.8 -4.9 -4.6 -3.7Gross public debt, % of GDP 34.2 41.4 43.5 46.0 48.0

* Contribution to GDP growth (% points)

Denmark

tion, enabling businesses to scale up production without hiring additional manpower – beneficial for productivity but detrimental for unemployment. Moreover, the prospect of slightly falling employment in the public sector will re-duce the number of job vacancies and job-seekers’ chances of finding employment. With the unemployment curve set to finally break in early 2011, we expect employment to start climbing a bit next year, while unemployment will peak at an average of 128,000 full-time unemployed, or a gross unemployment rate of almost 7%. Prospect of low wage growth With unemployment set to remain high and only slowly declining in the years ahead, wage growth is likely to be very moderate. Not least in the public sector where slug-gish wage formation has deferred negative adjustments to 2011, the stage is set for very weak nominal wage growth in the coming years. This will inevitably put pressure on real wages and thus mean lower growth in consumers’ real purchasing power. Moreover, consumer spending will not be boosted by tax breaks and interest rate cuts to the same extent as this year, and we therefore expect consumer spending to grow at slightly lower rates in 2011 and 2012 than this year. Tentative housing market pick-up A good gauge of the health of the Danish economy is the trend in the housing market where in particular strong trading activity has many positive spill-over effects on the rest of the economy. The sharp drops in mortgage rates seen since end-2008 lent a welcome helping hand to the then badly ailing housing market. The combination of interest rate declines and falling house prices has gener-ally made it more affordable for first-time buyers and people upgrading to larger homes – as reflected in mod-erately rising trading activity. Prices per square meter have also begun to climb, but measured by housing af-fordability, it has not become more expensive to buy a home, as continued falling long mortgage rates have compensated for the higher home prices. The key driver in the Danish housing market has been the Greater Co-penhagen area – it has the lowest supply of homes for sale and the highest increase in trading activity and prices. Going forward we expect house prices to rise moderately. This year and the next, house prices will benefit from continued low interest rates, and growing employment may take over when interest rates start to move up. However, there are still many homes for sale and it is a buyer’s market in large parts of the country, so there are very slim chances of a nation-wide price surge. If house prices should rise sharply, they will most likely decline again once interest rates start to move higher. Troels Theill Eriksen [email protected] +45 3333 2448

Jan Størup Nielsen [email protected] +45 3333 5115

Order books no longer shrinking

96 98 99 00 01 02 03 04 05 06 07 08 09 10-25

-20

-15

-10

-5

0

5

10

15

20

25

30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30% y/y % y/y

Gross capital formation, machines and equipment, 2Q mov. avg.

New orders, manufacturing ex. ships,2Q mov. avg., advanced 1Q

Source: Statistics Denmark and own forecasts Easier said than done to manage public spending

02 03 04 05 06 07 08 09 10 11 12-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0% of GDP% of GDP

Actual government consumption growth Planned government consumption growth

Nordea forecast

Source: Statistics Denmark, the Finance Ministry and own forecasts Unemployment curve to peak in early 2011

00 01 02 03 04 05 06 07 08 09 10 11 120

25

50

75

100

125

150

175

200

225

0

25

50

75

100

125

150

175

200

225Persons ('000)

Forecast

Persons ('000)

Unemployed

Gross unemployed

Source: Statistics Denmark and own forecasts Home buyers starting to come back

99 00 01 02 03 04 05 06 07 08 0919

20

21

22

23

24

25

26

27

28

60

70

80

90

100

110

120% of disp. income

DanBolig house sales,12M mov. avg.

Housing burden, rhs

Index2004=100

Source: Nordea and Danbolig


Norway


Consumer spending disappoints • Low growth and inflation – 2012 will be better

• No interest rate hike until well into 2011

• NOK to strengthen in 2011 on the back of rate hikes

Growth disappoints – but will improve in 2012 In the May issue of Economic Outlook we revised down our growth forecast for 2010, and now we have to do it again, mainly because the Norwegians have been more prone to save rather than to spend than we thought. But we see no reason to revise down our GDP growth forecast for 2011. The pick-up in interest rates looks set to become smaller than we expected, which will add stimulus to consumer spending. Higher oil sector invest-ment next year than originally assumed will also help underpinning GDP growth. For the first time we now publish our forecast for 2012. We see global growth rising in that year, which will boost Norwegian export growth and result in higher oil prices and a further increase in oil sector investment. Corporate profitability will pick up, the labour market will tighten slightly and wage growth will edge higher. This will underpin consumer spending growth while Norges Bank accelerates its monetary policy tightening. Consumers more cautious The significant rate cuts in 2008 and 2009 sharply boosted household income growth. To begin with, con-sumers chose to save the additional income. When their savings had reached a fairly high level, consumers al-lowed themselves to spend more of the additional income in 2009. And consumption rose sharply. We had ex-pected the low level of interest rates and reduced eco-nomic uncertainty to put a floor under consumer spend-

ing growth. But consumer spending growth remained weak during the first six months of this year. To some extent we see this as a sign that consumers are more prone to save than we had assumed. Tighter credit stan-dards for households may also have contributed to dampen consumption growth. However, we still stick to our view that consumer spend-ing growth will gradually pick up. Real disposable in-come growth is relatively high, the level of unemploy-ment is moderate and interest rates are low. Oil sector investment rising Oil sector investment has fallen somewhat from the high level in early 2009, but there is now every indication that investment is rising again. Oil companies' investment plans point to markedly higher investment activity in 2011 than in 2010. This means better times for the oil services industry. The improvement is already beginning to show through in current production numbers and cor-porate surveys. In 2012 we see oil prices moving higher again. More projects will become profitable, and oil sec-tor investment may increase further. Also the mainland economy is showing signs of rising corporate investment. Low interest rates, looser credit standards and brighter prospects for many industries all point towards rising investment activity. But the already high investment level suggests that the pick-up will be moderate. Housing investment growth, meanwhile, will likely be stronger. Home prices have increased, and sus-tained low interest rates and low unemployment point to a sustained, albeit smaller than originally expected, in-crease in home prices during the rest of 2010. In 2011 we see only a minor, if any, increase in home prices.

Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (NOK bn) 2008 2009 2010E 2011E 2012E

Private consumption 940 1.6 0.2 2.3 2.2 3.0Government consumption 447 4.1 4.7 3.0 2.0 2.0Fixed investment 504 2.0 -9.1 -2.6 5.6 5.7 - gross investment, mainland 376 -1.4 -11.7 -1.8 3.5 4.3 - gross investment, oil 113 5.5 2.4 -5.0 12.0 10.0Stockbuilding* 33 -0.3 -2.2 2.0 0.0 0.0Exports 1,040 1.0 -4.0 -0.4 0.8 1.5 - crude oil and natural gas 480 -2.0 -1.2 -3.2 -0.6 -0.6 - other goods 302 4.2 -8.2 5.0 2.5 4.3Imports 691 4.3 -11.4 7.8 3.9 3.7GDP 2,272 0.8 -1.4 0.7 1.7 2.4GDP, mainland 1,724 1.8 -1.4 1.5 2.3 3.2

Unemployment rate, % 2.6 3.2 3.6 3.9 3.7Consumer prices, % y/y 3.8 2.1 2.3 1.3 2.1Core inflation, % y/y 2.6 2.6 1.5 1.5 2.1Annual wages (incl. pension costs), % y/y 6.0 4.5 3.4 3.8 4.3Current account (NOKbn) 466.6 337.4 395.5 429.5 582.9 - % of GDP 17.7 14.2 15.3 15.7 19.0Trade balance, % of GDP 19.1 14.8 15.7 15.7 19.0

General govt budget balance (NOKbn) 484.7 234.7 320.0 400.0 550.0 - % of GDP 19.3 9.9 12.4 14.6 18.0


Norway

Slowing export growth Traditional goods exports rose sharply in H2 2009, but there are now clear signs of slowdown in this area. More subdued economic growth in Norway's key trading part-ners and a continued erosion of competitive power point to sustained moderate export growth at least until the global economy gains further momentum in 2012. Balanced labour market and low inflation There are signs that unemployment has peaked, but with our expectation of moderate growth we do not see the la-bour market situation tighten any time soon. A lower rate of increase in public sector employment after the past years’ strong growth points in the same direction. Despite rising economic growth in 2012 we expect the drop in joblessness to be fairly modest. Companies were careful not to lay off too many people during the down-turn, to limit the need for new hirings once activity picks up again. Growing labour supply when the economy im-proves will also dampen the fall in unemployment. Before the financial crisis the labour market was over-heated with very high wage growth. But as the labour market situation became more balanced, wage growth slowed. We expect sustained relatively moderate wage growth in the coming years, although it may pick up slightly in 2012. This will contribute to putting a lid on price increases and keep inflation below the 2.5% target. But the dampening effect of the NOK’s appreciation over the past one to two years will fade and cause core infla-tion to rise slightly. Interest rates to stay low for some time yet Despite the expected relatively low GDP growth, stable capacity utilisation and moderate inflation level in 2010 and most of 2011, we see interest rates rising slightly in 2011 and more in 2012. The rate of increase from the current low level will accelerate over the forecast period. We expect Norwegian long yields to largely track Euro-area equivalents, with no major changes to yield spreads. NOK appreciation – over time Rates hikes or expectations of imminent rate hikes are not on the cards for 2010, and we see EUR/NOK trading around 8.00 during the rest of the year. Changes in inter-national investors’ risk appetite may periodically result in relatively wide fluctuations, though. In H1 2011 we ex-pect Norges Bank to hike its policy rate while the ECB signals unchanged interest rates. When the market is con-vinced that Norges Bank will indeed hike rates, the NOK may strengthen quite sharply. We expect sustained NOK strength throughout 2012 despite rate hikes also from the ECB. As global economic growth becomes more robust, we see rising risk appetite and much higher oil prices, which will underpin a strong NOK Erik Bruce [email protected] +47 2248 7977

Declining retail sales

07 08 09 10111

112

113

114

115

116

117

118

111

112

113

114

115

116

117

118Index2005=100

Retail sales Index2005=100

Trend (4M centered mov. avg.)

Corporate investment remains at relatively high level

01 02 03 04 05 06 07 08 0980

100

120

140

160

180

200

80

100

120

140

160

180

200Investment mainland Index

Jan 2001=100

Firms

Dwellings

Index Jan 2001=100

Is the labour market starting to improve?

04 05 06 07 08 09 10-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

Labour supply

Employment

% y/y% y/y

Growth in imported goods prices about to bottom

05 06 07 08 09 10-10

-8

-6

-4

-2

0

2

4

6

8

10

12

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Note: 4M centered mov. avg.

% y/y % y/y

Import weighted NOK6M advanced

Prices on imported goods, rhs


Finland


Recovery at fluctuating speed • Growth will peak during the winter

• Speed still reasonably good in the next few years

• Surprisingly low unemployment – sluggish decrease

• General government close to balance next year

After a slow start in 2010, the Finnish economy started to pick up in the spring. Based on preliminary data, the total production increased more than 4% in Q2 compared to one year ago. Also, the outlook for the rest of the year is favourable. Growth will continue to accelerate, and towards the end of the year GDP growth may reach 6-7%. During the next year, growth will begin to slow down from the brisk figures of H2 2010. In 2011, GDP will on average grow a little slower than this year. On the whole, the trend will be reasonably favourable in the next few years. Despite the broadness of the past recession, its impact has been fairly mild. GDP took a huge drop, but the level of unemployment remained much lower than feared. Moreover, the general government deficit never exceed-ed the EU’s 3% target, and next year general government finances will again be close to balancing. The reason for the fairly mild impact is that the sharp drop in GDP was mainly the result of a decrease in capital-intensive exports. The international financial crisis remained distant for households and many Finnish SMEs, and the low interest rates and favourable income trend quickly returned confidence and propensity to consume. Moderate export growth after a leap Export growth picked up speed in early 2010, and the outlook for the rest of the year remains good – especially

when the impact of the weakened currency starts to show. This year’s growth leap is proving stronger than previously expected with the export of base metals and forest industry as the main driver. Export growth will naturally fade next year, as available capacity will diminish and the comparison levels will have risen substantially. The leading indicators are already showing that growth will peak next winter. Nevertheless, we forecast that the global economy will grow at a decent speed in the next few years and drive Finnish exports. Residential construction growing briskly In the next few years, the recovery of exports will also be reflected in companies’ machinery and equipment investments, which will, however, continue to contract this year along with office and commercial construction. On the other hand, residential construction has grown so much that, on the whole, construction investment is now growing. Part of the increase in residential construction is based on fiscal stimulus, but the demand outlook is favourable also after the subsidised construction starts to slow down. Consequently, residential construction is, after a slump, rising quickly above the previous peak. The momentum of residential construction is based on the activity of the housing market, supported by the low interest rate level. When the recession hit Finland, the housing market stagnated for a while and prices fell, but the turn towards the better already coincided with the equity market. The momentum will continue to be strong next year, as the rise in interest rates will be moderate in the next few years and the labour market situation is improving. Growth in housing supply will probably curb a price rise but not stop it.

Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (EURbn) 2008 2009 2010E 2011E 2012E

Private consumption 91 1.7 -1.9 2.4 2.6 3.0Government consumption 39 2.4 1.2 0.5 0.5 1.0Fixed investment 38 -0.4 -14.7 0.7 4.1 5.0Stockbuilding* 3 -0.9 -1.5 0.6 0.0 0.0Exports 82 6.3 -20.3 10.0 6.9 8.0Imports 73 6.5 -18.1 7.5 6.3 7.8GDP 0.9 -8.0 3.5 3.0 3.5Nominal GDP (EURbn) 179.7 184.6 171.3 179.0 188.3 197.9

Unemployment rate, % 6.4 8.2 8.5 8.1 7.7Industrial production, % y/y -0.3 -17.8 10.0 5.0 6.0Consumer prices, % y/y 4.1 0.0 0.8 2.0 2.5Hourly wages, % y/y 5.5 3.9 2.7 2.3 2.5Current account (EURbn) 5.8 2.3 2.8 3.8 4.0 - % of GDP 3.1 1.3 1.6 2.0 2.0Trade balance (EURbn) 6.9 3.5 3.9 4.5 5.0 - % of GDP 3.7 2.0 2.2 2.4 2.5

General govt budget balance (EURbn) 7.7 -4.3 -4.5 -1.0 0.0 - % of GDP 4.2 -2.5 -2.5 -0.5 0.0Gross public debt (EURbn) 63.0 75.4 85.0 91.0 97.0 - % of GDP 34.1 44.0 47.5 48.3 49.0


Finland

Consumption to grow moderately Private consumption has also recovered favourably this year, driven by both consumers’ confidence and growth in disposable income. When the recession hit Finland, households increased their savings considerably and the savings ratio peaked higher than ever since 1995. The dip in private consumption was, however, minor, as disposable income increased heavily in 2008–09. Consequently, the previous consumption peak will be exceeded already this year. Next year, growth in private consumption will continue to be moderate. The rise in real wages will be small, but real disposable income will on the whole grow a couple of per cent. The savings ratio will probably decrease due to low interest rates and strong confidence. However, the savings ratio will be higher than in the past 10 years on average. Employment will recover slowly The unemployment rate rose clearly less than feared during the recession. Part of the small rise in unemployment is explained by the substantial reduction in the workforce; one reason being growth in the number of retirees. Nevertheless, employment has already started to grow. It is, however, doubtful that employment would increase briskly in the next few years even though decent economic growth supports a moderate increase in employment. During the recession, companies held on to skilled labour and often used temporary lay-offs. Consequently, the surprisingly small rise in employment will probably be followed by a relatively mild fall in the unemployment rate. Lately, inflation has fluctuated due to changes in energy and food prices as well as in taxation. Fundamentally, the price rise has, however, slowed down after the recession, and the relatively slow wage growth will also restrain price pressures in the next few years. Inflation will remain around 2% in the next few years. Positive surprise in public finances The spotlight will be on fiscal policy during the winter, as Finland prepares for the parliamentary election in the spring. The main point of interest will be taxation. As a result, the total tax rate may rise rather than fall even though the government is not planning on tightening in-come taxation. Cost cuts cannot be avoided in the 2012 budget although the overall situation of the Finnish pub-lic sector is quite good. This year will be another year with the general government deficit not exceeding 3% of GDP and in 2011 balance is quite close. The target is, however, to balance central government finances, which means that the total general government surplus must be more than 2% of GDP. Reijo Heiskanen [email protected] +358 9 165 59942

Growth moderates next year

00 01 02 03 04 05 06 07 08 09 10 11 12-10

-8

-6

-4

-2

0

2

4

6

8

10

75

80

85

90

95

100

105

110

115

120

Forecast

Economic sentiment indicatorIndex

GDP, rhs

% y/y

Consumers more upbeat than industry

00 01 02 03 04 05 06 07 08 09 10-40

-30

-20

-10

0

10

20

30

-10

-5

0

5

10

15

20

25Net balance

Manufacturing confidence, rhs

Consumer confidenceNet balance

Unemployment peaked at surprisingly low level

99 00 01 02 03 04 05 06 07 08 09 106

7

8

9

10

11

6

7

8

9

10

11%

Euro zone

%

Finland

Unemployment rate, sa.

Inflation to hover around 2%

98 99 00 01 02 03 04 05 06 07 08 09 10-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5% y/y

Inflation, HICP

Inflation, CPI

% y/y


USA


Weak growth, but no new recession • Weak, but still positive growth in the short term

• Risk of recession – depends on home prices

• New stimulus measures from Fed later this year …

• … should boost growth in 2011 and 2012

As we projected in the May issue of Economic Outlook the US recovery has lost momentum over the past few months. After having shown solid growth towards the end of 2009 and in early 2010, economic activity slowed down sharply in Q2 2010 and the leading indicators point to a further slowdown in the short term. Up to now the decline in GDP growth has mainly been due to the fact that the pace of the inventory restocking, which was initiated after the sharp reduction in invento-ries during the financial crisis, has gradually slowed. And as final demand, ie GDP less changes in inventories, has failed to gain momentum, there is every indication of weak GDP growth in the short term. The reason is that the restocking of inventories now appears to be largely completed and that fiscal policy, after having lifted eco-nomic activity markedly since early 2009, has a signifi-cant contractionary effect as of Q3 2010. The reason why fiscal policy acts as a drag on activity is that many federal growth initiatives expire and the in-come tax rate imposed on the super rich will increase next year. Also the pressure on state budgets will con-tinue to put a damper on public demand as almost all states are required to keep their budgets balanced. In light of the huge federal budget deficit of almost 10% of GDP and the mid-term elections for Congress in No-vember, a new major fiscal policy stimulus package this

year is not very likely. With the slowdown in growth and the headwind that the economy still has to overcome, the risk of a new recession has risen to a level where it should not be ignored. Especially the trend in home prices may be decisive for how hard the landing will be. However, in our view the economy will avoid a double-dip. Accordingly, after weak GDP growth of 1-2% (an-nualised) in H2 2010 and in early 2011 we expect the economy to shift into a higher gear. We expect the lead-ing indicators to start signalling higher growth in about six months’ time. Specifically, we see GDP growth at 2.5% this year, 2% in 2011 and 3% in 2012. New recession? One of the reasons why we consider it most likely that the economy will avoid a new recession is that the most cyclical demand components already are at very low lev-els. The most extreme example of this is residential con-struction where a further decline of the magnitude nor-mally seen during a recession is physically impossible. But also car sales, business investment in equipment and non-residential construction have dropped to levels which mean that the stock of these assets after deprecia-tion is actually declining or growing very slowly. Against this background it will probably take a very severe shock, perhaps of a financial nature, to trigger a new sharp drop in demand and, in turn, a new recession. Such a shock cannot be ruled out, but it does not form part of our base-line scenario. When it comes to US households, it is also worth noting that they have increased their savings markedly in the wake of the crisis. Just before the recession set in at the beginning of 2008 household savings accounted for only 2% of disposable income, but in Q2 2010 the savings ra-

USA: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (USDbn) 2008 2009 2010E 2011E 2012E

Private consumption 9,806.3 -0.3 -1.2 1.4 2.1 2.9Government consumption and investment 2,674.3 2.8 1.6 0.7 0.0 0.0Private f ixed investment 2,266.1 -6.4 -18.3 4.5 7.2 7.3 - residential investment 628.6 -24.0 -22.9 -1.1 4.0 9.4 - equipment and software 1,112.6 -2.4 -15.3 15.0 10.2 8.4 - non-residential structures 524.9 5.9 -20.4 -12.6 0.6 0.9Stockbuilding* 29.1 -0.5 -0.6 1.4 0.0 0.1Exports 1,661.7 6.0 -9.5 12.5 7.7 9.9Imports 2,375.7 -2.6 -13.8 11.7 6.8 8.0GDP 0.0 -2.6 2.5 2.0 3.0Nominal GDP (USDbn) 14,062 14,369 14,119 14,747 15,328 16,088

Unemployment rate, % 5.8 9.3 9.7 9.8 9.3Industrial production, % y/y -3.3 -9.3 5.0 2.4 4.3Consumer prices, % y/y 3.8 -0.3 1.6 1.4 1.3Consumer prices ex. energy and food, % y/y 2.3 1.7 1.0 0.8 0.5Hourly earnings, % y/y 3.8 3.0 1.8 1.6 1.5Current account (USDbn) -668.9 -378.4 -442.4 -383.2 -402.2 - % of GDP -4.7 -2.7 -3.0 -2.5 -2.5

Federal budget balance (USDbn) -458.6 -1,413.6 -1,400.0 -1,300.0 -1,000.0 - % of GDP -3.2 -10.0 -9.5 -8.5 -6.2Gross public debt, % of GDP 69.2 83.4 92.9 91.9 99.1


USA

tio had increased to 6.2%. This means that the blow to consumer spending may be somewhat less severe in case of a new negative shock to households. In the event of a new shock now, households could more easily than previously absorb it by cutting their savings instead of their spending. However, the banks’ sustained tight credit standards still limit the ef-fect of this buffer. Our baseline scenario is based on the assumption that the savings ratio will rise a bit further to around 7% driven by a 5-10% drop in home prices from current levels. This increase in the savings ratio should leave room for sus-tained, albeit for some time still weak, growth in con-sumer spending. The reason is that households’ purchas-ing power is improving thanks to inter alia declining in-terest expenses. But the risk is that a new major decline in home prices could trigger a new wave of defaults, which in turn could force banks to tighten credit standards even further and once again pull the rug from under the economy. With supportive financial conditions and indications of sustained high global growth, although at slightly weaker levels than currently, there are indications of continued solid progress in corporate earnings and investment as well as exports. Particularly signs that earnings and em-ployment in small businesses are finally on the mend give rise to hopes that this important part of the economy will be able to gradually take over as growth engine. More stimulus from the Fed With the prospect of sustained low and declining core in-flation and high unemployment we expect the Fed to take further steps to stimulate growth soon. We believe that such steps will be in the form of more purchases of US Treasury bonds. This additional stimulus will likely pave the way for higher growth in 2011 and 2012. When, eventually, the economy starts to gain momentum, it may initially do so quite quickly, among other things because of the – by that time – significant pent-up demand among house-holds and companies. Against this backdrop, and to begin a normalisation of monetary policy to prevent new bubbles from emerging, the Fed will probably hike rates quite aggressively once it gets started. Still, we do not expect the first rate hike until Q4 2011 Johnny Bo Jakobsen [email protected] +45 3333 6178

Sluggish growth in final demand

06 07 08 09 10-10

-8

-6

-4

-2

0

2

4

6

8

-10

-8

-6

-4

-2

0

2

4

6

8

Note: Shaded area marks recession

% q/q (ar)

GDP Final sales (=GDP less change in inventories)

% q/q (ar)

Growth indicators heading south

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1030

40

50

60

70

-20

-10

0

10

20

30 Index point Index

ISM manufacturing, rhs

ISM new orders minus ISM inventories,advanced 2 months

Cyclical demand components already at low levels

50 55 60 65 70 75 80 85 90 95 00 05 1018

20

22

24

26

28

30

32

18

20

22

24

26

28

30

32% of GDP

* Private consumption of durable goods, residential investment and fixed business investmentNote: Shaded areas mark recessions

Business cycle sensitive demand *% of GDP

Markedly higher savings ratio represents a buffer

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-2

0

2

4

6

8

10

12

14325

375

425

475

525

575

625

675 Note: Shaded areas mark recessions

% of disp. incomeHouseholds

Net worth, reversed

% of disp. income

Savings rate, rhs

Average 1959-2000: 8%


Euro area


Recovery continues as sovereign debt crisis smoulders • Debt crisis is smouldering after large policy response

• Lower export demand will dampen growth

• Fiscal tightening will subtract modestly from growth

• The ECB will keep rates unchanged until Q4 2011

Sovereign debt crisis is still smouldering Since the last issue of Economic Outlook, the sovereign debt crisis in Greece almost turned into a full-blown fi-nancial crisis, threatening the prospects for a continued recovery in the Euro area and indeed the future of the monetary union itself. This triggered a forceful and un-precedented response from EU institutions, the Interna-tional Monetary Fund (IMF) and member states. In addi-tion to the IMF/EU rescue package to Greece, an EUR 750bn rescue package was created to help any other member states, which might experience funding difficul-ties. The European Central Bank (ECB) initiated a pro-gramme of purchasing sovereign bonds in an attempt to restore normal trading conditions in bond markets and prevent the crisis from spreading to the financial sector. Later on, the Euro area member states agreed to conduct and publicise an EU-wide stress test of the banking sys-tem. At the time of writing, the sovereign debt crisis is smoul-dering. Calm has returned to most sovereign bond mar-kets and the stress test has succeeded in creating greater transparency about the exposure to sovereign risk in the financial sector, even though many observers have criti-cised the test for being too lenient. Thus, funding condi-tions for Euro-area banks have generally improved over the summer, and this has significantly reduced the risk that banks will engage in a new round of tightening of credit conditions for companies and households. How-ever, intra-Euro-area bond spreads have not returned to pre-crisis levels and markets are still highly sensitive to news, which indicates a change in fiscal outlook for indi-

vidual member states. A new flare-up of the debt crisis is therefore one of the key risk scenarios in our forecast. Recovery still dependent on export growth Even though the debt crisis wrecked havoc in financial markets, the Euro area as a whole experienced the fastest growth in four years during Q2. The strong growth was driven by the German economy, which surged on the back of strong export demand and a catch-up in construc-tion activity after the cold winter. France and Italy ex-perienced far more modest albeit still decent growth rates, while the countries hardest hit by the debt crisis have seen very weak, or in the case of Greece, sharply negative GDP growth. Meanwhile, indicators suggest that both private consumption and fixed investments only grow very modestly or even stagnate. This implies that the Euro area will be highly vulnerable to the ongoing slowdown in global growth, even though short-term indi-cators suggest that economic activity continues to expand quite rapidly into Q3. In addition, the growth contribu-tion from inventories is likely to fade over the coming quarters, just as fiscal policy begins to weigh on growth in Germany, France and Italy. Thus, we expect economic growth to be quite moderate over the winter and next spring before renewed acceleration in global growth will lift economic activity in the Euro area as well. Fiscal policy only moderately restrictive The sovereign debt crisis has pushed the most vulnerable member states to undertake a drastic tightening of fiscal policy already in 2010 with similar cuts envisaged for 2011. This has often left the impression that fiscal policy will be highly detrimental to growth over the coming years. However, the tightening of policy announced in Germany and Italy is far more modest, while the prospect of drastic fiscal tightening in France also seems modest ahead of presidential elections in 2012. Given the relative importance of the core countries, we estimate fiscal

Euro area: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (EURbn) 2008 2009 2010E 2011E 2012E

Private consumption 5,175 0.3 -1.2 0.2 0.8 1.1Government consumption 1,803 2.2 2.7 0.9 0.5 0.8Fixed investment 1,970 -0.9 -10.8 -1.6 2.5 3.0Stockbuilding* 33 0.1 -1.0 1.2 0.2 0.0Exports 3,735 0.7 -13.2 8.6 6.2 5.7Imports 3,596 0.9 -11.9 8.8 5.7 4.9Net exports* 139 -0.1 -0.8 0.0 0.3 0.4GDP 0.4 -4.1 1.6 1.4 1.8Nominal GDP (EURbn) 9,013 9,258 8,968 9,104 9,259 9,405

Unemployment rate, % 7.6 9.6 10.1 10.0 9.7Industrial production, % y/y -2.4 -13.8 7.0 2.0 3.5Consumer prices, % y/y (HICP) 3.3 0.3 1.5 1.5 1.6 - core inflation 2.4 1.3 0.9 0.8 0.9Hourly labour cost, wages and salaries % y/y 3.1 1.5 1.4 1.4 1.5Current account (EURbn) -162 -68 -45 -27 -10 - % of GDP -1.7 -0.8 -0.5 -0.2 -0.1

General govt budget balance, % of GDP -2.0 -6.3 -5.8 -4.7 -3.5Gross public debt, % of GDP 69.4 78.7 83.3 86.6 89.2


Euro area

tightening to subtract between 0.5 and 0.7% point from growth in 2011 and slightly less in 2012. On the other hand, it should be remembered that the recent deprecia-tion of the trade-weighted EUR, and our forecast of a fur-ther depreciation against the USD and the currencies of other trading partners could add considerably to eco-nomic activity through increasing exports. Combined with the very low level of interest rates, financial condi-tions will thus remain very supportive of growth. Commodity prices push headline inflation up The depreciation of the EUR since the start of the year has pushed headline inflation up through higher com-modity prices. Over the coming months we expect food prices to deliver a significant contribution to inflation, leading to a peak in headline inflation just around 2% at the beginning of next year. Meanwhile, core inflation seems to have stabilised near 1%, as VAT hikes counter-balance the downward pressure associated with the high degree of slack in labour markets and still ample spare capacity in the manufacturing sector. Looking further into the forecast horizon, we expect commodity prices to continue pushing headline inflation upwards, while the relatively weak labour markets should keep wage growth in check. Thus, even though labour markets appear to be stabilising, unemployment is still at the highest level in more than 10 years and we only ex-pect unemployment to be fall more substantially in 2012. This development masks enormous differences, where unemployment in Germany is only marginally above the trough seen in the summer of 2008, while unemployment in Spain has more than doubled in the same period. Pragmatism is paramount at the ECB Although the ECB decided to purchase sovereign bonds, the central bank has been careful to sterilise the bond purchases by attracting term deposits of a similar magni-tude in order to demonstrate that the move would not stoke inflation. The sovereign debt crisis also caused the ECB to put the unwinding of its extraordinary liquidity support on a temporary standby, but with the expiry of the EUR 442bn 1-year Long Term Refinancing Opera-tion at the beginning of July, the process has been re-sumed. Still, the fact that banks in Southern Europe and Ireland increasingly rely on the ECB for funding indi-cates that it will be difficult for the ECB to end the pro-cedure of full allotment at the weekly refinancing opera-tions in the near future. Hence, our financial forecast as-sumes that short-term money market rates will continue to trade below the ECB’s refi rate until sometime next summer. Towards the end of 2011, we expect the ECB to begin the first in a series of quarterly 25 bp rate hikes bringing the refi rate to 2% on a 2-year horizon. Anders Matzen [email protected] +45 3333 3318

Slowdown in global growth likely to hit exports

98 99 00 01 02 03 04 05 06 07 08 09 10-25

-20

-15

-10

-5

0

5

10

15

20

25

30

30

35

40

45

50

55

60

65% y/y

Euro area exports, rhs

Global PMI exportorders

Index

Private consumption growth remains modest

99 00 01 02 03 04 05 06 07 08 09 10-35

-30

-25

-20

-15

-10

-5

0

5

-5

-4

-3

-2

-1

0

1

2

3

4

5% y/y Index

Retail sales

Consumer confidence, rhs.

Food price inflation on the way up

98 99 00 01 02 03 04 05 06 07 08 09 10-30

-20

-10

0

10

20

30

40

50

-2

-1

0

1

2

3

4

5

6

7% y/y

HICP, food

CRB food prices, 6M advanced, rhs.

% y/y

Increased reliance on ECB lending in crisis countries

04 05 06 07 08 09 100

100

200

300

400

500

600

700

800

900

1000

0

100

200

300

400

500

600

700

800

900

1000EURbnEurosystem lending to MFIsEURbn

Ireland Portugal Spain Greece France Germany Italy Rest


United Kingdom


Economy is losing steam So far the UK economy has shown surprisingly good re-silience to January’s VAT hike to 17.5%. The increase in production (GDP) is, however, mainly attributable to a slower pace of inventory destocking as final demand, i.e. GDP less changes in inventories, has been subdued. The very lenient monetary policy coupled with sustained global demand growth and the earlier weakening of the GBP points to sustained positive growth. But the pace of growth will most likely be more modest going forward. Business and consumer confidence indicators already suggest that the economy has lost steam over the past few months. And going forward the banks’ still tight credit standards and the government’s severe tightening of fiscal policy are expected to dampen growth. According to the new government’s programme, fiscal policy looks set to be tightened by some GBP 120bn over the next 6-year period, ie at an annual average rate of 1.4% of GDP. The strongest impact on household pur-chasing power is bound to come from the permanent VAT hike to 20% with effect from 1 January 2011. The VAT hike alone will reduce consumers’ spending power by 1¼%. UK companies are still benefiting from the improvement in competiveness prompted by the sharp GBP weakening in 2008. However, it is noteworthy that UK export growth has not outstripped that of other countries. This is a sign of structural weaknesses in the export sector, which could dampen the upswing. Also, we expect the GBP to strengthen versus the EUR over the forecast ho-rizon. As the companies were reluctant to cut staff during the recession, a more long-lasting decline in unemployment is not likely until late in the forecast period. Conse-quently, we do not see the Bank of England sanctioning its first rate hike until early 2012. Johnny Bo Jakobsen [email protected] +45 3333 6178

Indicators point to weaker growth

04 05 06 07 08 09 10-3

-2

-1

0

1

2

36

40

44

48

52

56

60% q/q

* Weighted average of the manufacturing and service sector data

GDP, rhs

Index

PMI composite *

Severe fiscal tightening in the pipeline

Fiscal year starting

08 09 10 11 12 13 14 150

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14% of GDP% of GDP Public sector net borrowing

Cyclical contrib. to budget deficit Structural budget deficit

Sustained high unemployment on the cards

88 90 92 94 96 98 00 02 04 06 08 10-2

0

2

4

6

8

10

12

-2

0

2

4

6

8

10

12%% y/y

Unemployment rate (ILO), rhs

Average earnings incl. bonuses, 3M avg.

United Kingdom: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (GBPbn) 2008 2009 2010E 2011E 2012E

Private consumption 896.0 0.4 -3.3 0.5 0.7 1.3Government consumption 296.1 1.6 1.2 2.2 -1.0 -2.2Fixed investment 249.5 -5.0 -15.0 3.8 1.7 3.8Stockbuilding* 5.8 -0.4 -1.1 0.7 0.3 0.1Exports 374.0 1.0 -10.6 4.1 5.2 8.0Imports 417.0 -1.2 -12.4 6.1 1.9 4.2GDP -0.1 -4.9 1.5 1.5 2.0Nominal GDP (GBPbn) 1,404.8 1,445.6 1,392.7 1,464.5 1,519.5 1,581.1

Unemployment rate, % 5.7 7.6 7.9 8.4 8.2Consumer prices, % y/y 3.6 2.2 3.0 2.5 1.5Current account, % of GDP -1.5 -1.3 -1.1 -1.0 -0.5General govt budget balance, % of GDP -4.9 -11.5 -10.5 -8.0 -6.0Gross public debt, % of GDP 52.0 68.1 78.6 86.6 92.6


Poland


Bright economic outlook, but less so • New president

• New fiscal measures from 2011, including VAT hike

• Labour market data encouraging

• Higher inflation next year

A new president has been elected, which has allowed the government to announce new fiscal measures. Upcoming elections mean that major reforms will have to wait until next year. As a consequence, in our baseline scenario EMU membership has been postponed to 2015. The eco-nomic outlook remains bright, but less so due to slower external demand, the fiscal measures and a slower im-provement in domestic demand so far this year compared to what we had expected. The labour market is improv-ing, though. We expect growth between 3% and 4% in the coming years. Inflation is bottoming out and will be higher next year. This could pave the way for a first in-terest rate hike late this year. A new president and new fiscal measures The presidential election turned out as polls had sug-gested with a small victory for the Civic Platform (PO) candidate Bronislaw Komorowski. One advantage of President Komorowski compared to his late predecessor is that he is from a governing party, meaning that we can now expect full cooperation between the government and the president’s office. In fact, the government announced new fiscal measures shortly after the presidential elections. These measures include a 1% point increase in the basic VAT rate to 23% and higher preferential VAT rates. Moreover, a new fis-cal rule has been implemented, which means that discre-tionary spending cannot rise by more than 1% point above the rate of inflation. Discretionary spending is roughly a fourth of total government spending. Finally, the government intends to find more companies to priva-tise in 2011 to 2013, which should bring in PLN 20bn on top of the PLN 37bn planned for 2009-10. The new fiscal measures are an attempt to bring the gen-eral government budget deficit below 3% of GDP by

2013, as agreed with the European Commission. They are also an attempt to prevent government debt from ex-ceeding the crucial 55% of GDP mark, which would prompt much tougher fiscal tightening than currently en-visaged. However, the new measures should not be seen as the complete and permanent solution to the fiscal problems. Indeed, privatisations only improve the budget in the short term and reforms are still needed. We believe more reforms will be announced, but perhaps not until af-ter the general elections next year. We had hoped for a bolder move on reforms already this summer due to the strong public support for the PO and seemingly also for fiscal consolidation. That could probably, with the economic recovery that we foresee, have brought the public deficit below the Maastricht cri-terion in 2012 and allowed for EMU membership in 2014. This was not the case, and in our forecast we there-fore postpone EMU membership to 2015, which also seems to be in line with the government’s own vision. Bright economic outlook, but less so The economic outlook remains bright. We see growth at between 3% and 4% over the coming years. However, we have “reduced the brightness” a bit for several rea-sons. First of all, we expect some slowdown in the key export markets next year, as fiscal tightening starts to kick in and as the inventory rebuilding-led global manu-facturing activity boom runs out of steam. Secondly, the VAT hike will have some adverse affect on private con-sumption growth next year, especially if it forces the Na-tional Bank of Poland (NBP) to hike interest rates. Thirdly, data for domestic demand in the first quarter of 2010 showed that the recovery could be somewhat slower than we had expected and, although mostly com-pensated for by strong growth in foreign demand this year, it may lead to slower GDP growth next year than previously expected. The labour market data still look encouraging, especially when it comes to companies with nine or more employ-ees, where employment growth started to pick up speed during the first half of the year. Moreover, unemploy-ment in the whole economy has continued to move

Poland: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (PLNbn) 2008 2009 2010E 2011E 2012E

Private consumption 702 5.7 2.3 1.8 1.8 2.1Government consumption 211 7.4 1.9 2.5 0.8 0.7Gross fixed capital formation 254 9.6 -0.8 -4.4 4.8 6.6Stockbuilding* 34 -1.1 -2.6 1.0 0.4 0.1Exports 480 7.0 -9.5 10.4 4.2 5.6Imports 513 8.1 -13.5 10.6 3.0 4.4GDP 5.1 1.8 3.4 3.0 3.7Nominal GDP (PLNbn) 1,177 1,275 1,344 1,422 1,508 1,599

Unemployment rate, % 9.8 11.0 12.2 11.4 10.8Consumer prices, % y/y 4.4 3.8 2.7 3.1 2.3Current account, % of GDP -5.0 -1.6 -2.2 -1.6 -0.6General government budget balance, % of GDP -3.7 -7.1 -6.0 -5.0 -3.5


Poland

downwards since winter and it now seems likely that the trend will remain downwards, although the pace of im-provement may be moderate. Wage growth continues to be slow, but wages are still growing even when adjusted for inflation. We expect real wages to continue increas-ing, albeit at a slow pace. Inflation near the bottom Annual inflation has fallen steadily since the middle of 2008, but is probably now close to bottom. Food and en-ergy prices have started increasing because of the floods, Russian fires and rising oil prices. Core inflation, which excludes food and energy prices, has also slowed during this period and is expected to continue moderating throughout the year. The VAT rate hike next year is ex-pected to push inflation 0.3% point higher in 2011. To-wards the end of this year and in the beginning of 2011, we expect inflation to increase towards the upper end of the NBP’s inflation target range of 1.5-3.5% before fal-ling back towards the middle of the range during 2012. We still expect the first rate hike from the NBP soon, but must admit that we have had to postpone it slightly once again. We now expect the first move late this year. The arguments are the same, though: we and the NBP expect higher inflation next year, and the growth numbers for Q2 and Q3 this year are likely to be strong. The problem (for the forecast) has been external factors including the deaths of the former president and the central bank chief and the Euro-area debt crisis. At present, some monetary policy committee members are warning about interest rate hikes later this year and the new NBP chief Belka seems slightly more hawkish than his predecessor. On the other hand, we do expect a global economic slow-down and hence the balance of the risks to our estimate of the timing of the first rate hike points to a later rather than an earlier hike. PLN to weaken near term, strengthen next year NBP chief Belka seems to have changed the central bank’s view on the PLN. At least he has said that the NBP does not have targets for the PLN. Current fears of a new US recession and worsening indicators out of Europe later in the year could have a negative effect on risk appetite, leading to renewed weakening of the PLN. But relatively high growth in Poland compared with the Euro area, earlier rate hikes and foreign capital coming in from privatisations and other direct investment and the EU funds should lead to a moderate appreciation of the PLN during next year and in 2012. Anders Svendsen [email protected] +45 3333 3951

Strong growth in Q2 and Q3

05 06 07 08 09 1032

36

40

44

48

52

56

60

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25% q/q Index

GDP growth, sa

PMI manufacturing, rhs

Slow recovery in consumption

00 01 02 03 04 05 06 07 08 09-20

-15

-10

-5

0

5

10

15

20

25

30

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0% y/y % y/y

Retail sales, rhs

Private consumption

Inflation to rise

04 05 06 07 08 09 10 11 120

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7% %

Inflation

NBP's key rateNBP's inflation projection

(Jun 10)

Flows to support the PLN

07 08 09 10-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0% of GDP

Current account balance

Portfolio

Broad basic balance

FDI

% of GDP


Russia


Growth returning but public finances strained • Continued economic recovery in Q2

• Government finances in focus

• RUB to strengthen over the long term

Economy reviving The economy has rebounded during the first half of the year. GDP was reported to have grown by 5.2% y/y in Q2, bringing the growth rate to 4.1% y/y for the first half of the year. In addition to growing exports we see domes-tic demand supporting the economy clearly in H2 2010. Especially exports and imports have grown briskly as global demand has revived. However, going forward pri-vate consumption will increasingly contribute to boosting growth. The weakness in consumption so far can largely be attributed to the still weak labour markets and the un-certainty related to the strength of the recovery of the economy. The credit markets have started to recover slowly in recent months, with bank lending to both cor-porates and households returning to modest growth. However, demand for loans is still weak and household deposits are growing briskly. Slowly falling unemployment, growing real wages and gradually easing credit conditions are expected to stimu-late private consumption. Hence, we see the economy growing relatively strongly this year, with more moderate growth over the remainder of the forecast horizon as problems within e.g. investment, infrastructure and the credit markets constrain growth over the longer term. In addition to lingering worries about the sustainability of growth in household spending, investment remains at depressed levels. Uncertainty about the recovery and the weak credit markets weigh on investment in the econ-omy, whereas foreign investment is also restrained by uncertainty about both the political situation and legisla-tive issues. On the other hand, the construction sector fi-nally returned to growth in Q2, further strengthening the view of an ongoing domestic recovery. The government has continued with efforts aimed at im-proving the investment climate, with the most recent

changes including a reduction in the number of operating permits and licences required by starting companies. This is hoped to speed up the process of starting a business as well as reduce corruption and bureaucracy. However, only time will show how well the law is implemented. Fiscal stimulus needs to be reversed Reversing the abundant fiscal stimulus packages and bal-ancing the budget will be one of the government’s main challenges in the next few years. Critique from interna-tional organisations such as the IMF has targeted the sig-nificant increase in permanent spending, especially on the social sector during the crisis. Reversing the perma-nent increases in e.g. pensions is difficult and unlikely ahead of the 2012 presidential elections. Despite a clear decline in revenues, spending has continued to increase, leading to a budget deficit of over 5% of GDP in 2009. A deficit around 5% is projected for 2010 as well, but this requires that oil prices remain around current levels. The deficit will mainly be financed by public debt as the Reserve fund holding oil revenues from previous years is to be gradually depleted over the next year. Borrowing will be increased especially on the domestic markets. All in all, a balanced budget is not expected until 2015, pro-vided that oil prices rise modestly. The non-oil deficit, i.e. the deficit less oil revenues, reached 13% of GDP in 2009, highlighting the importance of oil prices for the state budget. While higher-than-budgeted oil prices could lead to a smaller deficit, lower-than-anticipated prices could widen the deficit further, exposing the budget to significant uncertainty. To plug the hole in the budget the government will for example continue with its privatisation plan. An amended list has been approved by the Finance Ministry, with minority stakes in 11 companies including Sberbank and Rosneft being sold in 2011-2013. To what extent the plan will be implemented remains to be seen in the next couple of years. In the second half of the year for example the accelerat-ing real wage growth, the accommodative fiscal policy and the drought are pointing towards higher inflationary pressures. The high share of food prices in the consumer

Russia: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (RUBbn) 2008 2009 2010E 2011E 2012E

Private consumption 16,193 11.2 -7.6 4.8 7.5 7.8Government consumption 5,745 2.5 2.0 2.0 2.0 2.0Fixed investment 6,984 10.0 -16.5 0.2 5.0 8.0Exports 10,029 0.5 -4.6 12.5 9.0 8.0Imports 7,138 15.0 -30.2 12.0 11.0 9.3GDP 5.6 -7.9 5.7 4.8 5.2Nominal GDP (RUBbn) 33,258 41,445 39,064 43,908 49,045 55,176

Unemployment rate, % 5.6 7.5 7.2 6.5 5.8Consumer prices, % y/y 14.1 11.7 6.7 6.9 7.3Current account, % of GDP 6.2 3.9 5.0 4.5 3.0Central govt budget balance, % of GDP 4.1 -5.3 -5.2 -3.5 -2.8

Russia

price index means that the drought could lift inflation in the coming months. However, the government has indi-cated its willingness to sell wheat reserves in order to limit domestic price pressures and therefore only a tem-porary acceleration in inflation due to the drought is ex-pected in the autumn. Interest rates at historically low levels In August 2010 the Mosprime 3M rate was at levels be-low 4% – the lowest level seen since early 2005 and a significant easing from the peak of around 30% in early 2009 as the fears from the financial crisis have eased. The refinancing rate cuts by the central bank have amounted to 525 bp – bringing the refi rate to 7.75%. The rate cutting cycle is expected to have come to an end in May. We do not expect to see interest rate hikes until 2011 despite the looming inflationary pressures in the second half of the year. Rouble volatility still significant The RUB has fluctuated within a relatively tight range during the summer, as the sovereign debt problems in Europe, the recovering economy and the fluctuating oil price have increased the currency’s volatility. The rouble is very vulnerable to changing risk sentiment in the inter-national markets, while the RUB fundamentals still point towards a strengthening currency. The rising oil prices, clear interest rate differential and increasing inflationary pressures support our view of a stronger rouble. We maintain our forecast that in the long term the rouble will strengthen against the basket (45% EUR, 55% USD) although a risk of short-term weakness remains. Volatility in the short term cannot be under-stated, as fluctuations in global risk-taking appetite can lead to major capital outflows from or inflows to Russia. The stabilisation of the rouble has made intervention on the currency market less necessary, and the rouble has remained firmly within its fluctuation band (33.40-36.40). However, the central bank continues to monitor the markets and intervenes when necessary to prevent the rouble from strengthening too rapidly. Annika Lindblad [email protected] +358 9 1655 9940

Economy rebounding

00 01 02 03 04 05 06 07 08 09-12-10-8-6-4-202468

101214

2750

3000

3250

3500

3750

4000

4250

4500

4750 % y/y

Growth, rhs

GDP

Level, constant prices

RUBbn

Public expenditure rose briskly during the crisis

00 01 02 03 04 05 06 07 08 09 100

100

200

300

400

500

600

700

800

900

1000

1100

0

100

200

300

400

500

600

700

800

900

1000

1100RUBbn

Note: 6M mov. avg.

Revenue

RUBbn

Expenditure

Inflation set to accelerate

03 04 05 06 07 08 09 10 11-6

-3

0

3

6

9

12

15

18

21

24

5

6

7

8

9

10

11

12

13

14

15

16

17% y/y

Real wages,18M advanced, rhs.

Inflation

% y/y

Higher oil price supports the rouble

May08

Aug Nov09

Feb May Aug Nov10

Feb May Aug30405060708090

10011012013014015016028

29303132333435363738394041

RUB USD per barrel

Oil price, rhs

RUB basket, reversed scale


Estonia


Recovery gaining strength GDP has remained relatively stable over the past year as exports have supported the economy, while private con-sumption and investment continued their downtrend until Q1 2010. Overall strong global trade is vital for the re-covery of the economy, and setbacks in especially the Nordic countries and Russia would clearly affect the re-covery of the Estonian economy. We see the economy re-turning to growth in 2010, with the recovery gaining fur-ther foothold in 2011 as also domestic demand perks up. It will, however, take several years to offset the decline in GDP that took place in 2008 and 2009. The high unemployment rate is one of the main problems facing the authorities over the next couple of years. Al-though some labour market indicators have pointed to-wards some easing in unemployment, the unemployment rate is still high and especially long-term unemployment as well as youth unemployment remains elevated. How-ever, an improved labour market situation is necessary for sustainable growth in private consumption.Inflation has recently started to give rise to concern again, reach-ing 3.5% y/y in June, driven to a large extent by energy, fuel and food prices. Further upward pressure on prices may be seen as the domestic economy recovers and wages start growing again. There is also a risk of food and energy prices rising further. Hence, the authorities also face a challenge in limiting price pressures in the economy. As expected, Estonia will join the Euro-area in January 2011, with focus now on the practical preparations. Euro adoption is expected to increase confidence in the econ-omy both at home and abroad, likely resulting in in-creased foreign investment. The positive atmosphere re-garding euro adoption already shows through in the con-sumer confidence indicator, which has improved signifi-cantly over the past year. Despite ensured Euro-area membership the authorities are expected to continue pur-suing a strict fiscal policy in order to balance the gov-ernment budget. Annika Lindblad [email protected] + 358 9 1655 9940

GDP stabilising as exports continue to improve

95 96 97 98 99 00 01 02 03 04 05 06 07 08 0910

15

20

25

30

35

40

45

10

15

20

25

30

35

40

45EEKbnEEKbn

GDP

Exports

Confidence back at levels seen in late 2007

03 04 05 06 07 08 09 10-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

-25

-20

-15

-10

-5

0

5

10

15

20

25Index% y/y

Consumer confidence, sa, rhs

Retail sales

Situation on labour markets slowly improving

00 01 02 03 04 05 06 07 08 092

5

8

11

14

17

20

23

-10

-5

0

5

10

15

20

25 %

Average monthly wages

Unemployment rate, rhs

% y/y

Estonia: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (EEKmn) 2008 2009 2010E 2011E 2012E

Private consumption 135,178 -4.7 -18.4 -0.7 4.5 4.8Government consumption 41,228 4.1 -0.5 -1.0 0.5 1.2Fixed investment 84,425 -12.1 -34.4 -6.0 7.5 6.8Exports 177,910 -0.7 -11.3 8.0 7.0 6.8Imports 205,572 -8.7 -26.7 6.8 7.0 7.0GDP -3.6 -14.1 1.8 4.2 4.5Nominal GDP (EEKmn) 244,503 248,149 212,912 222,280 238,284 255,441

Unemployment rate, % 5.5 13.8 18.0 16.2 14.8Consumer prices, % y/y 10.6 -0.1 2.6 3.0 2.7Current account, % of GDP -9.1 4.6 4.0 2.0 0.8General govt budget balance, % of GDP -2.7 -1.7 -2.2 -1.9 -1.5

Latvia


Towards brighter times The economic recovery continued in Q2, with GDP gro-wing quarter-on-quarter for the second consecutive quar-ter. The pick-up in GDP has so far been fairly modest, but the cycle seems to have bottomed. Exports have so far been the main driver of the recovery, as expected, with Latvia benefiting from the recovery in the other EU countries as well as Russia. The domestic economy is seen improving in the second half of the year, although consumption is likely to remain weak due to the still ele-vated unemployment, the tight credit markets and the weak income development. Nevertheless, the improving consumer confidence indi-cates that domestic demand is on the recovery track as well. We see the economy returning to year-on-year growth in 2011 on improving exports and strengthening consumption, with growth gaining further momentum in 2012. However, it will take years for the economy to reach the levels seen a couple years back. Latvia has currently no need to draw all the available funds from the international loan package, which stabi-lises confidence in the economy. Latvia has already ac-cumulated some reserves from the loan but retains the option of drawing more funds if the economy deteriorates further. The stability of the government finances has taken the pressure off the currency as well as the gov-ernment. In the second half of the year the main event is the par-liamentary elections in early October. The party of the current PM is doing relatively well in the opinion polls despite the tough austerity measures already taken. In addition, the likely lack of unpopular decisions to im-prove state finances before the elections coupled with the strengthening recovery could boost support further. The new government will formulate the 2011 budget, but with the economy on a recovery track the government is expected to try to continue cutting the deficit as planned over the next couple of years. Annika Lindblad [email protected] + 358 9 1655 9940

GDP gradually returning to growth

00 01 02 03 04 05 06 07 08 09-12

-10

-8

-6

-4

-2

0

2

4

6

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3 % q/qGDP, saLVL bn

Level

q/q growth, rhs

Unemployment still elevated

00 01 02 03 04 05 06 07 08 09 10-40

-30

-20

-10

0

10

20

30

5

8

11

14

17

20

23

26 % y/y

Unemployment rate

Retail sales, rhs%

Devaluation speculations have calmed down

Jun07Oct

08Feb Jun Oct

09Feb Jun Oct

10Feb Jun

0.690

0.693

0.696

0.699

0.702

0.705

0.708

0.711

0.714

0.690

0.693

0.696

0.699

0.702

0.705

0.708

0.711

0.714LVL LVL

EUR/LVL spot

EUR/LVL ceiling

EUR/LVL floor

Latvia: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (LVLmn) 2008 2009 2010E 2011E 2012E

Private consumption 9,196 -5.4 -22.2 -3.6 3.8 4.8Government consumption 2,575 1.5 -8.7 -7.5 -1.0 1.0Fixed investment 4,975 -15.6 -37.5 -16.0 6.8 7.0Exports 6,259 -1.3 -15.4 6.4 8.0 7.3Imports 9,220 -13.6 -35.4 5.8 8.5 7.8GDP -4.6 -18.0 -1.8 3.0 4.3Nominal GDP (LVLmn) 14,780 16,243 13,244 12,900 13,570 14,493

Unemployment rate, % 7.5 17.1 21.5 20.0 18.2Consumer prices, % y/y 15.3 3.6 -0.8 2.2 3.0Current account, % of GDP -13.0 9.4 7.0 4.0 3.3General govt budget balance, % of GDP -4.1 -9.0 -7.2 -5.8 -3.0

Lithuania


Gradual economic recovery The economy showed brisk quarterly growth again in Q2, supporting expectations of a firming recovery. How-ever, this was from a very low base, with GDP barely above the level seen in Q2 2009. Nevertheless, we expect the economy to return to modest year-on-year growth this year, with momentum firming over the next two years as the economic recovery becomes more broadly-based. As expected, exports have continued to improve rapidly, pulling along import demand. Stronger exports have con-stituted the main boost to GDP, with especially exports to Russia improving significantly. But with investment and private consumption still contracting, the economy as a whole is still weak and very dependent on continued export demand to support its recovery.With wages still declining and unemployment elevated, household spend-ing has yet to gain proper traction. A stabilisation of un-employment and a gradual turnaround in wages is, how-ever, expected in the second half of the year, providing the economy with the necessary momentum for modest but stable growth in 2011-2012. The government finances have evolved in line with ex-pectations, with the budget deficit still at 8.1% of GDP in Q2. At the same time public debt has grown significantly to 35.6% of GDP in Q1 2010 from 18.9% in Q1 2009, with further increases foreseen. Overall, we expect to see the budget deficit contracting gradually over the next two years as the economy recovers and expenditure is cut. Keeping the debt and the deficit at reasonable levels is also important in order to stop debt servicing costs from rising significantly. Estonia is adopting the euro in 2011. In Lithuania, the largest challenge currently seems to be the budget deficit, which will not fulfill the Maastricht criteria before 2012, enabling euro adoption in 2014 at the earliest. In addi-tion, inflation has earlier posed a problem for member-ship, and containing price pressures will remain a chal-lenge over the next couple of years as well, as the econ-omy continues to recover Annika Lindblad [email protected] + 358 9 1655 9940

GDP stable but at the bottom

00 01 02 03 04 05 06 07 08 0911

12

13

14

15

16

17

18

19

20

21

-14

-12

-10

-8

-6

-4

-2

0

2

4

6LTLbn

Growth

GDP% q/q

Level, rhs

Retail sales still contracting

02 03 04 05 06 07 08 09 10-40

-30

-20

-10

0

10

20

30

0

3

6

9

12

15

18

21% y/y

Retail sales, rhs

Unemployment rate

%

Exports to Russia have revived briskly

05 06 07 08 09 102000

2500

3000

3500

4000

4500

5000

5500

100

200

300

400

500

600

700

800

900LTL mio.Exports, from LithuaniaLTL mio.

Russia

Latvia

Total, rhs

Lithuania: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (LTLmn) 2008 2009 2010E 2011E 2012E

Private consumption 63,736 3.6 -16.8 -3.5 4.0 5.0Government consumption 17,638 7.9 -1.1 -0.3 0.3 0.8Fixed investment 27,919 -6.5 -39.0 -10.8 7.3 7.8Exports 53,371 12.2 -15.3 6.2 7.5 7.3Imports 66,537 10.5 -28.9 6.7 7.8 7.5GDP 2.8 -14.9 0.9 3.2 4.0Nominal GDP (LTLmn) 98,669 111,498 99,568 101,659 106,945 113,682

Unemployment rate, % 5.8 13.7 17.0 16.0 14.8Consumer prices, % y/y 11.1 4.2 1.2 2.0 2.8Current account, % of GDP -11.9 3.8 3.0 2.5 1.5General govt budget balance, % of GDP -3.2 -8.9 -7.8 -6.0 -3.0

Hungary


Considerable uncertainty The economic outlook has brightened, but it has also be-come more uncertain. There are uncertainties regarding the negotiations with the IMF to extend the existing agreement, which expires at the end of October. Finan-cial markets are uncertain as both the government debt and the share of FX loans are high. And economic policy is a worry too, as both fiscal and monetary policy are constrained by financial stability considerations until the market’s confidence improves. The recession ended in the second half of last year, nota-bly as demand from other countries returned. Exports should remain a significant driver of the economy at least until year-end. Beyond this point, demand from notably the Euro area should be more moderate in the wake of the announced fiscal tightening moves. We are starting to see some bright spots in domestic demand, though. Con-sumer confidence points to growth in private consump-tion in Q2 this year, which would be a first since early 2008. Wage growth has moreover accelerated, while em-ployment has almost stabilised. Changes to personal in-come taxes starting from next year are expected to give a fairly strong boost to consumers’ purchasing power. The weakening of the HUF against the CHF amid a still very high share of CHF-denominated loans may be a signifi-cant drag on domestic demand, though. All in all, we an-ticipate very modest growth this year and growth of around 3% next year. It will probably require structural reforms to keep growth much above 3% on a more per-manent basis, but it seems that we will have to wait until next year to see what the government intends to do. At this juncture both fiscal and monetary policy are con-strained by financial stability considerations. With the weakness of the HUF and the wider CDS spreads on Hungary, any chance of further monetary easing moves has evaporated. There is also a greater risk that the cen-tral bank could be forced to raise rates. We expect the Fi-desz government to meet the government budget deficit targets of 3.8% of GDP this year and 2.9% of GDP next year. Anders Svendsen [email protected] +45 3333 3951

Economic recovery

00 01 02 03 04 05 06 07 08 09-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0% y/yGDP% q/q annualised

Private consumption improving

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10-70

-60

-50

-40

-30

-20

-10

0

10

-3

-2

-1

0

1

2

3

4% q/q Index

Private consumption

Consumer confidence, rhs

Monetary policy rate and inflation

00 01 02 03 04 05 06 07 08 09 10 110123456789

1011121314

0123456789

1011121314 % %

Inflation

MNB's key rate

Core inflation

Hungary: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (HUFbn) 2008 2009 2010E 2011E 2012E

Private consumption 16,559 -0.6 -6.7 -1.4 2.9 2.5Government consumption 2,430 -0.3 1.0 3.0 -3.0 1.5Fixed investment 5,381 0.4 -6.5 -2.8 4.0 6.0Exports 20,444 5.6 -9.1 11.1 4.6 7.5Imports 20,044 5.7 -15.4 10.1 4.1 7.7GDP 0.4 -6.2 0.9 2.9 3.0Nominal GDP (HUFbn) 25,408 26,543 26,094 27,686 27,375 31,137

Unemployment rate, % 7.8 10.0 11.3 11.0 10.8Consumer prices, % y/y 6.0 4.2 4.9 3.2 3.0Current account, % of GDP -7.1 0.1 0.3 -0.1 0.5General government budget balance, % of GDP -3.8 -4.0 -3.8 -2.9 -3.0

Czech Republic


A good start for the new government The recovery has picked up speed during the first half of 2010 and the near-term outlook remains bright. However, exports are the primary driver of the strong momentum and hence the pace of the recovery going forward is likely to mirror that of the key export markets. Therefore, we expect more moderate growth during 2010. The domestic economy has started to recover as well, though. Private consumption seems to have gained mo-mentum in the first half of the year where especially re-tail sales have shown a significant improvement. The un-employment rate has started to fall after having peaked earlier this year. During next year, domestic demand is likely to gradually replace exports as the main source of growth. The May general elections have given birth to a majority ODS-TOP09-VV government, which took office in the middle of July. The new government looks strong and its new programme will be a major step forward for the economy if everything is carried out. This autumn’s ne-gotiations on the government budget for 2011 give grounds for high expectations, as the negotiations seem to have been going on without major disputes between the coalition partners. The 2011 budget sees the general government deficit at 4.6% of GDP, with a deficit target below 3% in 2013. The austerity measures include public sector wage cuts and cuts in welfare benefits. We also expect reforms of the pension and health care systems, though not necessarily this autumn. The new government does not have an EMU target, but we now expect mem-bership around 2016. Inflation is likely to increase gradually going forward and since the domestic economy is expected to improve, we would expect the Czech National Bank (CNB) to start discussing the timing of monetary stimulus withdrawal not too far into next year. However, the timing could well be determined by the scale of the slowdown in the rest of Europe, and the CNB’s latest inflation report implied un-changed interest rates until the second half of 2011 Anders Svendsen [email protected] +45 3333 3951

Ongoing recovery

01 02 03 04 05 06 07 08 09-6

-4

-2

0

2

4

6

8

-6

-4

-2

0

2

4

6

8% y/y

Euro area

GDP growth% y/y

Czech

Improved outlook for investment

00 01 02 03 04 05 06 07 08 09 1072

74

76

78

80

82

84

86

88

90

92

94

-12-10-8-6-4-202468

101214

% y/y %

Investment

Capacity utilisation, rhs

Private consumption has gained momentum

02 03 04 05 06 07 08 09 10-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

-2

-1

0

1

2

3

4

5

6

7% y/y % y/y

Retail sales, rhs

Private consumption

Czech Republic: Macroeconomic indicators (% annual real changes unless otherwise noted) 2007 (CZKbn) 2008 2009 2010E 2011E 2012E

Private consumption 1687 3.5 -0.1 1.5 2.4 3.0Government consumption 718 1.0 4.2 1.5 1.0 1.0Fixed investment 890 -1.5 -9.2 2.0 6.0 8.0Exports 2803 5.6 -11.4 10.9 8.5 7.5Imports 2655 4.3 -10.6 10.0 8.5 8.0GDP 2.3 -4.0 2.2 3.0 3.5Nominal GDP (CZKbn) 3535 3689 3628 3767 3969 4190


China


Economic activity is slowing as intended by the authorities • Economic growth has peaked

• Construction activity will be hurt but households OK

• Dampening measures to be reversed if needed

• CNY revaluation expected despite slow start

Authorities will intervene again if necessary Economic growth has peaked and the economy is clearly losing momentum. But even though the days of double-digit GDP growth will soon be over, growth will likely remain relatively solid in the 8-9% range in 2011 and 2012. The main reason behind the slowdown in growth is the fading boost from the government fiscal package from late 2008 and the gradual tightening of monetary policy, which has been pursued over the past 12 months. Thus, the slowdown is intended and policy-induced, and there-fore the macroeconomic outlook also to a large extent depends on the authorities’ desire to either tighten further or to scale back the tightening measures and come up with additional stimuli to the economy. We expect the authorities to feel comfortable with the current slowdown and with a future development in line with what we out-line in our forecast. Should growth decline more than what the authorities find appropriate, offsetting measures are likely to be taken, and the balance of risks to our growth forecast is thus skewed slightly to the upside. The housing boom has ended The until now very strong positive contribution to GDP growth from construction investment will decline during the forecast period even though the construction sector still does not seem to be hit by the various measures taken to curb speculation in the property market and dampen house price increases. In April, the required minimum down payment for purchasers of second homes was lifted from 40% to 50% and interest rates on loans to purchasers of second homes were raised. Also new rules on who can buy homes and how many they are obliged to buy were imposed. These measures almost immediately led to lower turnover in the housing market and could very well lead to plummeting property prices going for-

ward. Any severe negative effects on private consump-tion from the house prices drop should be avoided, though, as households’ leverage is low. Property devel-opers might experience some losses, and so might the banks financing the developers. But overall, this should be manageable as the majority of banks are still state-owned. All in all, we feel confident that the property bubble will likely deflate – but not burst. The negative effect on construction investment activity will to some extent be offset by the government’s re-cently announced programme to construct 5.8 million units of affordable (low-cost or low-rent) flats and houses. Household sector keeping up The authorities have a goal of changing the growth model to become more consumption driven and less driven by public investment and exports. The process toward this will continue with for instance further re-forms of the pension and health care systems, liberalisa-tions in the service sector and wage and employment supportive measures on the labour market. It will, how-ever, be a gradual process that will last for several dec-ades, and private consumption’s share of GDP is not ex-pected to increase meaningfully from the current 36% in the forecast period. That said, while overall investment is already slowing, the household sector seems to be holding up for now and should remain sound in the forecast period. Retail sales growth is still robust (though the retail sales figures are not adjusted for price increases and also include govern-ment and companies’ purchases) And the perhaps more reliable private consumption indicator, consumer confi-dence, is still increasing and the service PMI has not fol-lowed the manufacturing PMIs down during the summer, also indicating fairly strong household performance. Days of ballooning trade balance surpluses over The export sector remains important, and even though the global recovery seems more fragile than earlier and despite the expected gradual revaluation of the CNY, ex-ports will likely not reverse the past 18 months’ gains.

China: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (CNYbn) 2008 2009 2010E 2011E 2012E

Private consumption 9,360 8.6 10.4 9.4 9.5 10.0Government consumption 3,519 8.5 7.2 9.8 9.5 9.0Fixed investment 10,544 10.4 21.2 11.0 10.0 9.0Stockbuilding* 548 0.5 -0.2 -0.2 0.0 0.0Exports 10,210 13.9 -9.1 11.0 10.0 10.0Imports 7,872 15.2 -2.7 12.0 12.0 12.0GDP 9.6 9.1 9.8 8.6 8.9Nominal GDP (CNYbn) 26,309 30,686 33,535 37,928 42,328 47,365

Unemployment rate, % 4.2 4.3 4.2 4.0 4.1Consumer prices, % y/y 6.0 -0.7 3.3 3.0 3.0Current account, % of GDP 9.6 6.1 4.5 4.1 3.7General government budget balance, % of GDP -0.4 -2.1 -3.0 -2.2 -1.8


China

Neither will imports, primarily due to the high import content of exports. But when the pick-up in private con-sumption gradually sets in, it should further boost im-ports. The trade balance will likely remain in surplus, but apart from a seasonal uptrend in the second half of this year, the surplus should diminish during the forecast pe-riod. Inflationary pressure fading Inflation will hover around the government’s inflation target of 3%. The inflationary pressure appears to have eased somewhat as inflation primarily is elevated due to high food price increases that should be temporary. The reported strong wage increases seem to go hand in hand with strong productivity gains and should thus not be that inflationary. While the Chinese authorities have tightened monetary policy in many ways, including tighter lending legisla-tion and reserve requirement hikes, the main policy inter-est rate has not been hiked. In the current situation where the economy is losing momentum, we do not expect more monetary tightening. CNY revaluation has had a slow start China announced in mid-June that it would “enhance the exchange rate flexibility”, but so far this has led to less appreciation of the CNY than one could have expected. The CNY was gradually revalued by 0.7% versus the USD in the second half of June but kept almost flat throughout July. In the first half of August, the USD/CNY was pushed upwards again, reversing a big chunk of the June revaluation. The purpose of this latter move was probably to send the signal to financial mar-kets that the CNY from now on can move in both direc-tions and that there is no one-sided bet for investors in the currency market. We expect a gradual revaluation of the CNY versus the USD by a little above 10% in two years’ time. This re-quires a faster pace of revaluation than at present which for instance could be triggered by renewed pressure on China and threats of trade wars. Bjarke Roed-Frederiksen [email protected] +45 3333 5607

No more double-digit GDP growth

05 06 07 08 09 10 11 120

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

16% y/y % q/qGDP

y/y

q/q sa. annualised,(estimated), rhs

Construction investment has yet to slow

05 06 07 08 09 10-4

-2

0

2

4

6

8

10

12

14

0

5

10

15

20

25

30

35

40

45% y/y

Constructioninvestment,residential

% y/yHouse prices,nationwide, rhs

The future belongs to the household sector

04 05 06 07 08 09 1095

100

105

110

115

6

8

10

12

14

16

18

20

22

24

26

28% y/y

Retail sales, nominal, 3M mov. avg.

Consumer confidence,advanced 3M, rhs

Index

Inflationary pressures appear to have eased

06 07 08 09 10-4

0

4

8

12

16

20

24

28

-4

0

4

8

12

16

20

24

28

Total

% y/y

Non-food

Food

Inflation % y/y


India


Healthier - but not healthy - outlook for public finances Economic activity has rebounded and GDP growth is back at the potential rate. The domestically driven recov-ery is led by investment whereas private consumption has yet to pick up. But the scene is set for a revival also of household consumption in the coming years. The big rural population will gain from a presumably better har-vest this year than last year as the total rain during the monsoons is set to be higher and closer to the norm. Consequently, just as India was relatively unaffected by the global recession in 2008-09, the economy is this time around set to sustain sound growth despite the currently slowing pace of the global recovery. Public finances are supported by the removal of the huge petrol subsidies. And subsidies on diesel, kerosene and LPG (bottle gas) have been lowered and might be re-moved as well going forward. Government income has received a (temporary) boost from the auction of 3G mo-bile licenses that provided revenues of INR 1tr (1½% of GDP), three times more than budgeted. On the other hand, revenues from the privatisation of public compa-nies should undershoot the budget. The inflation rate will be lifted by at least 1% point by the energy price hikes and will remain elevated at close to 10%. The expected normalisation of agricultural pro-duction compared to last year’s bad harvest should, how-ever, ease the upward pressure from food price increases. The spike in global wheat prices should have a very lim-ited impact as India is self-sufficient and as exports of wheat are banned. Underlying all this, the general infla-tionary pressure persists amid strong economic growth. Monetary policy is already being tightened, and more is in the pipeline as long as inflation does not fall meaning-fully. The high inflation should result in the central bank allowing a further appreciation of the effective exchange rate. This, coupled with our expectation of a stronger USD versus the EUR long term, should mean that the INR could strengthen further versus the EUR, but not necessarily versus the USD. Bjarke Roed-Frederiksen [email protected] +45 3333 5607

Full speed again driven by investment

05 06 07 08 09 10-2

0

2

4

6

8

10

12

14

16

18

20

-2

0

2

4

6

8

10

12

14

16

18

20% y/y

Investment

% y/y

GDP

Private consumption

“Normal” monsoon to boost rural consumption

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-25

-20

-15

-10

-5

0

5

10

15

20

25

30

-25

-20

-15

-10

-5

0

5

10

15

20

25 Food production and monsoon rainfall

Long termweatherforecast

Deviation in rainfallfrom normal*

% points % y/y

*Deviation of cumulative rainfall from average (LPA) rainfall. Advanced 1 year

Foodgrains production, rhs

One-offs support public finances this year

Apr May Jun Jul Aug Sep Oct Nov Dec-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0INRtrn

2007-2008

2009-2010

Government fiscal balance(fiscal year, cumulative)

2006-2007

INRtrn

2008-2009

2010-2011

India: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (INRbn) 2008 2009 2010E 2011E 2012E

Private consumption 28,157 8.2 4.9 6.0 6.5 7.0Government consumption 5,153 16.7 10.5 8.0 7.0 7.0Fixed investment 16,305 4.0 7.2 12.0 13.5 15.0Exports 9,843 20.9 -9.8 13.0 15.0 15.0Imports 12,198 31.7 -7.4 10.0 12.0 12.0GDP 5.1 7.7 9.1 8.8 9.6Nominal GDP (INRbn) 49,479 55,744 61,183 72,257 82,250 93,439

Wholesale prices, % y/y 9.1 2.1 9.0 5.0 4.0Current account, % of GDP -2.2 -2.1 -2.2 -2.0 -2.3General government budget balance, % of GDP -6.0 -6.5 -5.5 -5.0 -4.5

Brazil


Overheating fears abating We have revised up our GDP growth forecast for 2010 by more than 1% point, primarily because of the very impressive growth at the beginning of the year. Eco-nomic activity is slowing as the monetary policy rate hikes sanctioned this year are kicking in. The strong do-mestically driven upswing was after all not sustainable as the economy expanded at a rate above its potential rate, and as such the slowdown is not entirely bad. Economic activity will continue to slow next year, back to around the potential growth rate at slightly below 5% before increasing somewhat again in 2012. Not least the expected increases in global oil and commodity prices should support the economy via its huge commodity ex-ports. There is, however, a risk that growth slows more dramatically. One trigger of this could be if global com-modity prices start falling as a consequence of a more abrupt slowdown in global demand than we forecast. Incumbent President Lula’s preferred candidate for the 3 October presidential election, Dilma Rousseff, has taken a comfortable lead in the polls ahead of the opposition’s candidate, José Serra. There should be no major differ-ences between the two candidates seen from a market perspective, but Rousseff has advocated in favour of a lower central bank inflation target. A victory to Rousseff should also ensure continued strong public support for growth in the short term. Serra, on the other hand, is seen as more market friendly in the longer term due to his stronger focus on fiscal discipline. The fears of the economy overheating are expected to abate and capacity utilisation and unemployment will likely stabilise. Thus, the central bank is soon done hik-ing interest rates. The BRL is vulnerable to swings in global risk appetite and we could see some weakening in the remainder of this year amid worries about the strength of the global recovery. From next year on the BRL should strengthen again supported by the still rela-tively strong growth and high interest rates. Bjarke Roed-Frederiksen [email protected] +45 3333 5607

Growth slowing from very high level

03 04 05 06 07 08 09 10-18

-14

-10

-6

-2

2

6

10

14

18

22

-3-2-10123456789

10% y/y % y/y

GDP

Industrial production, rhs

Fears of the economy overheating should fade

05 06 07 08 09 1077

78

79

80

81

82

83

846

7

8

9

10

11

% %

Capacity utilisation, sa, rhs

Unemployment rate, sareversed

Inflation threat subsiding – only few hikes left

05 06 07 08 09 100

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22% y/y

SELIC policy rate, rhs

%

Inflation targets

IPCA inflation

Brazil: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (BRLbn) 2008 2009 2010E 2011E 2012E

Private consumption 1,594.1 7.0 4.1 7.9 4.6 4.9Government consumption 539.1 1.6 3.7 3.3 3.5 3.3Gross fixed capital formation 464.1 13.3 -10.0 20.0 9.0 11.0Stockbuilding* 23.6 0.5 -1.5 0.0 0.0 0.0Exports 355.7 -0.8 -10.3 18.2 11.2 10.7Imports 315.3 18.0 -11.5 30.1 16.3 14.9GDP 5.1 -0.2 7.6 4.6 5.1Nominal GDP (BRLbn) 2,661.3 3,004.9 3,242.6 3,700.7 4,109.9 4,581.5



Turkey


Amazing recovery The recovery has been quite amazing. Led by manufac-turing production, the economy expanded at a double-digit annual rate at the beginning of the year, and eco-nomic activity returned almost to the pre-Lehman level. For the whole of 2010, we expect growth to be above 6%. Looking ahead, export growth will slow because of slowing foreign demand beginning late this year and con-tinuing into 2011. However, domestic demand is also re-covering strongly and should support growth of around 5% in 2011. The unemployment rate has fallen half way back to the lows from early 2008 as employment has in-creased every quarter since the middle of 2009. Wages have also increased during this period although inflation increased more at the beginning of the year. Still, the la-bour market will offer strong support for private con-sumption in the remainder of the year. Credits to house-holds showed strong growth going into Q3 with a 25% annual increase in July, and consumer confidence is back a pre-Lehman levels. Political risks are significant with two key events ahead. First, parliament will vote on the government’s proposed constitutional amendments on 12 September, which, ac-cording to the AKP, are designed to strengthen democ-racy and bring the constitution closer to EU standards. At present, it is not clear whether the amendments will be passed. Second, general elections are to be held by July next year. Polls currently put the Republican Peoples Party (CHP) close to the AKP, increasing the risk of a looser fiscal policy ahead of the election. Inflation risks have diminished, as inflation fell from double-digits earlier in the year to around 7.5% currently and households’ inflation expectations embarked on a moderate downtrend. The central bank’s (CBRT) target for end-year inflation of 6.5% is likely to be reached, whereas we still see risks related to next year’s target of 5.5% by year-end. The CBRT turned more dovish during the summer and we have postponed the first interest rate hike until next year and have reduced the total rate hike in 2011 to 150 bp. Anders Svendsen [email protected] +45 3333 3951

Recovering

00 01 02 03 04 05 06 07 08 0950

75

100

125

150

175

200

225

50

75

100

125

150

175

200

225Indeks 2000=100

Indeks 2000=100

Export

GDP

Investment

Private consumption

Slower momentum ahead

00 01 02 03 04 05 06 07 08 09 10-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

-15

-10

-5

0

5

10

15

20% y/y % 6M/6M ar

GDP

OECD's leading indicator,advanced 6M, rhs

Inflation risks have diminished

04 05 06 07 08 09 100.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0

27.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0

27.5 % %

Monetary policy rate

Inflation

Household's inflation expectations 12-months ahead

Turkey: Macroeconomic indicators (% annual real changes unless otherwise noted)2007 (TRYbn) 2008 2009 2010E 2011E 2012E

Private consumption 601 -0.3 -2.3 6.0 4.2 4.9Government consumption 108 1.7 7.8 2.5 2.0 1.0Fixed investment 181 -6.2 -19.2 7.9 6.3 6.0Exports 188 2.7 -5.4 9.8 6.7 7.2Imports 232 -4.1 -14.4 10.7 6.5 8.0GDP 0.7 -4.7 6.2 4.8 5.0Nominal GDP (TRYbn) 843 951 954 1,091 1,211 1,332

Unemployment rate, % 11.0 14.0 14.2 12.5 12.0Consumer prices, % y/y 10.4 6.3 8.2 6.2 5.0Current account, % of GDP -5.8 -2.3 -4.5 -5.0 -6.0Public sector balance, % of GNP -1.8 -5.5 -5.2 -5.5 -5.0

Oil

Risk appetite back in the limelight Oil prices are expected to move only moderately higher in the first part of the forecast period as the slowing mo-mentum in the world economy will influence oil demand growth and thereby the pace at which the oil sup-ply/demand balance tightens. In the second part of the forecast period world economic growth is expected to re-gain momentum. The increase in the underlying oil price is then expected to accelerate. In the short term, there is a risk that prices may fall below the underlying trend as fears of a new recession in the US may intensify and weigh on risk appetite. In the medium term, oil prices may surprise on the upside if the rebound in the world economy and the demand for oil is stronger and the in-crease is more rapid than expected. Non-OPEC supply has so far in 2010 surprised on the positive side. Russia managed to ramp up production in 2009, but we expect the expansion potential to be limited if high taxes are not removed to encourage investment in new oil fields. OPEC’s spare capacity is expected to be at comfortable levels in the first part of the forecast period as new capacity will come on stream predominantly in Saudi-Arabia. Iraq, Venezuela and Nigeria have the po-tential to expand production, but political unrest in Nige-ria and lacking investment in Venezuela limit the short-term prospective. The development of the Iraqi oil indus-try will be essential to meet future oil demand. The long-term theoretical potential is substantial, but in the short term political instability and lack of infrastructure ham-per project developments. OPEC’s spare capacity is ex-pected to start dwindling again in late 2011 in line with the uptick in world economic growth. Timely and ade-quate investment in new capacity is vital to meet the fu-ture need for energy. We do not expect any significant and lasting limitations on deep-water drilling as a conse-quence of the accident in the Gulf of Mexico, but stricter environmental and safety standards may extend project lead times and increase development costs. Oil demand is sensitive to global economic growth and industrial activity. The recovery of oil demand is ex-pected to loose momentum in the short term as economic growth in key oil consuming countries is expected to slow. In China monetary tightening and fading effects of the huge fiscal stimulus packages are expected to moder-ate growth in oil demand in the short term, while in the US the housing market and high unemployment will weigh on end-user demand. Global oil demand growth is expected to accelerate again in 2011 in line with the pick-up in world economic activity and international trade. Thina M. Saltvedt [email protected] +47 2248 7993

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

2008 96.3 122.8 117.2 57.5 98.4

2009 45.7 59.9 68.9 75.5 62.5

2010E 77.4 79.3 77.0 79.0 78.22011E 81.0 85.0 87.0 90.0 85.82012E 95.0 100.0 105.0 110.0 102.5 Oil price scenarios – baseline, high and low price

02 03 04 05 06 07 08 09 10 11 120

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Forecast

Baseline scenario

High price

USD per barrel

Low price

USD per barrel

Brent oil price and the OVX index

Dec09 10

Feb Mar Apr May Jun Jul Aug

25

28

31

34

37

40

43

46

4966

69

72

75

78

81

84

87

90 Index

Brent crude 1M

OVX volatility, reversed, rhs.

USD per barrel

Brent oil prices in USD and EUR

05 06 07 08 09 1020

40

60

80

100

120

140

160

20

40

60

80

100

120

140

160EUR per barrelUSD per barrel

Brent Crude, rhs

Brent Crude


Metals and pulp

Only temporary price dips Industrial metal prices dropped in early summer after the strong spring rally. The key factor stopping the rally was weakened risk appetite. Furthermore, signs of slowing growth in China and the US and obviously the government debt crisis in the Euro area gnawed at the market’s confidence. In late summer, metal prices started to rise again after the situation on the debt market calmed down. Nevertheless, fears of a global double dip have persisted, keeping the market unsettled. Half of base metal demand stems from the emerging markets. Hence, base metal demand growth is based almost entirely on them. The structure of global growth will continue to favour base metal demand. However, the global growth sprint seems to have peaked now. Despite this, we expect the global economy to grow at a decent speed. The pace will slow down in the emerging markets, too, but it will still be brisk. Industrial metal demand will grow fairly strongly across the board. The global recovery also started to tighten the metal market in the winter, and inventories on the whole started to shrink. Supply has, however, already reacted to the price rise and the recovery in demand. Consequently, the supply of most metals will be able to meet demand in the next couple of years. The most obvious exception is copper, as the supply of this type of metal will most likely increase more slowly than for other metals, keeping the market situation for copper tighter. Despite the moderate market balance, base metal prices are unlikely to fall permanently. In the slightly longer term, the market will probably face supply shortages again, sustaining high price expectations. When prices drop, investor interest will rebound quickly. Based on past experience, China will also start to fill its inventories when the price level starts to look attractive. In the next six months in particular there may still be strong fluctuations in the market, as the market is digesting data on the pace of growth, focusing on China and the US. We estimate that economic growth will regain momentum already during 2011, also boosting the metal market. Over the next couple of years, prices are therefore likely to rise. Reijo Heiskanen [email protected] +359 9 165 59942

Markets will stay nervous

03 04 05 06 07 08 09 101000

1500

2000

2500

3000

3500

4000

4500

5000

1000

1500

2000

2500

3000

3500

4000

4500

5000Index

Metal prices (LME)

Index

Metal prices show the way

99 00 01 02 03 04 05 06 07 08 09 10-15

-12

-9

-6

-3

0

3

6

9

12

15

-125

-100

-75

-50

-25

0

25

50

75

100

125 %, y/y

Global industrial production, rhs

Metal prices (LME)

%, y/y

Copper supply to remain tight

04 05 06 07 08 09 1050

100

150

200

250

300

350

400

50

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Pulp price at a record high

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

Johnny Bo Jakobsen, Chief Analyst [email protected], tel. +45 3333 6178 Anders Matzen, Chief Analyst [email protected], tel. +45 3333 3318

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

Troels Theill Eriksen, Senior Analyst [email protected], tel +45 3333 2448

Jan Størup Nielsen, Senior Analyst [email protected], tel +45 3333 5115

Bjarke Roed-Frederiksen, Analyst [email protected], tel. +45 3333 5607

Ianna G. Yordanova, Assistant Analyst [email protected], tel. +45 3333 3901

Christine A. Hansen, Assistant Analyst [email protected], tel. +45 3333 3901

Finland: Martti Nyberg, Chief Economist Finland [email protected], tel. +358 9 1655 9941

Reijo Heiskanen, Chief Analyst [email protected], tel. +358 9 1655 9942

Annika Lindblad, Analyst [email protected], tel. +358 9 1655 9940

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

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

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

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

Sweden: Annika Winsth, Chief Economist Sweden [email protected], tel. +46 8 614 8608

Torbjörn Isaksson, Chief Analyst [email protected], tel. +46 8 614 8859

Bengt Rostöm, Senior Analyst [email protected], tel. +46 8 614 8378

Rickard Hellman, Junior Analyst [email protected] tel. +46 8 6148726

Economic Research Nordea:


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Economy & Finance

Ekonomiska Utsikter, Nordea, September 2010