SEB Nordic Outlook report

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

Continued strong growth in Sweden but a greater risk of overheating exists

  • GDP will grow by 3.2 per cent this year. Growth will remain above the long-term trend in 2018-2019, when GDP will increase by 2.8 and 2.4 per cent.
  • Both fiscal and monetary policy will remain expansionary – strong growth and slightly higher inflation will help persuade the Riksbank to begin cautious key rate hikes in April 2018. We forecast two hikes in 2018 and three in 2019 to 0.75 per cent.
  • We believe the EUR/SEK exchange rate will be around 9.30 at the end of 2017. It will reach 9.00 in 2018 but then climb to 9.20 by the end of 2019 as the euro strengthens on the global scene.

Strong EU indicators confirmed by GDP growth surge

  • European GDP to grow to 2.1 per cent in 2017 and 2.2 per cent in 2018 and above 2.0 per cent trend in 2019.
  • We believe in September the ECB will announce a reduction in bond purchases to EUR 40 billion per month starting in January 2018, while extending the programme by six months.
  • During 2019, we expect the ECB to hike its refi rate twice to 0.50 per cent – this will be the first rate risesince 2011.


Major challenges for the UK in the shadow of EU withdrawal

  • A continued weak pound and strong global economic conditions should partly offset negative effects on British expansion brought about by the Brexit decision. Growth will fall to 1.5 per cent in 2017, while GDP will only climb by 1.0 per cent in 2018 and 1.2 per cent in 2019.
  • The Bank of England will leave its key interest rate unchanged until mid-2019.
  • The pound will remain weak for a while. We forecast EUR/GBP to be 0.89 at the end of 2018 and 0.85 at the end of 2019


Decent growth in the US economy despite political turbulence

  • The continued political turbulence surrounding the Trump administration is not significantly affecting the economy. The US economy is resilient, but no tax cuts will be enacted in 2017.
  • The Fed will continue its monetary policy normalisation, with one more key interest rate hike in 2017. We expect three rate hikes in 2018.

Robert Bergqvist, Chief Economist at SEB, says: “The global economy has continued to perform favourably in recent months. The strength of sentiment indicators has increasingly been confirmed by hard data, especially in the euro zone, China and Japan. The Swedish economy is also impressive, with a strong GDP rebound in the second quarter of 2017. In the United States, however, GDP seems unwilling to take off in earnest despite continuing labour market improvement. Falling indicators and lowered expectations of fiscal stimulus measures also suggest modest growth ahead. The British economy faces uncertainty ahead of crucial Brexit negotiations, reflected so far in an inflation-driven squeeze on incomes due to a weakening pound.

“A lack of clarity about the United Kingdom’s future relationship with the European Union and the Trump administration’s changeability represent a clear heightening of political uncertainty, especially in foreign policy. The quarrel with North Korea has been in the headlines recently, but if President Donald Trump’s aggressive foreign policy rhetoric continues, new crises may flare up quickly.

“In the euro zone, the political worries of early 2017 have been replaced by hopes that President Emmanuel Macron will deliver structural reforms in France. We have also seen greater hopes that euro zone integration plans might be revived post-Brexit, now that France has an EU-friendly, federalist-oriented president. This generally implies that both political opportunities and risks are greater than usual, but experience shows that their short and medium-term economic impact is not usual so large.”