IN SEB’S RECENT Nordic Outlook report, prospects look darker and gloomier than before. US dispersion effects have reached Europe and we are facing a global deceleration. Commercial banks have been forced to write-downs of more than USD 50 billion - expecting further write-downs. Tougher credit grants, falling house prices and a weaker job market will challenge households and dampen the strong purchasing power.

 

THE SWEDISH ECONOMY will continue to cool down and this year’s GNP growth will reach 1.4 percent, dropping to 0.9 percent in 2009. According to the SEB prognosis, bottom will be reached in 2009. In 2010 growth will increase to 1.8 percent in Sweden, 2.0 percent in the US and 1.3 percent in the Euro zone.

 

INCREASED FOOD and energy prices in the past 6 months have fuelled inflation and driven KPI inflation in the OECD region to an all time high since the 80’s. Sustained economic expansion in emerging countries has kept raw material prices at high levels. Harvest set-backs and an increased

use of grains in ethanol production have inflated food prices. Concerns for a galloping inflation have made ECB and the Nordic central banks continue to increase interest rates. However, according to SEB, the inflation trend is changing and by the end of 2009, KPI inflation will be at 2 percent in the US as well as in the Euro zone.

- Inflation will certainly remain at a high level for some time, but we reckon that there will be a distinct inflation decrease in the next year. Our inflation forecast is based on a mild decrease in raw material prices. We are looking at crude oil prices at USD 100 a barrel by the end of 2009, says Robert Bergqvist, SEB Chief Economist.

 

DROPPING ENERGY PRICES, deceleration in employment, weaker growth and slower inflation will open doors to an expansive monetary policy with decreased interest rates. SEB figures that the Central Bank will start decreasing interest rates next February. By the end of 2009, the repo rate will reach 3.50 percent. SEB expects interest rates decreases in 2010 as well. Whether the Central Bank will increase or decrease the interest rate in September, Robert Bergqvist and Håkan Frisén are both reticent.

- It is extremely hard to predict if the Central Bank will increase or decrease the interest rate in September. It depends on how they evaluate the recent drop in oil prices and how strong the concern is for a serious inflation, says Robert Bergqvist.

However, they are both convinced that the Central Bank and the ECB will decrease interest rates in 2009.

 

IN THE NEXT FEW YEARS, emerging markets will be affected in different ways by the global credit crisis. Expansion in fast growing economies will continue to be strong and these countries will support future global growth. Due to substantial salary increases and higher food and energy prices, countries like India and Indonesia have high inflation that has resulted in interest rate increases in recent months.

- It is hard to pick winners and losers but China, for example, is a country that will generate quite a strong growth of 8 percent in the future, says Robert Bergqvist. However, there are certain inflation risks in China but, so far, they are mainly linked to food prices.

 

Emelie Ring