Nordic Outlook - Danske Analyse

Transcription

Investment Research
Nordic Outlook
December 2013
Economic and financial trends
Denmark: Emerging from the crisis
- the crisis is loosening its grip on Denmark and we expect to see the economy grow in the
coming years
Sweden: Final call
- we remain optimistic, but there is significant uncertainty
Norway: Growth pause
- reduced risk of economy overheating
Finland: Dull winter for consumers
- Finnish growth depends on the European recovery
www.danskeresearch.com
Nordic Outlook
Markets Research
Editorial deadline19 December 2013
Investment Research
Editor-in-Chief:
Steen Bocian
Chief Economist
+ 45 45 12 85 31
[email protected]
Las Olsen
Denmark
+45 45 12 85 36
[email protected]
Roger Josefsson
Sweden
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[email protected]
Frank Jullum
Norway
+47 85 40 65 40
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Pasi Petteri Kuoppamäki
Finland
+358(0)105467715
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Thomas Thøgersen Grønkjær
Head of Markets Research
+45 45 12 85 02
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Rolf Kofoed
Head of Sales Copenhagen
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Henrik Voetmann Mikkelsen
Global Head of Equities
+45 45 14 73 05
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Anders Damgaard
Derivatives Sales and
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Macro economics:
Sales contacts:
Structuring
Jesper Ronald Petersen
FX Sales and Structuring
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[email protected]
Bo Wetterstein
Debt Capital Markets
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Lars Worsøe Andersen
Fixed Income
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Torben Frederiksen
Head of Sales and Sales
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Trading, US
This publication can be viewed at www.danskebank.com/danskeresearch
Statistical sources: Datastream, Reuters EcoWin, OECD, IMF, National Institute of Social and Economic Research,
Statistics Denmark and other national statistical institutes as well as proprietary calculations.
Important disclosures and certifications are contained from page 36 of this report.
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December 2013
Nordic Outlook
Contents
Denmark
Sweden
Norway
Finland
Global overview
Emerging from the crisis
4
Forecast at a glance
10
Final call
11
19
Growth pause
20
25
Dull winter for consumers
26
32
Recovery gains traction
33
Economic forecast
35
Financial forecast
36
The Nordic Outlook is a quarterly publication that presents Danske Bank’s view on the economic outlook for
the Nordic countries. The quarterly publication the Global Scenarios sets out our global economic outlook.
Updated economic forecasts for the following countries and regions are available at
www.danskebank.com/danskeresearch:
Denmark
Sweden
Norway
Finland
US
UK
Eurozone
Switzerland
Central and Eastern Europe
Asia
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December 2013
Nordic Outlook
Denmark
Emerging from the crisis
The Danish economy has experienced economic growth and rising
employment in recent quarters.
Changes relative to previous forecast
We expect the recovery to continue in the coming years, with growth
becoming more broadly based and thus less vulnerable. Denmark is
emerging from the crisis.
% y/y
2013
2014
2013
2014
GDP
0.4
1.5
0.3
1.5
Private consumption
0.5
0.9
0.3
1.1
Public consumption
0.2
1.1
-0.1
0.4
Gross fixed investment
1.5
-0.8
0.7
1.2
Exports
0.6
3.1
0.7
2.9
Imports
2.0
2.0
1.7
1.8
Gross unemployment (thousands)153
148
153
148
Inflation
0.8
1.3
0.8
1.6
Government balance, % of GDP
-0.8
-1.5
-2.2
-1.6
Current account, % of GDP
6.9
7.1
5.1
5.2
The government deficit has shrunk much more than previously
estimated. However, the reduced deficit is due to temporary factors,
so there is neither scope nor reason to initiate further expansionary
measures.
Denmark has a record large current account surplus at present – in
part due to very substantial wage and wealth income from abroad.
This extraordinary income is not included in the GDP figure, which is
thus underestimating the strength of the economy.
Current forecast
Previous forecast
Source: Statistics Denmark, Danske Bank Markets
Inflation will probably come in at a historical low this year. However,
unusually low inflation should prove a temporary phenomenon.
The Danish economy is slowly emerging from the economic crisis. The
economy grew in both Q2 and Q3 13 and there is much to indicate that the
economy continued to expand in the final quarter of this year. Thus the
outlook is for a positive overall growth figure for 2013, and with this trend
looking set to continue in the coming years, there are grounds for cautious
optimism: the crisis is beginning to loosen its grip on the Danish economy.
Decent growth set to continue in coming years
Growth should also become more broadly based going forward. Private
consumption, which has been struggling, should pick up, while exports are
already increasing – and given the outlook for growth in Denmark’s export
markets, we see further performance here.
Business investment has been sluggish for a long time but as the economy
begins to pick up again there is reason to expect investment activity to
recover, in part due to the still low level of interest rates. We estimate
economic policy to be basically neutral in the coming years – public
consumption will give a small boost to economic activity, but as the level of
government investment is already unusually high, this will probably decline
going forward. However, as adjustments to government investment tend to
happen slowly, there is unlikely to be much of a decline in 2014.
The improvement seen in the economy over the past year has already been
felt in the labour market. According to the national accounts figures,
around 25,000 new jobs have been created. With the prospect of the
economy continuing to grow in the coming quarters, we expect the
positive trends seen in the labour market to continue.
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December 2013
Nordic Outlook
Comparing our latest forecast with the one from September, we have become
a little more optimistic on the Danish economy – though the changes are
marginal. Recent quarters have seen decent levels of growth – and while
things are not going particularly well in the Danish economy, they are,
nevertheless, going a little better than feared. However, not all aspects of the
economy are improving. For example, we now expect slightly lower
consumption growth next year compared with our previous forecast. We also
expect investment growth to be somewhat lower. That said, our lowered
expectations for investment growth in 2014 are largely due to a technicality.
In contrast, exports look set to perform better than previously anticipated –
and are an important reason why we have become a little more optimistic on
overall growth in the coming years.
Consumer confidence points to growing
consumption
Source: Statistics Denmark
Consumption disappoints again
The long-awaited pick-up in consumption once again failed to materialise in
Q3 13 – in fact consumption fell by 0.1%. Hence, consumption has basically
not moved since Q4 12 despite higher real wages, tax cuts, increased
employment, lower interest rates, higher house prices and markedly higher
consumer confidence than a year ago. The indicators even suggest that
consumption fell a little further in October, though Dankort (Danish debit
card) purchases suggest relatively strong growth in November. All the signs
currently indicate that private consumption grew by perhaps 0.3% here in Q4,
though this is based on the figures for a single month, which is a fragile basis
for drawing a conclusion. If you look only at our forecast table, it may appear
we have become more optimistic on consumption in 2013, as we have
revised our growth estimate up from 0.3% to 0.5%. However, this has been
prompted solely by Statistics Denmark revising the 2012 consumption
figures sharply down. In reality, we have actually become more negative.
That said, the revision of the 2012 figures and the flat development over the
first three quarters of 2013 provides more room for a consumption recovery
in the time ahead. The consumption quota – consumption as a share of
household disposable income – was already well below its historical average
in 2012 and has fallen further in 2013, according to our estimates. We expect
this to reverse in the coming years. While it is difficult to see why consumers
should actually be more focused on saving, developments so far have
reinforced our expectation that any increase in consumption will happen
slowly. Savings and investment gains since the crisis struck have almost
restored net household wealth. However, most of that increase has been in
pension savings, while wealth associated with housing has fallen. The aspect
of wealth that really means something for consumption – i.e. wealth
excluding pension savings but including housing – has thus basically not
increased.
All in all, we reckon that consumption will grow by around 0.3% per quarter
in 2014 and slightly more in 2015 as the recovery takes a firmer hold.
However, the uncertainty surrounding this forecast is substantial. Growth
must first and foremost be driven by a change in consumer behaviour towards
a higher consumption quota. However, as developments in 2013 have shown,
that is not a change that can necessarily be predicted by looking at
developments in other variables.
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December 2013
Consumer spending still surprising on the
downside
In reality, household wealth has not been restored
Source: Statistics Denmark, Danish central bank, Realkredit
Danmark, Danske Bank Markets
Nordic Outlook
Inflation bottoming out
Inflation in 2013 looks set to come in at 0.8%, which is the lowest increase in
prices since 1953. The main explanation for such modest inflation is low
wage pressures, as unemployment remains relatively high and there is still
spare capacity in the economy. That said, inflation was pulled extraordinarily
lower this year by the easing of various taxes and duties, especially the
scrapping of the so-called fat tax. Energy prices have also fallen somewhat,
while the cost of insurance in the inflation index has tumbled. The firmer
effective exchange rate of the Danish krone has also pulled inflation lower.
However, as we do not expect any of these factors to recur in 2014 or 2015,
inflation should be somewhat higher going forward, if still low. Wage growth
in the private sector remained low throughout 2013 at 0.2% per quarter on
average over the first three quarters. Much of the private sector will be
negotiating new collective wage agreements in 2014. While we expect that
wage growth will accelerate slightly, it will nevertheless just about keep pace
with inflation.
More normal inflation on the way
Interest rates remain low
Interest rates have fallen somewhat in recent months. The US central bank’s
decision to postpone the tapering of its asset buyback programme and the
European Central Bank’s rate cut in November have been the main drivers
behind the decline. Very low inflation in the eurozone means that the
European Central Bank (ECB) may be forced to cut its policy rates early next
year and introduce a negative interest rate on its deposit facility, as Denmark
has had since July last year. Lower ECB deposit rates would presumably
cause Danmarks Nationalbank (Danish central bank) to make a similar cut in
its certificate of deposit rate, which in turn would cause market rates in
Denmark to fall. Looking further into 2014, Danmarks Nationalbank may be
forced to raise interest rates unilaterally because of the fixed exchange rate
policy. However, the changes will be a minimal 0.1% in both cases and not
noticeably affect the Danish economy, which will again benefit from very
low interest rates next year. The rate spread to the eurozone will likely
continue to normalise – i.e. increase – in 2015, but rates will remain low, as
the ECB has indicated it expects to keep rates low for a very long time.
Housing market in slow turnaround
House prices rose quite decently around the end of 2012 and early 2013
across the country. However, prices essentially stalled during the rest of
2013. This may be related to the increase in market rates during the period,
though rates have subsequently fallen again. Hence, the major refinancing
auctions for ARM loans towards the end of 2013 resulted in historically low
mortgage rates despite higher costs in the form of spread charges. Thus there
should be some scope for house price growth to pick up once again in 2014
and 2015, though we still hold the view that price increases will be relatively
modest. There is still a large backlog of properties for sale, and the general
consumer appetite for buying is only expected to rise slowly. However, there
is a considerable regional spread – the Greater Copenhagen area, for
example, has seen significant price growth, with prices on owner-occupier
apartments rising sharply.
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December 2013
Cost of borrowing still low
House prices taking a breather
Nordic Outlook
Labour market recovering
The economic crisis has exacted a heavy toll on the labour market – though
the acute phase of the labour market crisis was actually a couple of years ago.
From the start of 2010 until Q1 13, employment was in fact stable, while the
past two quarters have seen a surprising upsurge in employment, with 25,000
new jobs created. Despite the growth in new jobs, the level of employment
remains relatively low, as there are still 170,000 fewer jobs now compared
with prior to the crisis. Employment growth over the past year has mainly
been rooted in the public sector, where employment has risen by 10,000. This
comes in the wake of the completed consolidation of the public sector
following the years of excessive government consumption. Private sector
employment is, however, growing too.
It is important to emphasise that the labour market was overheated prior to
the crisis erupting, so we should not particularly hope that all the jobs lost are
regained within a short space of time – that would simply result in labour
shortages and a further risk of overheating. Gross unemployment currently
stands at 151,300. At its lowest point the figure was around 65,000.
Unemployment not rising by quite as much as employment has fallen during
the crisis is due to a strong cyclical decline in the labour force.
Unemployment falling
Looking ahead, there is scope for employment to grow either via lower
unemployment or an expanding labour force – though as the labour force
usually reacts with some delay, we should expect that higher employment
will initially be driven by a fall in unemployment. Given the marginally
accelerating pace of growth, we expect employment to continue to rise
slowly in the coming quarters. Our slight optimism on the labour market is
underpinned by, among other things, the number of new online job ads being
at its highest since 2008. Moreover, the recent hurricanes, Allan and Bodil,
will also help push employment higher for a while in the coming months.
How great the stimulative effect of this will ultimately be is uncertain, but in
particular the clear-up operation after Bodil looks likely to have an impact on
the economy.
Exports in the driving seat
Exports have ridden the economic crisis remarkably well. Whereas private
consumption remains some way below pre-crisis levels, exports have largely
regained all lost ground. However, while exports have done better than one
might have feared, there have still been a few challenges. Exporters faced a
particularly difficult time in 2012 and the start of 2013, for example, but
fortunately trade began to pick up again in the spring this year. This growth
has been driven by the economic recovery in Europe and as we expect that
the European economy will continue to grow in the coming years, there is
reason to expect a further pick-up in exports. Exports have also received a
helping hand from the partial restoration of Denmark’s wage competitiveness
in recent years. In the years leading up to the crisis, wages rose significantly
more in Denmark than in the countries it trades with – and this, combined
with lagging Danish productivity growth over the same period, meant that
costs in Denmark rose significantly more than among its neighbours. While
Denmark has not regained all its lost competitiveness, it is on the right track,
and the recovery here will help support export growth further.
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December 2013
Exports growing
Nordic Outlook
Imports have risen by less than exports in recent years, which is also
reflected in the very large trade and current account surpluses. Q3 13 actually
saw imports surge but as this growth spurt came on the back of an
extraordinarily large import of ships, imports can be expected to fall again as
early as Q4. Imports not rising more despite Denmark’s blunted
competitiveness can be ascribed to domestic growth, which remains very
weak – both consumption and investment are still in the grip of the crisis, and
as long as that continues, imports will not rise further.
Current account surplus continues to set new
records
Relatively strong exports and weak imports have helped ensure a significant
surplus on the trade balance. Over the past year, this surplus has amounted to
DKK102bn – the highest level since 2011.
In addition to its impressive trade surplus, Denmark has also benefited from
significant wage income from abroad and income from assets abroad (net
income receipts). The overall result has been a record high current account
surplus, which over the past year has amounted to DKK128bn. The
contribution from wage income from abroad and net income receipts was
around DKK62bn, while just five years ago this contribution was only
DKK20bn. In other words, the contribution from Denmark’s assets held
abroad has grown markedly.
The large surplus from wage income from abroad and net income receipts
means Denmark’s national income is significantly higher than the value of its
production. Gross national income (GNI) is in fact DKK67bn higher than
gross national product (GDP). In other words, Denmark is actually wealthier
than the GDP figure seems to suggest. But not only is Denmark wealthier,
Denmark’s wealth has grown somewhat more in GNI terms compared with
GDP. In fact, GNI is back at pre-crisis levels, and if we look solely at this
year so far, growth in GNI is 2%, while growth in GDP is just 0.1%.
Richer than GDP seems to suggest
Investment crisis has eased significantly
One of the key consequences of the economic crisis has been a significant
slowdown in corporate investment activity. When looking at business
investment, it can be useful to split it into two – namely machinery
investment and construction investment. Both machinery and construction
investment fell sharply at the start of the crisis – but machinery investment
has in fact grown quite decently since the crisis peaked. In fact, there is no
longer any sign of the crisis when we use this parameter. Construction and
civil engineering investment has, on the other hand, remained at the very low
levels seen in the wake of the financial and economic crises. That
construction investment is at a low level is, however, not that surprising,
given the level of over-investment before the crisis struck. Looking ahead,
there is nevertheless reason to expect a slight pick-up in, for example,
housing investment, as the general improvement in the housing market will
likely spill over into home construction.
Investment crisis has eased significantly
Machinery investment rose unusually strongly in Q3 13. However, this
growth was due to major one-off investments in shipping, so there is reason
to expect a certain slowdown in investment in Q4 due to this factor alone.
That said, machinery investment will be supported in Q4 by the so-called
investment window closing at the end of the year. The investment window
allows extraordinary depreciation for tax purposes of investments made
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December 2013
Nordic Outlook
before the end of the year. Presumably this will prompt investments
scheduled for early 2014 to be brought forward to late 2013. This means that
the expected decline in investment in Q4 will hardly be pronounced – but on
the other hand, investment activity will fall in early 2014.
Investment is generally very import-heavy, so the shipping investments in Q3
did not cause Danish production to increase, as imports rose by an equivalent
amount. The short-term consequences for growth of increased machinery
investment activity are limited but such investment developments do play an
important role for long-term growth potential, as well-functioning capital
contributes to determining the productivity of the workforce.
Government finances under control
The Danish economy has been challenged in recent years by an imprecise
steering of economic policy. Prior to the crisis, public consumption grew
considerably more than planned and as the overspending continued into the
early phases of the crisis, there was a subsequent need to tighten, which dealt
an already weakened economy a further blow. The lack of control has been
unfortunate, as it has contributed to reinforcing both upswings and
slowdowns. Tighter controls have been introduced in recent years to rein in
public spending, especially spending by the municipalities and regions.
Tighter controls have been necessary, but an unintended side effect is that
public consumption has increased by less than planned in recent years. That
said, the consolidation of the public sector is now complete and public
consumption is growing once again. Economic policy for the coming years
provides some scope for further growth in public consumption, though the
planned pace of growth is subdued.
Despite many years of government overspending, the public sector deficit has
repeatedly proved to be less than feared. For example, government finances
essentially balanced in 2013 despite fears at the start of the year that there
would be a significant deficit. There are a number of reasons for the large
miscalculation. In particular, the chance to opt for immediate taxation of
capital (lump sum) pensions looks likely to generate extraordinary revenue of
around DKK30bn in 2013, which is considerably more than previously
estimated. We should note here that the immediate taxation of capital
pensions is solely about the bringing forward of future tax revenues to the
present – so the more money that pours into state coffers now, the greater the
demand for fiscal discipline. It is crucial that the money is not simply spent,
as it would otherwise be missing in the future. Fortunately, the budget for
2014 looks sensible, though one could have fears for fiscal discipline with
regard to the 2015 budget. All else being equal, economic policy will be
tightened significantly in 2015, as the expansive economic policy of the crisis
years has largely been based on shifting future growth to the present, for
example via the bringing forward of government investment and temporary,
unfinanced tax cuts. 2015 has been perceived as the future in these plans – so
all else being equal, economic policy should be tightened considerably in
2015 unless the politicians get tempted to ease further, which would then
simply give Denmark even greater problems further down the line.
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December 2013
Subdued growth in public consumption
Government finances more or less balanced in
2013
Nordic Outlook
Denmark: Forecast at a glance
National account
2012
2012
DKK bn (current prices)
2013
2014
2015
0.9
1.5
% y/y
Private consumption
895.6
-0.1
0.5
Government consumption
519.5
0.4
0.2
1.1
0.6
320.0
0.8
1.5
-0.8
2.8
- Business investment
3.0
3.4
-2.6
4.8
- Housing investment
-8.0
-6.5
2.3
3.2
- Government investment
7.7
7.3
2.4
-6.2
1000.4
0.4
0.6
3.1
3.6
- Goods exports
610.7
-0.7
2.8
4.1
4.1
- Service exports
389.7
2.3
-2.8
1.5
2.9
Exports
Imports
907.7
0.9
2.0
2.0
2.7
- Goods imports
576.1
0.5
5.1
2.1
2.7
- Service imports
331.6
1.6
-3.3
1.7
2.6
1825.6
-0.4
0.4
1.5
2.1
Economic indicators
2012
2013
2014
2015
Current account, DKK bn
109.2
128.00
135.00
142.00
6.0
6.9
7.1
7.2
-71.9
-15.0
-28.0
-55.0
Gross domestic product
- % of GDP
General government balance, DKK bn
- % of GDP
-3.9
-0.8
-1.5
-2.8
828.0
815.4
820.7
868.7
45.4
43.8
42.9
44.0
Employment, ex. leave (thousands)
2728.3
2737.0
2754.3
2769.0
Gross unemployment (thousands)
161.8
153.4
147.5
138.5
6.1
5.8
5.6
5.2
112.0
109.0
102.0
House prices, % y/y
-3.3
2.4
1.1
2.0
Private sector wage level, % y/y
1.5
1.2
1.4
1.7
Consumer prices, % y/y
2.4
0.8
1.3
1.5
18/12/13
+3 mths
Repo rate, % p.a.
0.20
0.20
0.20
0.30
2-yr swap yield, % p.a.
0.69
0.70
0.70
0.80
10-yr swap yield, % p.a.
2.30
2.35
2.55
2.75
EUR/DKK
7.46
7.46
7.46
7.46
USD/DKK
5.43
5.65
5.74
5.92
General government debt, DKK bn
- % of GDP
- % of total work force (DST definition)
Oil price - USD/barrel
Financial figures
+6 mths +12 mths
Source: Statistics Denmark, Danmarks Nationalbank, Reuters EcoWin, Danske Bank
10 |
December 2013
Nordic Outlook
Sweden
Final call
In this our final call of 2013 we are more hesitant than ever. Some
improvement has been noticeable also in the Swedish economy, first
and foremost the strong labour market developments, whereas
demand, both domestic and external, remains suppressed.
Moreover, survey data points vaguely to GDP-growth of around 2%
y/y, but after a year of weak, if not negative, correlation between
survey and actual data, we have all but given up hope on the longforeshadowed Swedish recovery. Nonetheless, we have opted to keep
this play intact for yet another round of forecasts, but bear in mind
that risks to our short-term growth forecasts are heavily skewed to
the downside. This is indeed the Swedish economy’s final call for
boarding a more positive growth trajectory.
However, one area where we have indeed been forced to change our
views during the autumn is the inflation and, hence, the Riksbank
outlook. Where we, and all other forecasters, expected rising inflation
during summer and autumn, we can now conclude that this has not
materialised. As we write, inflation is just slightly above 0% y/y.
Much lower inflation, in conjunction with low finalised central wage
agreements, poor results from rent negotiations, falling inflation
expectations and meagre real outcomes make inflationary pressures
conspicuous mainly by their absence. In response, the Riksbank cut
the repo rate by 0.25 percentage points (p.p.) at its December
monetary policy meeting. In addition, the Riksbank’s first repo rate
hike was postponed into 2015 to underline that rates will remain low
for long also in Sweden. We are currently assuming a first hike
towards summer 2015 but this might very well be delayed further.
Fiscal policy is set to remain expansionary, but given our view of a
lower trend GDP, we fear that some time in a not too distant future,
the government will be forced to tighten fiscal policy as tax income
growth is set to disappoint. These projections could be altered by
further structural policy measures aimed at, exempli gratia, freeing
up labour markets more dramatically and lowering margin tax rates
to increase both supply of, and demand for, low value-added services.
In quantitative terms, we expect GDP to grow by 1% y/y in 2013 and
2.5% y/y in 2014. Id est, we keep our September forecasts intact. In
2015, we expect growth to be around 2.5% y/y, a full percentage point
above potential. The unemployment rate is set to slowly recede below
7.5% some time during next year and strive further towards 7%
during 2015. Inflation will thus remain low, and it is only beyond the
forecast horizon that the Riksbank’s operative inflation target, CPIF
(CPI under the assumption of constant interest rates) will be attained.
11 |
December 2013
Nordic Outlook
Benign economic and financial conditions
In the first few paragraphs we will touch upon the most important
prerequisites when constructing a forecast for the small open Swedish
economy: (1) Economic and financial conditions, including interest rates, the
exchange rate, stock and housing markets developments and also the overall
fiscal stance, and; (2) International developments, or more specifically, the
weighted import demand on Swedish export markets, World Market Growth
(WMG).
Turning first to the financial and economic policy conditions environment,
we could simply conclude that economic policy will remain supportive to
growth even past the forecast horizon. The Riksbank has lowered the repo
rate and is set to keep the policy rate at very low nominal levels for a very
long period of time, in some ways mirroring the stance of Federal Reserve
(FED), the European Central Bank (ECB) and other major central banks
promising to keep interest rates low for long. However, when judging by
market rates, the case is less clear-cut as we have already seen risk premia
rising, not only in “tapering”-struck American fixed income markets, but
apparently also in Swedish fixed income markets. However, from a Swedish
standpoint, these developments should to some extent be balanced by the
weaker currency in the very short term, a boon expected to be replaced by a
more sanguine view on tapering, keeping global demand strong.
Swedish exports not keeping the global pace
Sources: National Institute for Economic and Social Research
(NIESR), National Institute for Economic Research (KI) and
Statistics Sweden (SCB). Danske Bank calculations
As 2014 unfolds, we suspect that economic headwinds to the Swedish
economy will turn into tailwinds, if nothing else because the Swedish
economy comes across as fundamentally sound when compared to most other
developed economies, which should let cyclical forces work uninhibited also
in the domestic economy. Market rates as well as the krona should thus
resume a stronger but fundamentally motivated trajectory once financial
markets lay the tapering discussion to rest. In a year’s time, we estimate that
the SEK will shoot below the EUR/SEK 8.50 mark and that long-term swap
rates move into the 3.0-3.5% range.
Even in nations where fiscal policy is suitably concentrated on structural
issues, any fiscal decision is likely to have cyclical consequences when being
promulgated through the economy. And according to the incumbent centreright Alliance, there is apparently space for additional structural measures –
mainly tax cuts for low and middle-income earners – but the calculations are
based on an optimistic 2.7% y/y potential GDP-growth rate, which is quite
far from our own 1.5% y/y. While we can understand the political rationale
behind such arguments, given the strong legal framework surrounding the
sustainability of fiscal policy, the government is likely in time (past the
forecast horizon) to be forced to cut back on some of its promises or even
reduce spending (or hike taxes). In our forecast, government expenditures are
set to expand by circa 1% y/y in both 2013 and 2014, which together with the
aforementioned tax cuts push central government net lending to -1.2% of
GDP this year and next. In 2015, the ratio improves somewhat to -0.9% of
GDP.
To conclude our discussion on the economic policy mix, our estimates
indicate that while monetary policy is expansionary (although not sufficiently
so) throughout the forecast horizon, we see a risk of overly expansionary
12 |
December 2013
Monetary Conditions broadly balanced
Note: MCI is calculated as the deviation from a filtered trend of
different interest rates and an exchange rate index (all variables
are normalized and adjusted for inflation).
Source: Macrobond. Danske Bank calculations
Nordic Outlook
fiscal policy necessitating future austerity, perhaps at a more sensitive stage
of the business cycle.
A pork barrel can come in many forms
As customary these days, domestic equity markets have not displayed any
allegiance to domestic real developments, but rather focused on the tug of
war between FED tapering and real improvements in the US and global
economy. Going forward, the fear of tapering should be replaced by genuine
confidence in the real economy, pushing also Swedish equity markets to
grow in line with nominal GDP, id est, rise by 3-5% a year.
Another important asset market, vital for explaining, inter alia, household
consumption behaviour, is the housing market. Up until recently, we were
expecting a small drop in house price levels in order to become more aligned
to fundamentals. However, price data for 2013 so far, does not show any
signs of abating, but rather a reacceleration. This has led us to take a more
positive stance towards house price developments in 2013 than previously,
but we continue to expect a controlled decline in price levels over the coming
years. For the current year, house prices are set to rise by 3.5% y/y, whereas
in 2014 and 2015, we expect a decline of circa 5% y/y a year. From a longer
term perspective, our view is that Swedish house prices are quite far above
their fundamental value, underlining that something might have to yield;
either prices demonstrate a more abrupt correction or – in a more benign
scenario – household incomes rise faster than house prices.
Sources: KI and SCB. Danske Bank calculations
Summing up economic and financial conditions, we believe that supply and
price of credits no longer pose restrictions to the Swedish economy, it is
rather a lack of demand for credits – viable investment projects – that is
lacking. This probably has more to do with depressing expectations of future
incomes than anything else. A more pronounced shift in the income outlook–
in line with our short-term forecasts – will nonetheless benefit from credits
freely available. There is even a non-negligible risk that this process will pick
up steam much faster than we expect due to the extremely loose global
monetary conditions, creating a not so clear cut policy dilemma for many
central banks.
World market grows and so do exports, sort of
Turning next to international developments, from a Swedish perspective, we
can clearly see that the stronger US economy is reverberating also through to
the global economy, with Great Britain being the prime beneficiary, core
European country economies slowly healing and indicators stabilising even
in the hardest hit peripheral countries in Europe. Furthermore, in many
developing nations the economic situation is continuing to ameliorate, which
at least in some part is attributable to the return of American demand.
Though the stabilisation is tentative, US and Europe represent some 85% of
Swedish export markets, solidifying previous expectations of a rebound in
Swedish export markets and, hence, export growth. All in all, world market
growth is expected to reach 3.5% y/y in 2013 and increase further, around
5.5% y/y, in both 2014 and 2015, which – to be fair –is still quite weak
compared with historical recovery phases.
Net exports from dusk to dawn
The opaque state of production factors and the volatility of external demand
over the last few years make it unusually difficult to decide if the investment
goods laden Swedish exports industry is at an advantage or at a disadvantage
13 |
December 2013
Nordic Outlook
as international demand again picks up. Exports so far in 2013 have been
thoroughly depressing, falling on average almost 3% (annualised) and the
main impetus behind these developments has been weak input goods exports.
Elsewhere, developments are bleak, with the noticeable exceptions of the
transportation and consumption goods industries, both posting high positive
growth in 2013.
Looking ahead, export indicators are nonetheless mostly positive: the Export
Managers Index surveyed by Business Sweden, the export order component
in the NIER:s business confidence survey as well as in the PMI survey all
point to a broad based upturn in exports over the coming months and
quarters. Disappointingly, Statistics Sweden’s data on export orders have
come down lately after a strong first half in 2013. Thus, despite the recent
strengthening of export indicators, some caution is probably warranted, since
these indicators have demonstrated an inclination to be overly optimistic on
the export outlook ever since the onset of the financial crisis. Under any
circumstances, the belated upswing in exports during the last quarter of 2013
will not suffice to produce a positive full year reading for 2013. Instead, we
expect a fall in exports amounting to -1.3% y/y for the current year, and a
subdued 2.9% y/y in 2014. It is only in 2015, when global investments picks
up pace, that Swedish exports are able to match world market growth and
grow by 4.8% y/y. Nonetheless, throughout the forecast horizon, Sweden is
set to loose market shares.
Bleak, but improving, investment outlook
A stylised Swedish business cycle model would demonstrate strong causality
between exports and investments, and despite the stronger reliance on
domestic industries for propelling investment growth in the wake of the
financial crisis, this relationship remains intact. Investments have fallen back
somewhat in the first three quarters of 2013, mirroring the weak exports
outlook as it was concentrated in the manufacturing industry. Investments in
the services industry have also been notably lower thus far, whereas housing
investments were (again) the odd man out, reflecting the improved situation
in the housing market.
When looking ahead we cannot solely rely on a more upbeat Statistics
Sweden’s investments survey, since it has proven to be anything but reliable
in the aftermath of the “great recession”. However, we have noticed that
estimates of capacity utilisation from both Statistics Sweden and the NIER
are also improving, something that in conjunction with rising production
implies a more positive near-term outlook for investments – at least in the
business sector. Furthermore, and as we have highlighted in many previous
editions of Nordic Outlook, given a certain degree of structural
transformation, and a prolonged period of low or even negative gross
investments, we would expect to see some dynamics developing going
forward. Restructuring and replacement investments, in combination with a
rebound in both external and domestic demand, should eventually suffice to
drive (net) investments growth in the business sector higher, even though we
still expect this to be rather subdued from a historical perspective.
Investments on the rebound
One sector that seems unaffected by all negative dynamics surrounding it is
the housing sector. Fiscal incentives, an excess of cheap financing, a
continued rise in price levels and a chronic lack of housing supply,
14 |
December 2013
Nordic Outlook
predominantly in urban areas, has for better or worse kept the soil fertile for
housing investments. Now that labour market conditions seem to be
improving in tandem with the economic outlook, housing demand is – in a
word – returning. Due to the risks we associate with the elevated price levels,
and the apparent regulatory risks, we have nonetheless chosen to temper our
expectations on housing investments growth to some degree.
Public investments are expected to continue at a high level during the
forecast horizon, but most of the zest is likely gone, and only small increases
in public investments in, exempli gratia, infra structure have been announced.
All in all, growth in gross fixed capital formation should remain low during
the remainder of 2013, resulting in a drop of 1% y/y this year. Investment
growth is nonetheless forecast to pick up during 2014 and 2015 and reach
close to 6% y/y, on average.
Shock-absorbing labour markets
Despite a superficial weakening of Swedish labour markets during H1, the
lingering impression is one of relative stability and employment has actually
developed strongly throughout 2013. To some extent, this may be due to the
newfound flexibility among both employers and unions, which has let hours
worked (and thus by and large also the monthly pay check) become a buffer
instead of large lay-offs at the first sign of a deceleration. This pattern has
been discernible ever since the onset of the great recession and seems to have
worked well, even though we cannot fully suppress the feeling of this merely
being traditional labour hoarding, albeit in a somewhat more sophisticated
version.
Despite the labour market normally lagging growth by a couple of quarters,
we can clearly see that labour markets have turned a corner, with the
unemployment rate receding. Looking forward, we become even more
optimistic due to the continued improvement of labour market indicators. Not
only have notices of lay-offs come down close to “normal” levels,
employment plans and other survey data on the labour market are
unanimously improving. Also, investment growth has historically proven to
be the perhaps most reliable indicator for employment since investments not
only demand people to construct and install, but also to operate, new
equipment. We do not think this time around will be much different but
remain observant of the large pool of people outside the labour force who
might keep unemployment rates higher for longer even with pronounced
improvements in employment.
Labour markets a beacon of strength
To conclude, the good news is that labour markets seem to be safely through
the worst, with most forward looking indicators also pointing in a positive
direction. Therefore, we expect employment to improve near term. However,
growth in average hours worked has been depressed, which is why a more
pronounced upturn might take some time. As investment growth picks up
steam and developments in more labour-intensive industries such as
construction and retail also progress, we should nonetheless see a more
substantial improvement in both employment and the unemployment rate but
we expect that to take place mainly during next year. In numerical terms, we
estimate that employment will grow by 1% y/y in 2013 and by 1.5% y/y and
1.3% y/y in 2014 and 2015, respectively. This will be enough to push the
15 |
December 2013
Nordic Outlook
unemployment rate closer to 7% by the end of the forecast horizon. Students
looking for a job, low level of average hours worked and people returning
from outside the labour force constitute, however, risks to our forecast.
Consumption picking up steam
Nominal disposable income growth is low and has been low for some time.
However, due to even more subdued price increases, real disposable income
is expected to post decent growth rates, above 2% y/y faster during the
forecast horizon. In 2014, large income tax cuts and still restrained pricing
behaviour will drive disposable income growth higher. In addition, shortterm risks to the housing market seem to have subsided and equity markets
have shown real stamina; therefore, possible wealth effects should also leave
a positive impact on the consumption outlook. Indeed, household confidence
is improving, after reaching a nadir during the winter months and the NIER:s
consumer confidence index is now some way above its historical average,
suggesting a rather dramatic shift from early 2013. Back then, the general
risk sentiment was artificially pessimistic in anticipation of a number of
decisive international events, but notices of lay-offs had also shot up and the
Riksbank seemed intent on driving down housing wealth.
And consumption will take off
In response, households increased their savings further, from already very
high levels. Now, as headwinds have receded and been replaced by tailwinds,
we expect strong underlying household consumption growth throughout the
forecast horizon. Furthermore, the historically high savings ratio even
constitutes an upside risk, since we foresee only a rather tepid decrease over
the coming quarters. Should a more positive international scenario unfold,
any remaining fears of joblessness and/or dramatic house price falls will
probably be laid to rest, leading savings lower faster than what we currently
expect. However, learning from experiences of recent years, we have chosen
not to revise this variable to any larger extent.
Restrained price developments, fiscal incentives, a stronger labour market
and a generally improved sentiment make us forecast strong household
consumption growth, 1.9% y/y, in 2013, an even stronger 3% y/y in 2014 and
a more than decent 2.2% y/y in 2015.
Imports and the inventory cycle
In an advanced small open economy such as Sweden, the outlook for imports
is largely a derivative of your exports forecast. This is due to imports, in the
form of input material and goods, being an integral part of value added
activities in the exports sector. In Sweden, estimates of the import content of
exports range between ⅓ and ½ of value added, which clearly demonstrates
the strong link. In addition, the high dependence of the exports sector implies
that factor utilisation and thus consumption and investments to a high degree
are (directly and indirectly) dependent on exports. Hence, unforeseen swings
in the global outlook tend to have a very strong impact on both imports and
inventories and are a continuous source of forecast errors.
Naturally, but a tad vaingloriously perhaps, economists tend to assume being
omnipotent in forecasts, implying that imports follow the demand forecast
and there is seldom any need to assume anything but a return to stable
inventory levels – the inventory cycle (contribution) thus always returns to
stability (0pp contribution). In this respect, Danske Bank is no different from
16 |
December 2013
The inventory cycle continues to revolve
Nordic Outlook
our competitors, and we expect only a small negative contribution to GDP
from inventories this year. In annual comparisons, this hangs through into
2014, despite no consecutive changes to inventories. Imports grow in line
with external and domestic demand components, implying zero-growth in
2013, 2.7% y/y in 2014 and 5.7% y/y in 2015 when the Swedish economy is
again more balanced, id est, post higher export growth.
Bleak productivity growth…
Resource utilisation and inflationary pressures
In the preceding sections we have touched on the main components when
compiling GDP. And the lingering impression is one of an improving
economic environment, but it is a recovery that is rather bleak by any
historical comparison and one that is still laden with large risks to the
downside, ready to again push the world economy and the export dependent
Swedish economy into the doldrums without much notice. Nevertheless, and
despite apparent downside risks, for the first time in many years, we are also
able to identify upside risks in the nexus of very strong liquidity, rising asset
prices and a more pronounced shift in sentiment.
To sum up, GDP-growth is expected to accelerate in 2013 and 2014 as we
have chosen to keep our optimistic stance. In 2013, GDP is estimated to grow
by 1.0% y/y (previously 1.0% y/y), albeit with increased risks to the
downside. For 2014, we retain our forecast of 2.5% y/y GDP-growth, but
have changed the composition somewhat more towards domestic demand
components rather than international demand. The new forecast year 2015 we
see GDP-growth of 2.5% y/y, but with a more balanced composition of
demand as external demand and domestic investments increase their
respective shares of GDP.
Optimistic in comparison to other forecasters maybe, but from a historical
perspective this is still a meagre outcome for a recovery phase. However, we
believe that the great recession has altered the structures of the world
economy and, hence, also of the Swedish economy. The most obvious change
is an ongoing, fundamentally warranted, strengthening of the Swedish krona
that still has some way to go. The stronger (real) SEK pushes low-value
added export companies into dire straits and some of them will probably be
put out of business or be forced to relocate production to other economies.
Still having a rather rigid labour market, the effects on the Swedish economy
are already visible – stubbornly high unemployment rates. Eventually, we
might see more decisive political measures to address this problem, but given
the highly sensitive ideological nature of the resolutions on offer, we suspect
this will take a long time. In the meantime, estimates on potential growth
should recede, and we have “guesstimated” – with the use of mainly
demographical projections – long-term GDP-growth at no higher than 1.5%
y/y. Beware, though, that given the very limited, post-crisis, time series on
hand, effects on potential estimates are difficult to assess quantitatively and
are also very sensitive to specifications.
..but resource utilization still low…
Weak potential growth will mean that even the feeble growth rates foreseen
over the next couple of years should be able to reduce slack – increase
resource utilisation – and give way to increasing inflationary pressures. Make
no mistake about it though, current levels of resource utilisation are very low,
and have undoubtedly been a restraining factor in this autumn’s wage
negotiations. Going forward, the deflationary impact of low wage growth will
17 |
December 2013
Nordic Outlook
to some extent be balanced by low productivity growth, keeping cost
pressures – measured in terms of Unit Labour Costs (ULC) – positive but
below 1% y/y during the forecast horizon, levels simply incompatible with
the inflation target (2%). In addition, the structural strengthening of the SEK
weighs further on the outlook, which is why we will probably need to move
beyond the forecast horizon to see the operational inflation target, CPIF (CPI
excluding the impact of interest costs), being attained.
…and inflation to remain below target
Riksbank prime objective is indeed inflation
It has been open season on the Riksbank for some time and by now most
people, including ourselves, have probably taken a shot or two at the central
bank. The thrust of the arguments have honed in on the low inflation
outcomes and the apparent reluctance of the Riksbank majority to react in
force. And even now, when the institutional framework regarding financial
stability has been clarified, the Riksbank continues to point to household
indebtedness as one obvious reason to remain less expansionary than
warranted by price developments alone.
Sources: SCB, Riksbank and Macrobond. Danske Bank
calculations
Contrary to our previous forecast, inflationary pressures have receded further,
in tandem with inflation expectations. Worryingly, genuine inflation, such as
wages and rents, which tends to stick, have come in much below both our
own and the Riksbank’s forecasts. In other words, we yielded to the
perilously low inflation outlook and scrapped our previous belief of the next
policy move being a rate hike. In our defence, and despite displaying one of
the most optimistic forecasts of the Swedish economy, we have never argued
for an imminent hike.
Instead, our line of reasoning has run and continues to run: the Riksbank has
openly declared guilty of making too high inflation forecasts, hence holding
interest rates too high as well. For any modern monetary policy maker this is
quite a big deal. Thus, the Riksbank has repeatedly recently stated that not even
stronger economic data (than forecast) would in itself suffice to change the
Riksbank’s expansionary monetary policy stance. To us, this implies that the
Riksbank wants, or perhaps needs, to see inflation closing in on the 2% inflation
target before eventually hiking rates. We would even go so far as to say that the
Riksbank also wants to see “the right type” of inflation before embarking on –
what will thenceforth probably be – a more aggressive hiking cycle.
What then, is the right type of inflation? – It is, in two words, wage inflation.
Bar domestically generated, old school, wage inflation, of some magnitude,
we believe that the Riksbank will be very attentive not to push inflation
expectations further south of the inflation target. Low for long remains the
Riksbank mantra, but once the inflation genie has reappeared, we are certain
that the Riksbank response will be made in force, implying a swifter hiking
cycle once the conditions to hike are there.
A cut! And a hike is a long way hence…
Sources: Riksbank and Macrobond. Danske Bank calculations
Currently, though, the almost 0.5 percentage point deviation from the
Riksbank forecast, the apparent lack of wage inflation embedded in recent
central wage agreements, paired with historically low inflation expectations,
made the 16 December decision to cut the repo rate a fairly simple one. In the
very near term, we believe, there is also a not negligible chance of further
policy measures, but we have refrained from incorporating that into our point
forecasts due to this our final call for stronger economic developments in
Sweden, as well as abroad. Time will tell.
18 |
December 2013
Nordic Outlook
Sweden: Forecast at a glance
National account
Private consumption
Government consumption
Fixed gross cap formation
Stocks*
Domestic demand
Exports
Aggregate demand
Imports
Net exports*
GDP
- GDP, Calendar adjusted
* contribution to GDP growth
Economic indicators
Trade balance, SEK bn
in % of GDP
Current Account, SEK bn
in % of GDP
Public sector savings, SEK bn
in % of GDP
Public debt ratio, % of GDP*
Unemployment, % of labour force
Hourly wages, % y/y
House prices, % y/y
* Maastricht definition
Financial figures
Repo-rate
2-yr swap yield
10-yr swap yield
SEK/EUR
SEK/USD
2012
2012
SEK bn
1718.2
955.7
674.2
-4.4
3348.1
1722.4
3343.7
1516.4
206.1
3549.7
1.6
0.3
3.3
-1.3
1.6
0.7
0.3
-0.6
0.6
0.9
1.3
2012
2013
2014
2015
Vol growth in %
1.9
2.9
2.2
1.2
0.6
1.0
-0.7
5.0
6.2
-0.3
-0.2
0.0
1.2
2.7
2.7
-1.3
2.7
4.8
0.8
2.4
2.7
-2.0
2.8
5.7
0.2
0.1
-0.1
1.0
2.4
2.5
1.0
2.5
2.5
2013
2014
2015
117
128
3.1
3.3
241
229
6.4
5.8
84.6
2.4
229.1
6.5
93
2.6
224
6.2
-3.5
-0.1
38.2
-43
-1.2
39.8
-45
-1.2
40.0
-35
-0.9
39.2
8.0
2.8
0.9
-1.4
8.0
2.7
0.0
3.5
7.6
2.5
0.5
-5.0
7.4
2.9
1.6
-4.0
18.12.13
+ 3 mths + 6 mths + 12 mths
0.75
0.75
0.75
0.75
1.20
1.15
1.25
1.35
2.75
2.80
2.85
3.25
8.99
8.90
8.70
8.50
6.59
6.74
6.69
6.75
Source: Danske Bank
19 |
December 2013
Nordic Outlook
Norway
Growth pause
Surprisingly weak private consumption had a negative impact on
economic growth in Norway, with the effect reinforced by lower
investment growth.
Household savings rate is increasing despite low interest rates, rising
house prices and low unemployment.
House prices have now begun to decline, but solid household finances
and relatively modest new home starts should limit the risk of a
collapse.
Still buoyant oil prices, more relaxed credit policies and an improved
global outlook are all paving the way for growth to pick up again in
2014 and 2015.
Growth set to pick up
3.5
3.0 % y/y
2.5 Mainland-GDP
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
08
09
10
11
12
13
3.5
% y/y 3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
14
15
Source: Reuters EcoWin, Danske Bank Markets
The Norwegian krone (NOK) has weakened considerably and could
provide a solid boost to exporters in 2014, even though we expect the
krone to strengthen from current levels.
Growth pause, but no downturn
The Norwegian economy has so far come through the European debt crisis
relatively unscathed. Oil investment has increased considerably and made a
big contribution to growth in the Norwegian economy – both directly through
increased activity and indirectly through strong income growth. Now,
however, there are signs that these growth impulses are beginning to wane.
Norges Bank’s Regional Network survey indicates that economic growth in
Norway will slow to around 1.5% in H1 14. The slowdown appears to be a
result of weaker growth in the oil supply sector, construction and
consumption-related industries. We expect oil investment to rise more slowly
after several years of strong increases, so making less of a contribution to
Norwegian economic growth. This will, however, be offset to some extent by
stronger export growth, more relaxed bank lending standards and, perhaps, a
more expansionary fiscal policy. We therefore expect that growth will return
to trend by as early as next summer. The growth slowdown will nevertheless
give Norges Bank the breathing space to keep policy rates unchanged for
longer than previously assumed, although the krone has now fallen so far that
interest rates could start to climb earlier than anticipated.
Slowdown, but no crisis
Strong growth impulses from the oil sector have helped shield the Norwegian
economy during a period of weaker global activity and Norwegian activity
levels remain very close to normal. However, there are now signs that these
growth impulses are beginning to wane. The reason seems to be a
combination of weaker growth in oil-related industries, lower activity in the
construction sector and weak growth in consumer spending.
20 |
December 2013
Nordic Outlook
Norges Bank’s Regional Network survey now indicates annual growth of
around 1.5% in H1 14. This is a fair way below the trend rate and suggests
that capacity utilisation in the Norwegian economy is on the way down. The
survey reveals that the slowdown is broadly based, with most industries
signalling slower growth – apart from the notable exception of exports.
Oil investment will make a solid contribution to growth once again in 2014,
but a much smaller one than this year. However, there is nothing in the data
to suggest a significant activity downturn in the oil-related industries in the
near future. The oil investment survey finds that oil investment will rise by
almost 17% in current prices in 2013 and around 7% in 2014. Oil prices have
stabilised around USD110/bbl, reducing the downside risk in the long term
too. The latest investment figures also show that investment estimates for
both this year and next have been revised higher relative to the August
numbers. That said, current industrial production figures show that there has
been a significant drop in shipyard production, though growth among
equipment suppliers remains strong.
The second important damper on growth would appear to be lower activity in
the construction sector. While new home starts have in fact increased
somewhat in recent months, new home sales have fallen sharply. This
suggests that new home starts and thus homebuilding more generally will
slow in 2014. Furthermore, we are now seeing clear signs of activity
beginning to slow in the commercial property market. The completion of a
considerable amount of commercial property space over the past couple of
years means the amount of unoccupied square footage is now beginning to
rise moderately. This, together with the rising uncertainty of business leaders,
will probably slow the pace of new commercial property construction in
2014. In contrast, the civil engineering sector should continue to see strong
growth, mainly due to the increase in government infrastructure investment.
Third, growth in private consumption has once again been surprisingly weak.
However, this is not down to any appreciable deterioration in household
finances, if we ignore the fact that house prices have stopped climbing.
Moreover, unemployment is low and disposable income growth is still close
to 5%, though a temporary rise in inflation slowed real disposable income
growth somewhat in Q3. Nevertheless, a further rise in the savings rate has
meant that spending is growing much less quickly than income. However, we
see no real danger of a serious downturn in private consumption unless
household finances deteriorate significantly.
Will growth slow in Q1?
7 index
% y/y
Regional survey
5
2.5
3
1.5
1
0.5
-1
-0.5
Mainland-GDP
-3
-1.5
04
05
06
07
08
09
10
11
12
Oil investment growth slowing
40
% y/y m.a.
% y/y m.a.
30
Oil investments
20
40
30
20
10
10
0
0
-10
-10
-20
-20
-30
90
-30
95
00
05
10
Source: Reuters EcoWin
Considerable uncertainty still surrounds the scale and effect of the new
countercyclical capital buffer that is to be announced soon. Given that the
banks have come a long way towards satisfying the new capital requirements
and the fact that lending margins have increased, we estimate that bank credit
December 2013
13
Source: Reuters EcoWin, Norges Bank
As mentioned earlier, we expect the slowdown in oil investment to be offset
by stronger export growth and more relaxed credit policies. We expect global
economic growth to accelerate, and this, together with the pronounced
weakening of the krone, means that the export industry will make a positive
contribution to Norwegian economic growth for the first time in more than
four years. We are already seeing this in leading indicators such as the PMI,
the Regional Network survey and the Business Tendency survey.
21 |
3.5
15
Nordic Outlook
policies will be considerably less strict going forward. Easier access to credit
should support both the housing market and corporate investment.
Disappointing consumption growth and a weaker
housing market
Consumption growth has been considerably lower than expected so far this
year. For while 2013 started well, consumer spending growth slowed sharply
in the second half of the year. However, this was not due to any deterioration
in household finances and we still expect household disposable income to
grow by 3-4% in 2014 and 2015.
Rather, what has happened is that the savings rate has continued to climb
despite already being at a record high. The increase in the savings rate
following the financial crisis in 2008 has come despite low unemployment,
low interest rates, high house prices and expansionary fiscal policy. This may
have been due partly to greater uncertainty about economic growth in
neighbouring countries, and partly to a sharper focus on the need to step up
pension savings in connection with the retirement reforms.
Either way, the result is that the household sector’s financial position is far
stronger than in the years before the financial crisis. Financial saving is
actually increasing despite the rapid growth in debt, so we see no sign of the
rise in savings in Norway being driven by a need to correct imbalances in the
underlying finances of households. The record-high savings rate being the
prime reason for weaker consumption growth also reduces the downside risk
to consumer spending during the forecast period. Going forward, we expect
that the savings rate will gradually flatten and consumption growth
eventually increase to match income growth, i.e. around 3.5%.
Households have already increased savings rate
Developments in the housing market have now clearly reversed. House price
growth has slowed, sales times have increased, sales are falling and the stock
of unsold dwellings is expanding. The risk of a more serious downturn in the
housing market therefore appears to be growing. However, we do not see this
as a particularly likely outcome – mainly because the ability of households to
service their debts remains extremely good.
All experience suggests that as long as there is no dramatic deterioration in
the ability of households to service their debts, the housing market will not
collapse. Here at the end of 2013, Norwegian households are spending just
over 6% of their disposable income on debt interest payments. That is
considerably lower than in the 1980s and also lower than in 2002 and 2008.
A deterioration in the ability of households to service their debts can
essentially come about via two channels: either a drop in incomes or a sharp
increase in interest rates. Neither of these factors appears particularly likely
in the coming years – which is also why we see the risk of a collapse in the
housing market as limited.
Based on historical developments in house prices relative to income, house
prices are now on the high side. Between 1970 and 2013, house prices rose
10-15% more than GDP per person in Norway. Assuming income growth per
person of around 4% y/y over the next three years, this gap could be closed
by 2016 as house prices stop appreciating. However, low real interest rates
imply that real prices should continue to be ‘overvalued’ during the next
22 |
December 2013
Nordic Outlook
three years too. Hence, nominal house prices should be higher in two years’
time than they are today.
Somewhat weaker house price growth will also help slow household debt
growth. Hence, there is a prospect of the household debt burden stabilising
around current levels, which would reduce the downside risk if the
Norwegian economy suffered a negative shock.
House prices driven by income
Marginal increase in unemployment
The labour market appears to be weakening as economic growth slows. Our
preferred measure of unemployment, registered unemployed + government
measures to promote employment, has increased from 3.0% at the start of the
year to 3.3% in November. The number of job vacancies has also fallen
noticeably over the year, indicating that the demand for labour has abated
somewhat.
Despite this, however, overall employment growth is not falling – on the
contrary, Labour Force Survey figures from Statistics Norway indicate that
employment is beginning to pick up, though the employment element in
leading indicators such as PMI, the Regional Network survey and the
Confederation of Norwegian Business and Industry’s Business Tendency
survey present a slightly different picture. Meanwhile, unemployment figures
show that the increase in the number of jobless is primarily concentrated in
domestic sectors like retailing and construction.
Based on our forecast that economic growth will gradually pick up, we
expect that employment growth will eventually pass 1%, meaning that
unemployment should stabilise around current levels. One of the reasons for
this is that the increase in the labour supply is slowing as a result of lower net
immigration. This is probably due to the weakness in the labour market and
illustrates that the Norwegian labour market has become more flexible
following the enlargement of the EU in the 2000s.
Lower wage growth, but higher inflation
This year’s central wage bargaining round produced a result that was more
moderate than expected. Overall, the indication was wage growth, including
overhang and drift, of around 3.5% this year. The more moderate outcome
was largely due to the need to avoid an increase in costs specific to Norway,
as that would deliver a double whammy to the export industry.
Import prices pushing CPI higher
However, Statistics Norway’s current wage statistic indicates that overall
wage growth in 2013 will be 3.9%, i.e. significantly higher than what was
assumed after the wage settlement in the spring. Statistics Norway indicates
that this is a result of higher wage drift, especially in the oil-related industry,
and is probably due to a scarcity of qualified labour in this sector.
Meanwhile, Norges Bank’s expectations survey showed that Norwegian
business leaders expect to see higher profits in 2014. Hence, while
unemployment is rising overall, bottlenecks in certain sectors may continue
to result in solid wage growth for particular groups of workers, especially as
profits are expected to increase.
Underlying inflation is now on the rise and the period of disinflation appears
to be over. This is primarily due to the end of the decline in global prices and
23 |
December 2013
Nordic Outlook
the weakening krone, thus helping to push import prices higher. There are
also signs of productivity growth slowing, which in turn puts upward
pressure on domestic prices.
Our view is therefore that core inflation will rise somewhat in the first half of
2014 before eventually stabilising as the krone’s weakness reverses into a
new period of krone strengthening. Either way, we see the risk of a sharp rise
in core inflation as limited, as competition in the retail sector in Norway is
fierce and prices are still high enough to prompt significant trade leakage.
Krone weakness and low interest rates
The strengthening of the krone last autumn was very much driven by safehaven flows. As global risk appetite has improved, however, much of this
capital has returned to its home country. The impact on the krone has been
further reinforced by somewhat lower oil prices and general uncertainty on
economic developments in Norway going forward. The krone has in fact
weakened by more than we previously expected, in part due to low liquidity.
However, our view is that the relative economic situation will continue to
imply that the krone should remain relatively strong over the next couple of
years. We would also note that the krone is now 2% weaker than was the case
at Norges Bank’s policy rate meeting on 5 December. All else being equal,
this means an upward revision to the interest rate projection of around 20bp
at the March meeting, which would suggest a rate hike being brought forward
to H2 14.
As expected, Norges Bank yet again decided to keep policy rates unchanged
at the December rate meeting. In the current Monetary Policy Report, Norges
Bank envisages a rate hike in ‘summer 2015’ and that rate hikes will be very
modest for several years. There was no expectation of more rate cuts. As
mentioned, Norges Bank’s interest rate projection is so flat that an upward
adjustment of 25bp would bring forward the date of the first rate hike by
about one year. Uncertainty on the timing of the first rate hike is therefore
abnormally high.
24 |
December 2013
Undervalued krone (NOK)
Nordic Outlook
Norway: Forecast at a glance
National accounts
2011(2010-prices)
2012
NOK bn
Private consumption
Public consumption
Petroleum activities
Mainland Norway
Dwellings
Enterprises
General government
Mainland demand
Growth contribution from stockbuilding
Exports
Crude oil and natural gas
Traditional goods
Total demand
Imports
Traditional goods
GDP
GDP Mainland Norway
Other posts
Employment, % y/y
Labour force, % y/y
Unemployment (LFS), %
Annual wages, % y/y
Core inflation
Financial figures
Deposit rate
2y swap rate. %
10y swap rate, %
EUR/NOK
USD/NOK
2013
2014
1149.8
580.7
560.7
162.0
383.0
128.2
170.3
84.5
2113.6
1033.6
446.0
307.1
3435.8
779.0
460.5
2656.8
2108.1
3.0
1.8
5.0
14.6
4.5
7.3
4.9
-0.4
2.9
-0.1
1.1
0.7
1.7
3.2
2.3
2.4
2.9
3.4
2.2
2.0
5.5
16.5
2.8
6.4
1.0
0.6
2.5
2.0
4.3
6.0
2.0
-1.5
2.2
4.7
-0.5
-2.5
-5.0
0.6
-0.1
0.5
-1.8
2.5
2.9
2.2
5.0
4.0
3.5
1.2
4.5
4.1
3.5
0.0
0.3
-3.5
3.7
2.1
2.6
1.0
1.8
3.8
3.5
2.0
2.5
3.5
3.4
2.5
2.8
2012
2.2
1.8
3.2
4.0
0.8
1.2
2013
1.2
1.4
3.4
3.9
2.1
1.6
2014
1.2
1.2
3.4
3.6
2.0
2.2
2015
1.2
1.2
3.4
4.0
2.0
2.3
18/12/2013 +3 mths +6 mths +12 mths
1.50
1.50
1.50
1.50
1.84
2.00
2.10
2.15
3.22
3.30
3.50
3.65
8.40
8.25
8.00
8.00
6.11
6.25
6.15
6.35
Source: Danske Bank
25 |
December 2013
2015
Vol growth in %
Nordic Outlook
Finland
Dull winter for consumers
We have revised down our forecast and expect Finnish GDP to grow
only 1.1% in 2014. The Finnish economy pulled out of a recession in
Q2, but growth has been disappointingly slow and domestic demand,
in particular, remains flat. Provisions for slightly faster growth in
2015 depend on recovery of the main European export markets.
The outlook for domestic demand is dull but positive signs in the
global and European economy lift export expectations. Household
purchasing power is flat due to tax hikes and a moderate wage
agreement. Surveys point to exceptionally weak expectations in retail
trade and construction. Manufacturing CAPEX is also weak. The
public sector is being forced to cut its deficit and only a marginal
amount of stimulus is aimed at construction.
Changes relative to previous forecast
GDP
Unemployment rate
Inflation, %
Earnings, %
Housing prices, %
Current account, % of GDP
Public debt, % of GDP
Current forecast
2013
2014
-1.3
1.1
8.2
8.4
1.4
1.2
2.1
1.4
1.4
1.0
-0.8
-0.5
58.7
61.0
Previous forecast
2013
2014
-0.7
1.5
8.3
8.3
1.4
1.3
2.2
1.5
1.0
1.2
-0.8
-0.6
58.0
60.0
Source: Danske Bank Markets
Exports have suffered long-term damage from the decline of Nokia
and forestry industries. Exports have also suffered from a high share
of investment goods, which are in short demand at the moment, and
poor price competitiveness caused by wage increases between 20082012. If pent-up investment demand is released in Europe and
Finland regains competitiveness through wage moderation, exports
could grow relatively fast in the medium term.
Despite the poor economic performance in 2012 and 2013,
employment has remained decent, corporate bankruptcies low, the
housing market calm and banking system solid. Household and
corporate balance sheets continue to be healthy and very low interest
rates continue to support activity. Nearly all housing loans are linked
to euribor rates.
The new structural reforms announced at the end of August (see
note: Focus on structural reforms) take Finland a long way towards
more sustainable public finances. The reforms, once they get a
concrete content and political acceptance, have potential to generate
positive effects in the medium and long term. The debt to GDP ratio,
however, continues to increase in the medium run. The structural
reforms and modest debt level should help to maintain Aaa ratings in
2014, although the weak economic outlook worries rating agencies.
OECD leading indicator signals growth in 2014
Source: Macrobond
Households under pressure
Finland’s GDP was flat in the third quarter after increasing by only 0.1% q/q
in the second quarter 2013. GDP was 1.7 % lower in January-September than
a year ago. Although the Finnish economy seems to have ended a recession
in technical terms, the situation has not improved much. We expect the full
year 2013 GDP to be 1.3% smaller than in 2012, which gives a poor starting
point for 2014. We expect net exports to keep GDP on a positive trend, while
domestic demand continues to crawl slowly at best in 2014.
26 |
December 2013
Nordic Outlook
The underlying figures for domestic demand were weak across the board in
the third quarter. Private consumption was 0.1% up q/q but 0.7 % lower y/y,
because weak purchasing power and fear of unemployment hit trade. Only
durable goods sales were slightly up, supported by car sales recovering from
a tax shock in 2012. Investments were 5.2% lower y/y. Construction slowed
down earlier already and now industrial CAPEX seems to have fallen steeply.
Exports were a brighter spot and rose 0.7% y/y in the third quarter. The
growth was driven by volatile services exports, while exports of goods
continued to be weak.
Manufacturing figures were downbeat, but retail sales recorded a small
increase and value of goods exports rose 3% y/y in October. Export markets
in the EU seem to be gaining some strength finally, the forest industry has
started to export more, but exports of investment goods remain a weak spot.
Inventories have been depleted and manufacturing has to step up production
if new orders begin to grow. So far the situation is sluggish, new
manufacturing orders decreased by 3.4% y/y in October. The published
numbers are consistent with zero to modestly positive growth in Q4.
Manufacturing confidence lags the euro area PMI
Source: Macrobond
Leading indicators continue to be on the weak side, fortunately consumer
confidence has modestly improved and manufacturing was less pessimistic in
November. OECD leading indicator, which has been a fairly robust indicator
in recent years, continued to improve in the autumn and supports our view
that Finland continues to pull out of the recession. The rise in euro area
purchasing manager index is also promising, because Finnish manufacturing
confidence tends to follow it with a lag of a few months.
Due to weaker than expected Q2-Q3 figures, we have revised our estimate
for 2013 downward and expect the GDP to fall by 1.3% (previously 0.7%
decline) as we see weakness especially in domestic demand. Assuming that
the US leads a global recovery and the euro area is also gaining strength, we
expect Finland to reach 1.1% growth in 2014. Obviously, a new recession in
other parts of the euro area would not leave the Finnish economy untouched.
Consumers face wage moderation
Consumer buying power has been roughly flat since 2012, while
consumption had grown substantially in 2010 and 2011 on the back of low
interest rates and rising real wages. Private consumption was 0.1% up q/q but
0.7 % lower y/y in the third quarter. The sales volume of retail trade rose by
0.6% y/y in October and motor vehicle trade has partially recovered from a
tax shock in 2012, but the future outlook continues to be soft.
Outlook is weak as consumer confidence remains at low levels and
purchasing power is likely to stay relatively flat in 2014-2015. In the
forecasting period, wage growth will be roughly in line with inflation at a
time when tax increases take their share as well. We also expect consumer
confidence to remain at mediocre levels at best as employment figures
continue to weaken in the next few months. Low interest rates will help to
sustain private activity but past growth figures are not realistic nor are they
sustainable. The outlook into 2015 is also restrained with only modest wage
growth and an already low savings rate with little additional room to boost
spending. We expect private consumption to grow 0.4% in 2014.
27 |
December 2013
Nordic Outlook
Inflationary pressures are modest because of the existing output gap (roughly
2-3% of GDP), less pressure from global food and energy prices, and
moderate wage increases limit cost pressures. Finnish inflation slowed down
to 1.2 % in August and has stayed there up to November. Given excise duty
(alcohol, tobacco) hikes in January 2014, we expect an annual average
inflation of 1.2% in 2014 and inflation should remain modest also in 2015.
Exports seen as the best way out of the slump
The volume of exports rose 0.7% y/y in July-September of 2013. The rise
was based on volatile services exports; goods exports contracted 2.6%.
Compared to the previous quarter exports rose 1.5%.
Inflation and wage growth continue to decline
The outlook for main Finnish export markets in Germany, Russia and Sweden
has remained relatively stable. Exports to Russia have failed to rise further,
because the Russian economy has developed less favourably than expected.
German imports continued to grow in October and this improves the outlook
for Finnish exports. EU markets in general are expected to recover in 2014.
Exports of goods have suffered long-term damage from the descent of Nokia
and forestry industries. Finnish exports of goods continue to suffer from the
decline of Nokia – the value of exports of electronic devices shrunk by 67%
y/y in January-September. Nokia shut down completely the manufacturing of
mobile phones in Finland last year, which has had a sizable impact on
exports. Exports have also suffered from a high share of investment goods,
which are in short demand at the moment, and poor price competitiveness
caused by wage increases between 2008-2012. If pent-up investment demand
is released in Europe and Finland regains competitiveness through wage
moderation, exports could grow relatively fast in the medium term. Also a
weaker euro would boost export outlook.
The sale of Nokia mobile phones to Microsoft does not have such a huge
impact on the Finnish economy as it could have had a few years ago. The
impact could even be positive if Microsoft maintains a sizable R&D
operation in Finland and Nokia (now focusing on networks, maps and
research) invests a large share of the EUR5bn sales proceeds in the Finnish
economy. Nokia has also been a good school for Finnish engineers to learn
Global business; many start-ups have been founded by ex-Nokia staff.
One reason for the poor development is the loss of price competitiveness
compared to Germany and some other countries. Labour costs rose faster in
Finland than in most other EU countries in 2008-2012. This has been partly
mitigated by strong SEK exchange rate, which has helped Finnish companies
compared to Swedish companies. There exists a widespread drive to improve
competitiveness in order to preserve strong manufacturing base in Finland.
Exports are seen as the best and only way out of the slump. Labour unions
have agreed to a very moderate wage rise in the medium run. Wages will rise
only EUR20 per month in 2014 and 0.4% in 2015, plus some wage drift. In
addition, the corporate tax rate falls to 20% at the beginning of 2014.
Source: Macrobond
Investment goods drag down Finnish exports
Source: Macrobond
Poor manufacturing confidence and low order book levels suggest that
exports continue to perform modestly at best in late 2013. Assuming a
continued recovery in the euro area and a brighter global outlook, we expect
exports to rise by 3.0% in 2014.
28 |
December 2013
Nordic Outlook
Finland had a current account surplus from 1994 to 2010 but fell with trade
balance into a small deficit in 2011. The current account (CA) deficit
deepened to 1.7% per GDP in 2012. We expect a CA deficit also in 20132015, driven by large net transfers. The trade balance has actually returned to
a surplus, thanks to falling imports. The CA deficit is forecast to improve to
0.5% per GDP in 2014 and to be nearly balanced in 2015.
Cold winter ahead in housing construction
Investments fell by 3.8% y/y in January-September. In July-August
investments contracted by 2.7% q/q. The decline was driven by construction
investments, where January-September figures fell 4% from last year. On the
other hand, machinery, equipment and transport equipment investments held
up in the same time despite a severe decline of 9.7% q/q in the third quarter.
Low demand in manufacturing does not bode well for investments in the
coming quarters. In construction, the production of industrial and office
buildings collapsed in the first part of 2013, while residential building
construction remained decent. Recent figures reveal that declining building
permits granted and new starts have brought down construction investments
in 2013 and continue to indicate a meagre development well into 2014. The
government has directed funds from the budget towards airport development
and renovation of public buildings by EUR250m. However, these actions are
unable to turn the decline.
Indicators suggest weaker housing supply in 2014
Source: Macrobond
Construction companies’ confidence indicators and shrinking building
permits point to a continued contraction in the first half of 2014. Some
recovery can be expected only in the latter part of 2014. We forecast
investments to decline 4% in 2013. After two bleak years, we expect
investments will stay flat in 2014 before turning to 2.5% growth in 2015.
Housing market weary
House prices have been nearly flat for over a year in most cities; prices have
increased primarily in Helsinki. Nominal prices have increased slightly for
three years but real prices have actually declined since 2011 in the whole
country and even in the Helsinki Metropolitan Area. According to the early
statistics, this trend has continued more or less in 2013. In March transfer tax
was increased, which contributed to a clear fall in property transactions and
increased selling times accordingly. This development has been amplified by
cautious buyers in the current economic environment and tighter lending
standards from banks. The number of residential property transactions in
January-September was around 10% below last year’s numbers. Recent
preliminary figures indicate that prices have started to decline mildly to
match the weaker demand.
In October the prices of old dwellings in block of flats and terraced houses
fell by 0.4% m/m. Prices went down 1.2% in Greater Helsinki, whereas in the
rest of Finland prices rose 0.3%. Housing loan stock growth has also declined
from 5.5% y/y in January to 2.8% in October. The main factors to this
development can be seen from the demand side, as consumer intentions
towards house purchases are relatively wary, and from the supply side, as
banks react to new regulatory demands and low interest environment. Banks
have increased margins on typical variable euribor rate loans from 87bp at
29 |
December 2013
Nordic Outlook
the end of 2011 to 157bp in October 2013. In recent months, the interest
margins have stabilised according to the Bank of Finland.
Despite some of the abovementioned headwinds, there are also factors
affecting in the other direction. The interest rate burden has stayed at record
low levels despite increases in bank lending margins. The debt to income
ratio of Finnish households, albeit it has been rising, is still well below that of
other Nordic countries. Finnish households are still able to amortise debt as
the exceptionally low interest rate transmits effectively in the Finnish housing
market due to the high percentage of variable rate loans. Also the chronic
lack of supply in growth centres, especially in the Helsinki Metropolitan
Area, supports the price level. And as mentioned in the previous segment, the
outlook for newbuilding is subdued. The supervisors vigilance should be seen
as a precautionary measure, which can be seen as a stabilising factor in the
long-term. At the moment the likelihood of immediate binding loan-to-value
limits has decreased as the government has resisted the calls from the FSA.
Thus, we don’t expect dramatic market movements in 2014-2015.
We expect nominal prices to rise 1.4% in 2013. Next year we forecast
housing prices to increase but only by 1%. Despite the past rise in prices, we
do not see a major risk of a bubble, because prices have generally risen in
line with earnings. A major decline in housing prices could be initiated only
by much higher long-term unemployment or surging interest rates, which
both look unlikely despite the lacklustre economic outlook.
Structural reforms and tight budget policy
The current government has continued a tight budget policy ever since its
inauguration in 2011. Taxes have been increased and expenditures cut in
order to close the budget deficit which spread during the financial crisis.
Total net savings, or austerity, are over EUR5bn in 2013-2015, or
approximately 3% of GDP. No stimulus to support the economy should be
expected before the parliamentary elections in spring 2015. Central
government spending levels in the budget for 2014 are slightly below 2013
figures.
The main challenge in public finances lies in the long-term sustainability gap
as the aging population begins to burden the healthcare system. Thus, the sixparty coalition government turned its attention to the long-run questions in
the autumn, when the administration published new structural reforms that
are meant to increase the labour force participation rate and labour
productivity (See note 30.8.2013: Focus on structural reforms). These
measures, if properly implemented, could turn the debt ratio into a decline
after 2015.
Central government to remain in deficit
Source: Macrobond
Despite the austerity measures, the public debt to GDP has been rising in the
absence of economic growth. This will be the case for 2013 as well. The
general government debt reached 53.6% per GDP by the end of 2012. We
forecast the ratio to be 58.7% in 2013, by the end of 2014 to reach 61% and
in 2015 to hover around 62% per GDP. As a surprise factor, the forthcoming
EU-wide revision of national accounts (ESA 2010) has the potential to lift
reported GDP and keep the debt ratio lower in 2014-2015. The revision will
account R&D expenditure as investment, which could raise GDP by 5% and
as a side effect lower the debt ratio by three percentage points.
30 |
December 2013
Nordic Outlook
Public consumption increased by 0.6% in 2012. Tight budgets are likely to
keep growth in public spending in the coming years well below 1%.
Currently, there seems to be no political party with an appetite for
expansionary fiscal policy unlike in Sweden despite Finland being one of the
least indebted euro area countries. The remaining space for fiscal expansion
is being reserved as a buffer against major shocks and future demographic
changes.
Within the euro area, the Republic of Finland continues to enjoy one of the
lowest risk premiums compared to Germany. Triple-A rating with stable
outlook from all three major credit rating agencies underlines the strength
and confidence in the public finances. We expect the fairly low level of
public debt, excellent track record and policy decisions to continue to keep
the Finnish risk premium low, interest rates low and credit ratings high.
Bleak employment outlook
The official employment figures have remained surprisingly stable despite
two consecutive years of declining GDP. The unemployment rate has
actually stayed nearly flat in 8% in 2013, according to Statistics Finland. The
seasonally adjusted unemployment rate was 8.2% in October. In our view,
this understates the poor labour market conditions as people are giving up on
looking for work, which can be seen in the shrinking labour force and
increasing share of inactive population. Also, the number of registered
unemployed at the employment and economic development offices has
continued to increase during the past months. In addition, news of new
layoffs has been persistent and, according to surveys, firms’ intentions of
hiring new workers are low in almost all industries. The employment rate
was 68.1% in October, which is 0.6% lower than a year ago. New vacancies
at employment offices stood at 34,000, down 1,000 positions from last year.
Unemployment rate to rise above 8%
Source: Macrobond
We forecast the unemployment rate to increase until mid-2014 as the
economic downturn weighs in on the labour market. The average
unemployment rate is expected to be 8.2% in 2013 and 8.4% 2014. In 2015
the better economic environment together with the shrinking labour force will
bring unemployment to 8.2%. The number of employed persons is likely to
continue to fall slightly as the ageing trend will limit the supply of labour in
the coming years. Lost manufacturing jobs are largely replaced by jobs in
services sectors. Measures taken to boost exports are not expected to bring
material help to the labour market before 2015.
31 |
December 2013
Nordic Outlook
Finland: Forecast at a glance
National accounts
2011
2012
2013
2014
2015
Volume, y-o-y %
GDP
Imports
Exports
Consumption
- Private
- Public
Investments
Key Performance Indicators
Unemployment rate, %
Earnings, %
Inflation, %
Current account, Bn, EUR
Current account/GDP, %
Public deficit/GDP, %
Public debt/GDP, %
Financial figures
Repo rate, %
2 year swap rate
10 year swap rate
EUR/USD
2.7
6.2
2.7
1.9
2.6
0.5
5.7
-0.8
-1.0
-0.2
0.3
0.2
0.6
-1.0
-1.3
-2.5
0.4
-0.1
-0.5
0.6
-4.0
1.1
1.5
3.0
0.4
0.4
0.3
0.0
2.0
3.0
4.0
0.7
1.0
0.5
2.5
2011
7.8
2.7
3.4
-2.8
-1.5
-0.7
49.2
2012
7.7
3.5
2.8
-3.2
-1.7
-1.8
53.6
2013
8.2
2.1
1.4
-1.5
-0.8
-2.1
58.7
2014
8.4
1.4
1.2
-1.0
-0.5
-1.8
61.0
2015
8.2
1.2
1.5
-0.5
-0.2
-1.5
62.0
18/12/2013 + 3 mths + 6 mths + 12 mths
0.25
0.15
0.15
0.15
0.51
0.50
0.50
0.60
2.05
2.10
2.30
2.50
1.38
1.32
1.30
1.26
Source: Danske Bank * Forecasts: Sampo Bank/Economists
32 |
December 2013
Nordic Outlook
Global overview
Recovery gains traction
The global economy took the first step out of the growth drought in
2013, as the euro area left recession and the Chinese economy
recovered from a 2.5 year slowdown.
In 2014, we believe global growth will move up a notch and the
recovery will gain more traction. We expect the US, Europe and
emerging markets to get on a stronger footing, although for Europe in
particular the starting point is very low.
The main factors behind the recovery are less uncertainty, an end to
austerity, falling commodity prices and pent-up demand. Monetary
policy is also set to stay very accommodative for a very long time.
The road for the global economy since the Lehman Brothers crisis has been
very bumpy with lots of headwinds. Fiscal austerity, significant uncertainty
related to the euro crisis, deleveraging and US political brinkmanship have all
been factors restraining a recovery. Europe in particular took a very sharp hit
in summer 2011 when the euro crisis escalated and, for a considerable time,
the actual survival of the euro was in danger.
Global GDP outlook vs consensus
2013
2014
% y/y
D a ns k e
B a nk
C o ns e ns us
IM F
D a ns k e
B a nk
C o ns e ns us
IM F
USA
1.6
1.6
1.6
2.5
2.6
2.6
Euro area
-0.3
-0.3
-0.4
1.3
1.0
1.0
Japan
1.8
1.9
2.0
1.9
1.6
1.2
China
7.7
7.6
7.6
8.0
7.4
7.3
Global
3.0
2.9
2.9
3.8
3.5
3.6
Source: Bloomberg, IMF, Danske Bank Markets
Global recovery taking hold
However, uncertainty has been reduced significantly over the past year and it
is likely to decline further. The euro crisis was tamed by the famous
‘whatever it takes’ words from ECB President Mario Draghi and, in the US,
the recent budget deal without a big fight suggests that US political
brinkmanship may be coming to an end.
The fiscal austerity has been intense over the past few years – especially in
Europe – but in 2013 it has also been the case in the US. Looking into 2014,
we believe this is likely to change. We expect fiscal policy to be broadly
neutral in both the US and the euro area in coming years and this means a
very significant headwind to growth will go away.
The global economy is also experiencing a positive supply shock as oil
production is rising due to new technology (fracking) that has unleashed big
reserves of shale oil. This should keep oil prices in check despite a global
recovery.
Finally, pent-up demand is widespread following years of crisis when private
consumption and investments were cut to an absolute minimum. As sentiment
improves, some of this pent-up demand should gradually come through.
We look for the global recovery to be fairly broad based. There are likely to
be bumps in the road still and risks are still prevalent but overall the downside
risks have become smaller. Emerging markets have suffered severely from
the growth drought in their export markets in the West and will see a positive
effect from higher activity levels in the US and Europe.
33 |
December 2013
Source: Macrobond Financial, Danske Bank Markets
Fiscal austerity coming to an end
F is c a l po lic y e f f e c t o n
G D P gro wt h, G 3
2 0 12
2 0 13
2 0 14
US
-1.0
-2.2
-0.4
Euro
-1.0
-1.2
0.2
Japan
-0.2
1.0
-2.1
Total
-0.9
-1.4
-0.4
Source: IMF, Danske Bank Markets
Nordic Outlook
Economic forecast
Macro forecast, Scandinavia
Year
GDP 1
Private
cons.1
Public
cons.1
Fixed
inv.1
Stock
build.2
Exports1
Imports1
Inflation1
Unemploym.3
Public
budget4
Public
debt4
Current
acc.4
Denmark
2012
2013
2014
-0.4
0.4
1.5
-0.1
0.5
0.9
0.4
0.2
1.1
0.8
1.5
-0.8
-0.3
0.3
0.0
0.4
0.6
3.1
0.9
2.0
2.0
2.4
0.8
1.3
6.1
5.8
5.6
-3.9
-0.8
-1.5
45.4
43.8
42.9
6.0
6.9
7.1
Sweden
2012
2013
2014
0.9
1.0
2.4
1.6
1.9
2.9
0.3
1.2
0.6
3.3
-0.7
5.0
-1.3
-0.3
-0.2
0.7
-1.3
2.7
-0.6
-2.0
2.8
0.9
0.0
0.5
8.0
8.0
7.6
-0.1
-1.2
-1.2
38.2
39.8
40.0
6.5
6.2
6.4
Norway
2012
2013
2014
3.4
1.8
2.5
3.0
2.2
2.5
1.8
2.0
2.0
5.0
5.5
4.3
-0.1
-0.5
-0.1
1.1
-2.5
0.5
2.3
2.1
3.8
0.8
2.1
2.0
3.2
3.4
3.4
-
-
-
Macro forecast, Euroland
Year
GDP 1
Private
cons.1
Public
cons.1
Fixed
inv.1
Stock
build.2
Exports1
Imports1
Inflation1
Unemploym.3
Public
budget4
Public
debt4
Current
acc.4
Euroland
2012
2013
2014
-0.6
-0.4
1.3
-1.4
-0.6
0.7
-0.5
0.2
0.0
-3.8
-3.8
1.2
-0.5
0.0
0.0
2.7
1.2
4.3
-0.8
-0.1
3.3
2.5
0.7
1.0
11.4
12.0
12.1
-3.7
-2.9
-2.8
90.6
93.4
93.8
1.3
1.9
1.8
Germany
2012
2013
2014
0.9
0.6
2.6
0.7
0.9
1.7
1.0
0.9
1.1
-4.4
-0.1
5.4
0.0
0.1
0.0
3.8
1.2
5.1
1.8
1.4
4.8
2.0
1.5
1.4
5.5
5.2
4.9
0.1
-0.2
0.0
82.4
81.1
79.0
6.3
6.0
5.6
France
2012
2013
2014
0.0
0.2
1.1
-0.4
0.4
1.1
1.4
1.5
0.3
-1.2
-2.5
0.6
1.9
0.1
0.1
2.5
1.8
6.3
-0.9
1.4
4.7
2.1
1.0
1.2
10.2
11.2
11.5
-4.7
-4.0
-4.2
90.8
94.2
96.4
-1.9
-1.6
-1.8
Italy
2012
2013
2014
-2.4
-1.4
0.4
-4.3
-2.0
0.5
-2.9
-0.3
-0.4
-8.0
-6.1
1.0
-0.6
0.0
0.0
2.2
0.0
3.6
-7.8
-2.1
4.1
3.0
1.3
1.0
10.6
12.0
12.3
-2.4
-3.2
-2.6
124.2
130.9
132.0
-0.7
0.6
0.8
Spain
2012
2013
2014
-1.4
-1.3
0.4
-2.2
-2.7
-0.1
-3.7
-3.8
-2.1
-8.7
-7.0
-2.0
0.5
0.0
0.0
3.1
3.1
6.2
-5.0
-3.2
3.5
1.9
1.5
0.2
24.9
27.2
27.6
-10.6
-6.5
-6.9
88.4
96.0
102.0
-1.9
1.0
2.5
Finland
2012
2013
2014
-0.8
-1.3
1.1
0.2
-0.5
0.4
0.6
0.6
0.3
-1.0
-4.0
0.0
-
-0.2
0.4
3.0
-1.0
-2.5
1.5
2.8
1.4
1.2
7.7
8.2
8.4
-1.8
-2.1
-1.8
53.6
58.7
61.0
-1.7
-0.8
-0.5
Macro forecast, Global
Year
GDP 1
Private
cons.1
Public
cons.1
Fixed
inv.1
Stock
build.2
Exports1
Imports1
Inflation1
Unemploym.3
Public
budget4
Public
debt4
Current
acc.4
USA
2012
2013
2014
2.8
1.6
2.5
2.2
1.9
2.2
-1.0
-2.1
-0.8
8.3
4.5
7.0
0.2
0.0
0.0
3.5
2.8
8.5
2.2
1.7
6.7
2.1
1.5
1.4
8.1
7.5
6.8
-7.0
-4.0
-3.4
98.0
99.0
98.0
-2.7
-2.5
-2.4
Japan
2012
2013
2014
2.0
1.8
1.9
2.3
1.8
0.9
2.4
1.6
1.1
4.1
3.0
2.7
0.0
-0.2
0.2
-0.1
1.5
6.5
5.5
2.0
3.7
-0.1
0.3
2.5
4.4
4.2
4.0
-9.3
-9.0
-6.2
238.0
246.0
247.0
1.0
1.2
1.8
China
2012
2013
2014
7.8
7.7
8.0
-
-
-
-
-
-
2.7
2.6
3.2
4.3
4.3
4.1
-1.5
-1.5
-1.8
22.8
21.3
20.0
2.3
1.9
2.5
UK
2012
2013
2014
0.0
1.4
2.4
0.8
1.9
1.6
2.7
0.3
-0.1
-0.4
-2.6
5.8
-0.3
0.3
0.1
-0.1
3.0
5.8
2.3
2.0
3.9
2.8
2.6
2.2
8.0
7.7
7.4
-5.2
-6.5
-6.0
90.5
94.9
98.6
-3.5
-3.0
-2.8
Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.
34 |
December 2013
Nordic Outlook
Financial forecast
Bond and money markets
USD
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
18-Dec
+3m
+6m
+12m
EUR
JPY
GBP
CHF
DKK
SEK
NOK
Key int.
rate
0.25
0.25
0.25
0.25
0.25
0.15
0.15
0.15
0.10
0.10
0.10
0.10
0.50
0.50
0.50
0.50
0.00
0.00
0.00
0.00
0.20
0.20
0.20
0.30
0.75
0.75
0.75
0.75
1.50
1.50
1.50
1.50
3m interest rate
2-yr swap yield
10-yr swap yield
Currency
vs EUR
0.25
0.25
0.30
0.40
0.30
0.22
0.22
0.25
0.15
0.15
0.20
0.20
0.53
0.60
0.60
0.70
0.02
0.00
0.00
0.00
0.27
0.27
0.27
0.33
0.93
0.95
0.95
1.00
1.65
1.70
1.70
1.70
0.41
0.55
0.70
1.20
0.51
0.50
0.50
0.60
0.20
0.25
0.30
0.30
0.87
0.95
1.05
1.35
0.14
0.20
0.25
0.30
0.69
0.70
0.70
0.80
1.20
1.15
1.25
1.35
1.84
2.00
2.10
2.15
2.92
3.10
3.25
3.40
2.05
2.10
2.30
2.50
0.85
0.85
0.90
1.00
2.83
2.90
3.10
3.40
1.57
1.50
1.60
1.70
2.30
2.35
2.55
2.75
2.75
2.80
2.85
3.25
3.22
3.30
3.50
3.65
137.5
132
130
126
141.7
137
141
139
83.9
83.0
82.0
80.0
122.1
123
123
123
746.1
746
746
746
898.9
890
870
850
839.8
825
800
800
Currency
vs USD
137.5
132
130
126
103.1
104
108
110
163.8
159
159
158
88.8
93
95
98
542.7
565
574
592
653.9
674
669
675
610.9
625
615
635
Currency
vs DKK
542.7
565
574
592
746.1
746.0
746.0
746.0
5.27
5.45
5.29
5.37
889.1
899
910
933
611.2
607
607
607
83.0
83.8
85.7
87.8
88.8
90.4
93.3
93.3
Risk profile
3 mth.
Price trend
3 mth.
Price trend
12 mth.
Regional recommendations
Medium
Medium
Medium
Medium
-10/0%
-10/0%
-10/0%
-10/0%
0%-5%
0%-5%
5%-10%
0%-5%
Mild overweight
Underweight
Mild overweight
Mild overweight
Equity Markets
Regional
USA
Emerging markets (USD)
Europe (ex. Nordics) (EUR)
Nordics
Corporate earnings surprise
Uncertainty has hit Asia
Recovering economy, attractive valuation
Strong cyclical profile
Commodities
2013
NYMEX WTI
ICE Brent
Copper
Zinc
Nickel
Aluminium
Gold
Matif Mill Wheat
CBOT Wheat
CBOT Corn
CBOT Soybeans
18-Dec
97
108
7,278
2,000
14,060
1,798
1,233
208
616
426
1,347
Q1
94
113
7,958
2,054
17,376
2,041
1,631
245
737
715
1,449
Q2
94
103
7,186
1,876
15,018
1,870
1,415
222
695
661
1,470
Q3
106
109
7,066
1,902
14,063
1,836
1,323
189
650
534
1,424
2014
Q4
101
109
7,250
1,950
14,500
1,875
1,325
203
675
450
1,300
Q1
99
106
7,235
1,940
14,300
1,850
1,300
207
673
448
1,295
Q2
97
103
7,220
1,930
14,100
1,825
1,275
211
678
453
1,305
Q3
96
101
7,210
1,920
13,900
1,805
1,250
216
683
458
1,315
Average
Q4
95
99
7,200
1,910
13,700
1,785
1,225
217
688
463
1,325
2013
99
109
7,365
1,946
15,239
1,906
1,424
215
689
590
1,411
Source: Danske Bank
35 |
December 2013
2014
97
102
7,216
1,925
14,000
1,816
1,263
213
681
456
1,310
Nordic Outlook
Disclosure
This research report has been prepared by Danske Bank Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory
Authority.
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence.
These procedures are documented in the Danske Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any request that
might impair the objectivity and independence of research shall be referred to Research Management and to the Compliance Officer. Danske Bank Research departments are
organised independently from and do not report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all profitability of Danske
Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions.
Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’ Ethical rules and the Recommendations of the Danish
Securities Dealers Association.
Financial models and/or methodology used in this research report
Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual
security, issuer and/or country. Documentation can be obtained from the authors upon request.
Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text.
Expected updates
Nordic Outlook is a quarterly forecast, but new statistical data may give rise to changes in our views on individual economies.
First date of publication
Please see the front page of this research report.
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36 |
December 2013
Global Danske Research
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Nordic Outlook - Danske Analyse

Transcription

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