Swedbank Economic Outlook April 2012

1. Swedbank Economic Outlook
Swedbank Analyses the Swedish and Baltic Economies April 24, 2012
Continuing on the road to recovery
G
Global development
Table of Content:  Global economic data have been mixed since January. We have maintained
our forecast of global GDP growth at 3.1% this year, but have revised it up-
Introduction: A shaky wards to 3.4% from 3.1% for 2013,as the muddling-through scenario in the
euro area seems to be more clearly in place.
surrounding – but a
 Our main scenario has a probability of 60%, while the probabilities for a
turnaround is near 2 worse and a better scenario are 30% and 10%, respectively. The main nega-
tive risks include a higher oil price, a new crisis in the euro area if Spain and
Global: Lacklustre global Italy need rescue, a hard landing in China, and a slower recovery in the US.
Sweden
S
growth at best 4
 Economic growth contracted sharply in the last quarter of 2011, pulled down
by falling exports but partly offset by resilient household consumption. This
Sweden: Recovering after led to an annual growth rate of 4.0%. Economic data for the first months of
the hit last year 7 2012 suggest that the downturn has hit bottom and that growth will resume.
 The economy will start recovering in 2012, but unemployment will remain
Estonia: Growth prospects high. Monetary policy will not provide additional support, and fiscal policy is
in a wait-and-see position. With external demand dampened by Europe’s
improve 12 crisis, the growth outlook for 2012 and 2013 is 0.5% and 2.2%, respectively.
Estonia
E
Latvia: Better outlook, but  After three quarters of nearly 9% year-on-year growth, GDP growth slowed
caution still necessary 16 in the last quarter and annual growth in 2011 reached 7.6%. Exports grew by
a solid 24.9% despite a slowdown at the end of the year. Employment grew
by 6.7%, supporting households’ confidence and willingness to spend.
Lithuania: Rosy developments
 We keep our GDP growth forecast at 2.7% for this year and revise it slightly
stained with oil 20
upwards for 2013, from 4.0% to 4.2%, due to a better outlook for foreign
demand growth. Inflation will decelerate from 5% in 2011 to 3.8% in 2012
and further to 3.2% in 2013. Despite the resumption of budget deficits, public
finances will remain solid.
Latvia
L
 The economy expanded by a robust 5.5% in 2011. Investments contributed
most to growth, but private consumption supported it as well. Growth, albeit
slowing, has remained strong in early 2012, owing to the surprisingly robust
confidence and resilience of Latvian exporters in response to the slowdown
in external demand.
 We are raising the growth forecast to 2.5% in 2012 and 3.5% in 2013, owing
to the stronger economy in recent months and somewhat better outlook for
Latvia’s main trading partners. Inflation is to retreat from 2.8% this year to
2.5% in 2013. Euro adoption in 2014 is feasible, but has become more chal-
lenging.
Lithuania
L
 The economy grew more slowly at the end of last year, mainly because
companies slashed their inventories. Despite falling confidence, growth of
household consumption and investments remained strong in the final quarter
of 2011. At the end of the year, unemployment dropped below 14%, and real
wage growth has accelerated.
 We expect GDP growth to accelerate to 4.3% next year after a more mod-
est 3.3% growth in 2012. Inflation will be somewhat higher than previously
forecast and, at 2.8%, is likely to be above the Maastricht inflation criterion.
Inflation will ease to 2.5% and unemployment will drop to 11% in 2013.
April 24, 2012 1

2. Introduction Swedbank Economic Outlook
A shaky surrounding – but a turnaround is near
The economic situation in Sweden and holds could change if labour markets Emerging markets are reducing their
the Baltic countries slowed markedly at improved or worsened more than ex- problems with overheating and can
the end of last year and has continued pected. In addition, internal risks deal counteract some of the slowdown with
its hesitating pace since our forecast with statistical uncertainties because stimulus; still, growth will abate some-
in January. Economic data have been revisions of national accounts and em- what in oil-importing countries and pick
mixed, leading us to keep the global ployment have blurred the picture both up in commodity-based Russia and
forecast in aggregate terms unchanged backwards and forwards. Brazil. China’s growth falls towards 8%
for this year; meanwhile, the prospects this year and next, as its property sec-
Our main scenario comes with a prob-
for a pickup in growth in 2013 have tor cools and the export sector loses
ability of 60% and has a global growth
improved as the muddling-through speed. Also, Japan is affected by Chi-
rate of 3.1% in 2012, with a mild upturn
scenario in the euro area seems to be na’s slowdown, but investments are in-
in 2013 to 3.4%. This is still lower than
more clearly in place. creasing after the tsunami and nuclear
in 2011, when GDP growth reached
The outlook for 2012 in Sweden and the 3.5%. Stronger manufacturing activ- plant accident last year, and next year
Baltic countries is not much changed ity and investments are driving the US Japan’s growth will also benefit from a
from the one in January; for 2013, it economy. Although growth has picked weaker yen against the US dollar.
has been revised upwards slightly. In up, the higher oil price and the slower Commodity prices will increase during
Sweden, GDP is set to grow by 0.5% employment creation is counteracting the forecast period, contrary to our as-
in 2012, before reaching 2.1% in 2013. this development, leaving GDP growth sumptions in January. The oil price is
In the Baltic countries, GDP growth will with a marginal revision upwards, to assumed to reach US$119 per barrel
vary between 2.5% and 3.3% this year, 2.1% this year and 2.3% next year. this year on average, meaning that it
and between 3.5% and 4.3% next year, will fall back in the second half of this
The recession in the euro area is ex-
with Latvia at the lower and Lithuania at year as concern about a conflict in the
pected to become deeper in the crisis-
the higher ends of the interval. Middle East alleviates. The oil price will
struck economies, while it will go away
The main risks to the Swedish and in Germany and France in the second reach an average of US$113 per bar-
Baltic outlook are international, such half of this year. The worst of the crisis rel next year, and the consumer price
as new instability in the euro area. in terms of management is assumed pressure from commodity markets will
This could result if Spain and also Italy to be over, as member countries avoid abate, which, will cause inflation to fall
needed rescue funding, and if this were new rescue packages. Liquidity support during 2012 and 2013. Monetary policy
followed by a deeper-than-expected from the European Central Bank (ECB) will remain expansionary in advanced
recession. Also, a higher (or lower) oil could be provided if the situation war- economies (interest rates will stay
price, a more pronounced slowdown rants. The UK and the Nordic countries close to zero while quantitative easing
in China and other emerging markets, will grow below potential, especially the will be forthcoming mainly in Japan and
and a slower (or faster) recovery in the UK and Denmark, where the financial the UK). In emerging markets, mon-
US are other external risks. Internal crisis is still felt. etary policy will become less restrictive.
risks are geared towards private con- Fiscal policy in most of Europe will be
sumption, as the sentiment of house- restrictive. The effects of monetary pol-
icy, and also of a weaker euro against
Macro economic indicators, 2010- 2013 the US dollar, cannot counteract the
2010 2011 2012f 2013f negative growth effects from less gov-
Real GDP growth, annual change in % ernment spending and higher taxation.
Sweden (calender adjusted) 5.8 4.0 0.5 2.2
Estonia 2.3 7.6 2.7 4.2 More budget consolidation could be
Latvia -0.3 5.5 2.5 3.5 needed if growth slows. Unemployment
Lithuania 1.4 5.9 3.3 4.3 is already above 10% and increasing in
Unemployment rate, % of labour force
the euro area, where it has reached its
Sweden 8.4 7.5 7.8 7.9
Estonia 16.9 12.5 10.5 8.6 highest level for 15 years, while the op-
Latvia 18.7 15.4 13.6 11.9 posite is true for Germany, where the
Lithuania 17.8 15.4 13.0 11.0
rate of 6.7% is the lowest in 20 years.
Consumer price index, annual change in %
Sweden 1.2 3.0 1.5 1.9 In our worse scenario, to which we
Estonia 3.0 5.0 3.8 3.2
Latvia -1.1 4.4 2.8 2.5 give 30% probability, the crisis in the
Lithuania 1.3 4.1 2.8 2.5 euro area worsens further, with Spain
Current account, % of GDP requesting rescue funding to avoid a
Sweden 6.8 7.2 6.9 7.1 collapse, and with risks therefore also
Estonia (incl. capital account) 7.2 6.7 5.9 5.5
Latvia 3.0 -1.2 -1.8 -2.6 increasing for Italy. The recession
Lithuania 1.5 -1.6 -2.5 -2.7 deepens, and political and social un-
Sources: National statistics authorities and Swedbank.
April 24, 2012 2

3. Introduction Swedbank Economic Outlook
rest worsens. Financial market senti- government budget is cautious, leav- larger market share and export growth
ment becomes volatile, with new wealth ing room for expansion next year when in an overall weak export market. In
losses weakening confidence. Also, the the economy will have already started addition, Latvia’s main export partners
oil price could rise higher, and China to improve. are still rather strong, compared with
could land harder, with growth below the crisis-struck countries in southern
Estonia’s economy expanded by a
6-7% this year and next. In the US, if Europe. In 2013, economic growth will
strong 7.6% last year; and our GDP
the Bush tax cuts would not be extend- increase to 3.5% as the global outlook
forecast for 2012 remains at January’s
ed, restrictive fiscal policy would slow improves and the inventories give a
2.7%. Global demand lost steam con-
growth. As global growth would fall un- positive contribution to growth. Unem-
tributing to negative quarterly growth at
der 2% and trend towards stagnation, ployment is set to fall under 12% next
the end of last year. In 2013, GDP is
the world economy would move into a year. As the budget deficit shrinks in
expected to increase by 4.2%, a slight
recession. line with EU rules, the EMU entry is
upward revision from January in light of
made possible, although the inflation
A better growth case is also made pos- the somewhat stronger global outlook.
outlook is challenging (2.5 % next year)
sible, with a low probability of 10%, if Inflation will also be higher due to higher
not least as other euro nations’ inflation
the oil price falls, the euro area reces- global commodity prices, thus reducing
outcome is uncertain. Also, the euro
sion turns out to be shallow, and the re- real wages, sentiment, and consumer
area’s willingness to accept new mem-
covery in the US picks up, while growth spending. The main domestic risk is the
bers still constitute major uncertainties.
in emerging markets reaches sustain- labour market, where the lack of quali-
able high levels. fied labour in some sectors is increas- Lithuania’s GDP growth has slowed
ingly becoming a problem; meanwhile, markedly, but the rate was still posi-
Sweden’s economic data were re-
long-term unemployment remains high. tive in quarterly terms at the end of last
cently revised. In 2011, GDP grew by
Also, emigration may pose a threat to year, thus leading to a high but lower-
4%, compared with expected 4.5%,
competitiveness, going forward. While than-expected growth of 5.9% for 2011.
while growth in 2010 was revised up
having the lowest government debt ra- The inventory cycle contributed to the
to almost 6%. A sharp drop in exports
tio in Europe, Estonia’s loan payments weaker outcome, while exports and do-
pulled down growth in the last quarter
by the European Financial Stability Fa- mestic demand held up relatively well.
of 2011, but private consumption was
cility (EFSF), help to raise the gross Going forward, GDP is set to weaken
resilient. Since then, the purchasing
debt ratio from 6% to 10% of GDP in to 3.3% this year, before reaching 4.3%
managers’ index indicates a marginal
2013. Even so, the overall public fi- next year as export and investment
improvement only, and the rebound in
nances remain solid, and the budget demand improves. In 2013, unemploy-
new orders is still weak. GDP is set to
deficits are temporary. ment is expected to fall to 11% on av-
increase by 0.5% this year (with fourth
erage, and the inflation outlook drops
quarter last year markedly negative, Latvia’s GDP grew by 5.5% in 2011, the
to 2.5%. Public finances have become
and first quarter showing a minor drop first full year of growth after the reces-
less strained, but risks remain because
before activity picks up in the second sion. The drivers for the recovery were
politicians’ propositions could lead to
half of this year). Unemployment will al- exports and EU funding, which boosted
a more expansionary fiscal policy as
most reach 8% early next year before investments. Better confidence among
this year’s election approaches. The
falling back slowly in line with the higher households also led to higher consump-
outlook for membership in the EMU is,
GDP growth in 2013 of 2.1%; as house- tion. In 2012, we forecast GDP to slow
therefore, cautiously positive with re-
hold spending will increase more than to 2.5% as the global climate weakens
gard to domestic risks with the inflation
we assumed in January. The Riksbank (up from January’s 2.0% on the basis
outlook especially challenging; and, it is
will keep the repo rate at 1.5% this year, of stronger demand). External com-
still uncertain with regard to actions by
before hiking it twice next year. The petitiveness has improved, leading to a
the policymakers of the euro area.
Unit labour cost (annual change in %), 2000 - 2011 The outlook for Sweden and the Baltic
28
countries has marginally improved for
24
the next year, but the risks are skewed
20 and remain high for a weaker outcome.
16 Estonia Therefore, it is still important to manage
12 Lithuania risks, and to continue the reform proc-
8 Latvia ess to strengthen competitiveness in all
4 Sweden four countries, thereby increasing resil-
0 Euro area ience if worse comes to worst.
-4
-8
-12 Cecilia Hermansson
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Eurostat.
April 24, 2012 3

4. Global Swedbank Economic Outlook
Lacklustre global growth at best
Since our January forecast, economic faltered in the euro area, the UK, and increased funding, with the addition
developments have been mildly positive Japan, while losing speed in the emerg- with increased funds from the IMF, thus
although increasingly mixed over time, ing markets. lowering the still-present risks of con-
as the impact on sentiment from central tagion. Recently, the focus has shifted
banks’ liquidity injections abates. The In the euro area, the European Central
to Italy and especially Spain, where the
recovery in the US economy has picked Bank (ECB) has once again injected
risk premium for sovereign bonds again
up but is still cautious; the recession in liquidity (through long-term refinanc-
is increasing despite the ECB’s meas-
the crisis-struck euro area economies ing operations, or LTROs). In Febru-
ures, and where market actors doubt
is more evident while core countries ary, the ECB’s loans amounted to EUR
that the Spanish government’s efforts
have stagnated. For now, the worst is 530 billion, thus adding to Decem-
will be sufficient to cut the budget deficit
likely to be over in terms of crisis man- ber’s amount of EUR 489 billion. Al-
to reach the agreed 5.3% of GDP this
agement; the region has returned to the though financial stress is abating, it is
year, and 3% next year.
“muddling-through-mode.” GDP growth still high, as banks are shrinking their
in emerging markets has slowed. Also, balance sheets and credit austerity is Even so, sentiment among investors,
with higher energy costs for oil-import- weakening growth in the region. The companies, and households has im-
ing countries, the global economy will agreement made in March to support proved, as a response to both the in-
grow modestly, just above 3% this year, Greece with a second loan conditional creased liquidity in the euro area and
before returning in 2013 to last year’s on reforms, while forcing private banks the somewhat stronger recovery in the
growth of near 3.5% – a modest up- to write down their claims, has given US economy in terms of growth and
ward revision since January. Greece more time. However, political, lower unemployment. In the US, pur-
economic, and social stress is building chasing managers are signalling higher
Since the beginning of the year, the up in the country before the election manufacturing activity. The stock mar-
world economy has been characterised in May, driving expectations of either kets have continued to strengthen, al-
by a continuation of the recovery, albeit calls for more support or, but less likely, though remaining volatile and fragile.
with some mixed signals. Commodity a decision to leave the euro area and However, there are new disappoint-
and share prices have risen, and the reintroduce the drachma. To strengthen ments, as employment growth again
purchasing managers’ index and con- crisis management, the two rescue is slowing and the oil price – since the
fidence indicators have strengthened facilities, the European Financial Sta- geopolitical stress has raised supply
slightly. GDP growth in the last quarter bility Fund (EFSF) and the European concerns - has returned to the high lev-
of 2011 indicates that the recovery has Stability Mechanism (ESM), now have els last seen during the Japanese ca-
picked up in the US; meanwhile, it has the possibility of running parallel with tastrophe a year ago.
Swedbank’s GDP forecast - Global1/ The winding down of growth in emerg-
(annual percentage change) ing markets also explains why the world
Outcome April 2012 January 2012 recovery has over the last two quarters
2011 2012 2013 2011 2012 2013 been losing speed. After policymakers
reduced overheating by removing stim-
US 1.7 2.1 2.3 1.8 2.0 2.2
ulus, domestic activity is slowing while
EMU countries 1.4 -0.5 0.4 1.6 -0.3 0.2 global demand is growing less briskly.
Of which: Germany 3.1 0.5 1.3 3.0 0.4 0.9 Especially in China, the property mar-
France 1.7 0.3 0.6 1.6 0.2 0.5 ket and car consumption have cooled,
Italy 0.4 -1.8 -0.3 0.5 -1.3 -0.8
driving expectations of a hard landing.
Spain 0.7 -2.0 -0.8 0.6 -1.0 -0.5
Manufacturing growth has slowed and
Finland 2.9 0.8 1.7 2.9 0.4 1.5
export orders’ growth is much weaker
UK 0.7 0.5 1.0 0.9 0.5 0.5
than a year ago. Inflation has de-
Denmark 1.0 0.5 1.0 1.0 0.7 1.3
Norway 1.7 2.0 2.5 1.7 2.0 2.3 creased, but, since it is still a concern,
the room for new stimulus – although
Japan -0.7 1.5 1.2 -0.5 1.7 0.9
China 9.2 8.1 8.0 9.3 8.2 7.8
building up – is somewhat limited.
India 7.2 6.7 7.3 7.3 6.7 7.0 Expectations of modest growth
Brazil 2.7 3.1 3.5 3.0 2.7 2.2 in our main scenario
Russia 4.3 4.1 3.9 4.2 3.9 3.7
Global GDP in PPP 3.5 3.1 3.4 3.6 3.1 3.1
In our main scenario, to which we give
Global GDP in US$ 2.5 2.2 2.6 2.7 2.3 2.3 60% probability, global output growth
will be lacklustre at best. The world
Sources: National statistics and Swedbank.
economy is now expanding at a rate
1/ Countries representing around 70 % of the global economy. The World Bank weights from
2010 have been used. of just below 3% in purchasing power
April 24, 2012 4

5. Global Swedbank Economic Outlook
terms; this will increase towards the Global PMI, S&P 500 (indeces) and Brent oil price, Jan 2007 - Apr 2012
second half of this year before reaching 80 140
an average of 3.1% in 2012 and 3.4% 75 130
in 2013. For more details of the outlook 70 120
see Swedbank’s Global Economic Out- 65 110 PMI Output
look, published April 24th. 60 100 global
Oil price Brent in
Compared with our January forecast, 55 90 USD
growth in the US has been revised 50 80 S & P 500
upwards only slightly, as the stronger 45 70
momentum will be negatively affected 40 60
by higher energy prices. Growth in the 35 50
euro area has been revised downwards 30 40
Source: Ecowin
for 2012; however, in 2013 we see pos- Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12
sibilities for stronger activity in the core
countries such as Germany, as export In the advanced part of the world, fis- For oil-importing countries, responsible
and investment demand picks up in the cal austerity is putting on the brakes for some 80% of global output, the high
second half of this year. Germany is ex- to growth; meanwhile, households are oil price is applying another brake, low-
pected to have a recession in technical busy deleveraging, which means in- ering growth while increasing inflation.
terms, but the underlying strength of the creased savings and cautious spend- However, over the forecast horizon,
economy is still good. The recession in ing. Monetary policy will stay expan- global inflation in terms of consumer
southern Europe will deepen this year, sionary, but will not be sufficiently effec- and commodity prices will not be a ma-
and we still cannot see growth coming tive in counteracting the adverse effects jor problem. Capacity utilisation is still
back until after the forecast horizon. arising from the restrictive fiscal policy. low, and the output gap (assuming po-
Investments are growing in Japan as Still, policy interest rates will remain tential global growth of some 4%), al-
a response to the tsunami shock, al- close to zero in most advanced econo- though shrinking, will close only a few
though the strong yen, high energy mies, and we foresee more initiatives years’ from now. Labour costs will stag-
costs, and slower demand from China from central banks to provide liquidity nate or grow weakly, as the bargaining
will reduce growth expectations some- in various forms, especially in the UK power of the labour force remains low.
what this year before they strengthen in and Japan – and to lesser extent in the
Global growth is also too weak to sup-
2013 as the yen weakens. US and the euro area, where criticism is
port a new boom in the commodity mar-
arising and calls for exit strategies are
Our forecast is not much altered in kets. Even so, commodity price inflation
growing louder (e.g., from the Bundes-
emerging markets, as we maintain our will stay high for some time, before the
bank).
view, expressed in January that growth oil price falls as expectations of a war
will slow in 2012 before picking up The US dollar will continue appreciat- between Iran and Israel cool down.
slightly in 2013. Growth in oil-exporting ing, as the economic recovery there Most commodity prices will remain high
countries like Russia and Brazil looks is expected to remain stronger than in as they are supported by the global re-
stronger than in our January forecast, the euro area or Japan, which will be covery, high liquidity, and low interest
while India and China will try to limit the relieved to see the yen weakening. The rates. Our assumptions for the oil price
larger negative growth effects by using appreciation of the renminbi will be kept have been revised upwards to $119
more expansionary economic policies. at close to 4% per year. Tensions re- and $113 per barrel for 2012 and 2013,
A hard landing in China will thus be garding exchange rates are building up, respectively (up from $102 and $96 per
avoided. not least as Brazil and other emerging barrel in January). Metal and food pric-
markets try to keep their industries from es – already high – will continue their
losing competitiveness. slow ascent during 2012 and 2013.
Interest and exchange rate assumptions The fundamental driver for commodity
Outcome Forecast prices is the emerging markets, where
20 Apr 30 Jun 31 Dec 30 Jun 31 Dec catching up to richer countries’ living
2012 2012 2012 2013 2013 standards and improving productivity
Policy rates are increasing the demand for com-
Federal Reserve, USA 0.25 0.25 0.25 0.25 0.25 modities. Emerging markets, although
European Central Bank 1.00 1.00 1.00 1.00 1.00 experiencing a slowdown, have less
Bank of England 0.50 0.50 0.50 0.50 0.50
need to deleverage and tighten their fis-
Bank of Japan 0.10 0.10 0.10 0.10 0.10
cal belts. High commodity prices have
Exchange rates so far been met by more restrictive eco-
EUR/USD 1.32 1.28 1.26 1.23 1.20
nomic policies, and, over the forecast
EUR/GBP 0.82 0.81 0.81 0.81 0.80
horizon, most of the overheating prob-
RMB/USD 6.30 6.18 6.05 5.94 5.82
USD/JPY 82 85 87 90 95 lems will have been overcome.
April 24, 2012 5

6. Global Swedbank Economic Outlook
Interest rate differences to German 10 year government bond, Jan 2008 -
Apr 2012 (percentage points)
leaving the currency union. In the US,
40 the main risk, except for that of energy
Greece
35
prices eating a big hole in consumers’
Portugal
wallets, is the continuation of a con-
30 Ireland
gressional gridlock beyond this fall’s
Spain
25 presidential election. If tax exemptions
Italy
20 are removed, fiscal policy could be-
Belgium
come restrictive, thus slowing growth.
15 France
The problems involved in deciding on
10 UK debt ceilings, tax and expenditure poli-
5 Sweden cies, and health reform could escalate
0 during the rest of the forecast period,
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 breaking the momentum of the US re-
-5 Source: Ecowin
covery and increasing tensions on the
global financial markets. Another nega-
In January, we limited our discussion because the probability of a worse sce-
tive risk is, of course, of a hard land-
on scenarios to the euro area. Then, nario, which we put at 30%, is higher
ing in China, as falling property prices
the main scenario was characterised than the probability of a better scenario,
could reduce local and regional activity
as one in which small, but important which we assess to be only 10%.
and weaken the financial sector.
steps were taken to alleviate the crisis.
The factors driving the better scenario –
With almost as high a probability, we In the longer term, there are many
towards potential growth of around 4%
envisaged a weaker scenario – resem- challenges for the world economy. For
– are greater-than-expected stimulus in
bling the crablike movement seen dur- those interested in this discussion, see
emerging markets, supporting growth;
ing 2011 – and also a crisis scenario in Swedbank’s Global Economic Outlook.
either a lower oil price or less negative
which a euro area collapse had a small In this we discuss a number of long-
effects from the current price level; and
but not negligent probability. In April, we term issues: how to exit an expansion-
stronger confidence arising from the
include our main euro area scenario in ary monetary policy; how to safeguard
crisis management in the advanced
the overall global main scenario, see- financial and consumer price stability;
economies, mainly the US and the euro
ing a continuation of the muddling- how to create growth in Europe de-
area, which would generate higher con-
through policies. Fiscal cooperation is spite an environment of austerity; how
sumer and investment spending.
slowly being strengthened; the rescue to avoid global imbalances; how to put
funds are being made larger – although A worse scenario – with global growth the environment back on the global
perhaps not sufficiently. The policy still of 2% or less – could materialise if the policy agenda; and how to reduce un-
includes balancing crisis support and oil price continues to rise along with employment, which most likely has be-
avoidance of moral hazard, thus forcing geopolitical tensions, while the supply come more structural in the advanced
crisis-struck countries to speed up their of oil is reduced. In the euro area, po- economies. A modest recovery in the
reform efforts. Even though sentiments litical and social unrest could pick up, short term is one thing; the build-up of
on financial markets improved after the increasing uncertainty before the elec- challenges for the world economy in the
ECB’s LTRO support, a credit crunch is tions this spring in Greece and France, medium and long term is quite another.
in the making; because of this, together and next year in Italy and Germany.
Cecilia Hermansson
with fiscal austerity, the region is in a There could also be backlashes from
recession. the crisis management in the euro area,
with the risk of one of more countries
In our main scenario, the recession in
the euro area levels off towards the sec-
ond half of this year, driven by stronger The Japanese yen, the Chinese yuan, the euro and Brazilian real against
the US dollar, Jan 2007 - Apr 2012 (Aug 2008=100)
growth in the core countries. Some 160
relief will come from a weaker euro, 150
mainly in relation to the US dollar. Over 140
the forecast horizon, and well beyond,
130
unemployment will remain high in the
120 Euro
crisis-struck countries in southern Eu-
110 Real
rope, resulting in an inevitable severe
100 Yuan
social, economic, and political crisis.
90 Yen
Asymmetric risks – a worse sce- 80
nario is more likely than a better 70
There are plenty of negative risks to this 60
forecast. The risk view is asymmetric Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Source: Ecowin
April 24, 2012 6

7. Swedbank Economic Outlook
Sweden: Recovering after the hit last year
A sharp drop in exports pulled down these numbers is a stronger recovery in according to our assessment, while the
growth rates in the last quarter of 2011. the latter half of the year. Thus, we ex- upside risks have increased somewhat.
Following a surprisingly strong perform- pect a turnaround of the declining trend The actions to resolve the Greek debt
ance during the first three quarters of in economic growth seen since mid- crisis, together with increased lending
2011, economic growth contracted by 2011. In 2013, the recovery continues, by the European Central Bank (ECB)
more than 1% (seasonally adjusted), but at a slower quarterly rate, and an- to banks, have calmed the European
reducing overall annual real growth to nual growth is forecast at 2.2%. Due to economies, but the debt dynamics in
4.0%, compared with our previous esti- the weak external environment, growth Spain and Italy could again pull down
mate of 4.5%. Among the positive signs is still below trend, and the main growth European growth rates. Also, emerging
was a surprising resiliency of private engine will be domestic demand, in par- markets and the US are facing some
consumption. Households increased ticular private consumption. headwinds, in particular from rising en-
their spending at an annual rate of ergy prices. Domestically, risks have re-
The quite substantial data revisions in
2.1% and withstood the worsening risk ceded, in our view, with a lack of hous-
connection with the 2011 GDP release
sentiments in the global markets. ing underpinning real estate markets
have altered the path and dynam-
and unemployment rates increasing at
Data in the first couple of months of ics of the Swedish economy following
a slower rate.
2012 give a mixed picture. Export the financial crisis in 2008-2009. GDP
growth has recovered somewhat, la- growth for 2010 was revised upwards, Exports to recover after a sharp
bour market developments are not as while the rate of expansion in the first decline
bad as were previously expected, and three quarters of 2011 was lowered. After rebounding strongly in the previ-
sentiments have strengthened. How- Thus, the recovery was faster in 2010, ous quarters, Swedish export volume
ever, industrial production plummeted but the performance of the economy fell in the fourth quarter last year by
in February – although one month’s has since been more modest. In addi- much more than we expected. The de-
reading should be interpreted care- tion, the number of hours worked was cline was driven by weaker global de-
fully – and the purchasing managers’ significantly higher than previously re- mand and growing uncertainty about
index (PMI) does not point to a rapid ported. This implies that productivity the sovereign debt crisis in the euro
rebound in either manufacturing or growth in the Swedish economy was area and its impact on the global econ-
services. Furthermore, uncertainty re- slower, and together with rising unit la- omy. In particular, Swedish exports of
garding international developments bour costs, competitiveness was not as intermediate and investment goods
has increased, with weaker data com- strong. were affected when investment plans
ing in from both Europe and the US late globally were postponed, not least in
The risks to the forecast, and to the
in the first quarter. On an annual basis, Europe, which is the largest export
Swedish economy, mainly derive, as
we are lowering our growth forecast for market for Swedish industry. On an an-
before, from external sources. Howev-
2012 from 0.6% to 0.5%, but underlying nual basis, however, total export vol-
er, the downside risks have decreased,
ume increased by 6.8% in 2011 due to
Key Economic Indicators, 2010 - 2013 1/ the strong growth in the first three quar-
2010 2011 2012f 2013f ters. Goods exports increased by 8.5%,
Real GDP (calendar adjusted) 5.8 4.0 0.5 2.2 while services picked up by 2.9%.
Industrial production 19.8 6.7 -3.5 2.0
CPI index, average 1.2 3.0 1.5 1.9 The world market growth for Swedish
CPI, end of period 2.3 2.3 1.3 2.0 exporters will be below the long-term
CPIF, average 2/ 2.0 1.4 1.3 1.6 trend during the forecast period, mainly
CPIF, end of period 2.3 0.5 1.7 1.6 due to a slow growth rate in the OECD
Labour force (15-74) 1.1 1.2 0.2 0.3 region. Since 2000, the annual growth
Unemployment rate (15-74), % of labor force 8.4 7.5 7.8 7.9 of world markets for Swedish firms has
Employment (15-74) 1.0 2.1 -0.1 0.2 increased by 6-6.5%. For 2012, we ex-
Nominal hourly wage whole economy, average 2.5 2.7 3.2 3.1 pect these markets to grow by 3.5-4%,
Nominal hourly wage industry, average 2.8 2.4 3.1 3.0 which is more or less the same level
Savings ratio (households), % 8.5 9.7 10.1 9,8 we forecast in January. The weakest
Real disposable income (households) 3/ 1.2 3.3 2.0 2.1 growth performance will be seen in the
Current account balance, % of GDP 6.8 7.2 6.9 7.1 euro area, while emerging markets’
General government budget balance, % of GDP 4/ -0.1 0.2 -0.3 0.2
growth will still be relatively high. For
General government debt, % of GDP 5/ 39.4 36.5 35.8 33.5
next year, we foresee market growth as
Sources: Statistics Sweden and Swedbank. somewhat stronger but still below the
1/ Annual percentage growth, unless otherwise indicated.
2/ CPI with fixed interest rates. long-term trend. A low utilisation rate
3/ Based on short-term earnings statistics in the business sector and budget con-
4/ As measured by general government net lending.
5/ According to the Maastricht criterion. solidations in several OECD countries
April 24, 2012 7

8. Sweden Swedbank Economic Outlook
mean that global investment activity is Swedish export and order, Jan 2005 - Feb 2012 (annual change in %)
30
expected to be modest in the coming
years. 20
In the immediate term, there are signs 10
of an improvement in the Swedish ex- Export value
(nom.)
port industry after the sharp slowdown 0
Export volume
at the end of 2011. New orders have
-10
started to pick up, although from low Export orders
levels, and the export value for the first -20
two months shows only a minor de-
crease from the last months of 2011. -30
Swedbank’s PMI for the manufacturing
-40
sector also improved marginally in the Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11
Source: Statistics Sweden
first quarter of 2012. Although we as-
sume a mild recovery in Swedish ex- Investments on hold Modest global demand and lower ca-
ports during the second half of 2012, pacity utilisation will restrain private in-
Gross fixed investment increased in
the average export volume will be 1.3% vestments during 2012. In Swedish in-
volume terms by 5.8% in 2011. This
lower than in 2011. dustry, the utilisation rate fell to 82.8%
was in line with our expectations. Al-
Weak investment activity in the OECD though investment has trended up- in the first quarter of 2012 from 86% in
will limit Swedish export possibili- wards since 2010, with an accumulated the same period last year, in line with
ties. The global outlook for e.g. heavy investment growth of 16%, total invest- the decreasing production volume. In
trucks is expected to weaken in 2012, ment volume has not yet reached the the Statistics Sweden’s investment
mainly on mature markets; however, pre-crisis level of 2008. Furthermore, plan survey of February 2012, the in-
demand is also expected to deceler- the investment trends differ across sec- dustry reports plans to increase invest-
ate in emerging markets. In particular, tors. The largest shift has been in real ment volume by 5%, which seems opti-
slower export demand from Germany estate. Investments in housing fell by mistic due to the modest export outlook
– destination for nearly 10% of total 7.3% (seasonally adjusted) between and low utilisation rate. In the services
Swedish exports - will have a dampen- the third and fourth quarters last year, sector, which accounts for more than
ing impact on Swedish export perform- after two years of strong growth. De- one-third of total investment, we fore-
ance. We foresee an export volume spite the large drop, real estate volume see a continued increase in investment,
growth of 2.5-3% in 2013, when global was 12.8% higher in 2011 than in 2010. particularly in household-related indus-
demand is improving. After two years In the private sector excluding housing, tries. Public investment, which started
of market gains, we foresee losses of investments continued to grow even to decrease at the end of 2011, is ex-
market shares in 2012-2013 due to a while production growth was decelerat- pected to continue to shrink in 2012,
less favourable demand composition ing and uncertainty about the business mainly due to declining infrastructure
and worsening competitiveness. Unit outlook was growing. The strongest in- investments. This is the first time since
labour costs are expected to increase vestment performance was recorded in 2003 that investment in the public sec-
faster than we expected in January due the services sector, while the transport tor is expected to fall.
to lower productivity growth and higher industry and energy sector showed the The main downward revision from
wage increases. largest slowdown. January concerns real estate invest-
ment. The sharp drop in the number
Swedbank’s GDP Forecast – Sweden
of building permits issued at the end of
Changes in volume, % 2010 20111/ 2012f1/ 2013f1/
last year will have a negative impact on
Households' consumption expenditure 3.7 2.1 (1.4) 1.3 (0.2) 2.5 (2.1) investment growth this year. Although
Government consumption expenditure 1.9 1.8 (1.7) 0.6 (0.7) 0.9 (0.9) house improvements will be stimulated
Gross fixed capital formation 7.7 5.8 (5.8) 0.1 (1.5) 2.6 (2.5)
by the continuing tax reductions for
private, excl. housing 5.7 5.0 (2.9) 2.6 (2.7) 4.0 (4.3)
renovation, the growth rate will decel-
public 6.2 1.6 (6.6) -1.8 (-0.8) 0.4 (0.4)
housing 17.2 12.8 (15.4) -6.2 (-0.5) -0.2 (-1.5) erate from a high level. Since Decem-
Change in inventories 2/ 2.1 0.7 (0.6) -0.4 (-0.5) -0.1 (0.2) ber 2008, when these tax reductions
Exports, goods and services 11.7 6.8 (8.4) -1.3 (-1.1) 2.6 (1.7) were introduced, investment in rebuild-
Imports, goods and services 12.7 6.1 (5.9) -1.1 (-1.7) 2.0 (2.2) ing has increased by 50%. Overall, we
GDP 6.1 3.9 (4.5) 0.2 (0.3) 2.2 (1.8) foresee a fall in housing investment of
GDP, calendar adjusted 5.8 4.0 (4.5) 0.5 (0.6) 2.2 (1.8) 6% in 2012; this means that investment
Domestic demand (excl. inventories) 2/ 3.7 2.6 (2.2) 0.8 (0.5) 1.9 (1.7) in real estate as a share of total invest-
Net exports 2/ 0.3 0.7 (1.6) -0.2 (0.2) 0.4 (-0.1) ment will decrease. Fundamentally,
Sources: Statistics Sweden and Swedbank. there is still a need for more invest-
1/ The figures from our forecast in January 2012 are given in brackets.
2/ Contribution to GDP growth.
ment in housing. The growing popula-
April 24, 2012 8

9. Sweden Swedbank Economic Outlook
Gross fixed investments in different branches, 2005 Q1 - 2011 Q4 (annual
tion, particularly in the large cities, and change in %)
the lack of housing in 60 percent of the
30
Swedish municipalities imply a large
underlying demand for new housing. 20
Of the Nordic countries, Sweden has
10
the lowest investment in housing per Total investments
capita. 0
Real estate
We foresee investment growth in 2012 -10 Private sector excl
to be weaker than envisaged in the out- housing
-20 Public investement
look in January, and gross fixed capital
formation is expected to grow by only
-30
0.1% this year. In 2013, we expect total 2005 2005 2006 2007 2008 2008 2009 2010 2011 2011
investment volume to pick up by 2,6%, Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Source: Statistics Sweden
driven by stronger investment activity in
the private sector and a recovery in the early 2012 from 2011, and new regis- rates and slow the reduction of the un-
real estate market. trants as job seekers at the public em- employment rate. Furthermore, as real
ployment service are also up. A positive growth is expected at 2,1%, below po-
Unemployment to increase, sign is that the number of open posi- tential, we do not expect a significant
competitiveness a challenge tions is increasing. Partly, this is a result dent to unemployment rates.
Although the labour market is losing of employers bringing forward summer-
The wage-bargaining process that was
steam, it is holding up somewhat bet- season temporary jobs. The “hours
initiated last year is expected to in-
ter than we expected earlier in the year. worked” statistic is also holding up bet-
crease cost pressures for companies,
The unemployment rate in February, ter than expected, and data do not yet
which could further strain competitive-
seasonally adjusted, was 7.5%, which show a decline. This suggests that em-
ness in Sweden. Due to quite drastic
is roughly unchanged from January and ployers are not seeing an urgent need
revisions of data on hours worked in
December. On average in the first two to reduce labour input.
2010, productivity was developing sig-
months of 2012, 390 000 people were
Against the background of a better- nificantly more slowly in the Swedish
registered as unemployed, compared
than-expected outturn in the early economy in 2010 and 2011 than was
with the 400 000 registered in the same
months of 2012, and a stronger pro- earlier believed. This also implies that
period of 2011. However, labour market
jected economic turnaround, we are unit labour costs are increasing faster.
participation is trending down, suggest-
revising down our unemployment fore- Thus, we expect companies to struggle
ing that more people are discouraged
cast for 2012 and 2013; however, we harder in the export markets while pro-
from looking for jobs. Also, the reforms
still expect the unemployment rate to ductivity growth continues to lag behind
of the sickness benefit system imply
increase well into next year. The av- wage costs over the next two years.
that many that were previously regis-
erage unemployment rate for 2012 is
tered as unemployed are now leaving Although the employment rate has
forecast at 7.8%, unchanged from our
the labour force and returning to the been trending downwards since the au-
January forecast, and at 7.9% in 2013,
health insurance, thereby reducing the tumn of 2011, a stronger-than-expect-
compared with 8.0% in the January
unemployment rate. ed growth recovery in the second half
forecast. We do not expect the unem-
of 2012 will raise employment levels.
Short-term indicators suggest that the ployment rate to exceed 8% in season-
However, we expect that job growth
unemployment rate is set to increase ally adjusted terms during the forecast
will be unevenly distributed among dif-
in the immediate term. The number of period. In 2013, we expect a pickup in
ferent groups in the labour market. A
notifications has more than doubled in labour demand to raise participation
long period of relatively high unemploy-
ment has increased structural unem-
Employment rates: difference between Swedish born and foreign born, Apr
2005 - Feb 2012 (percentage points) ployment, i.e., long-term unemployed
25 who have had little or no job experi-
ence in recent years find it increasingly
20 more difficult to find employment. This
is particularly the case for young en-
25-54 year
15 trants and for foreign-born job seekers.
55-74 year
For these groups, employment rates
15-24 year dropped last year, and, with their lack
10
of experience and labour market con-
5 nections, we believe that redoubled
efforts will be needed to reduce the
0 unemployment rates in these groups.
Apr-05 Feb-06 Dec-06 Oct-07 Aug-08 Jun-09 Apr-10 Feb-11 Dec-11 Source: Statistic s For the age cohort of 25-54-year-olds,
Sweden
April 24, 2012 9

10. Sweden Swedbank Economic Outlook
there has been a steady increase in the tion has continued to grow in line with proved conditions implies that the sav-
difference between domestic born and developments at the end of last year. ings ratio will not increase to the same
foreign born, despite the improvement extent as in our January forecast, but
The financial situation of households
of the labour market since mid-2009. instead is estimated at around 10% of
has been bolstered by solid earnings,
For 15-24-year-olds, the employment disposable income. In 2013, the labour
but increasing interest costs and high
rate varies more by season, suggest- market will strengthen further and we
indebtedness underscore their continu-
ing that Swedish-born youth have eas- expect household sentiments to im-
ing vulnerability to shifts in asset prices
ier access to temporary seasonal jobs, prove as the European situation stabi-
and employment. Real disposable in-
something that improves their future lizes. Together with fiscal policy sup-
come rose by 3.3% in 2011, more than
work prospects. porting household incomes through tax
double compared with 2010. At the
rate reductions, private consumption
Households - the backbone of same time, consumption grew by 2.1%
will continue to increase and the sav-
growth in real terms. Not only eroding senti-
ing ratio will fall to 9,8% of disposable
Household consumption picked up rap- ments but also a decrease in house-
income. Thus, we expect that house-
idly in the fourth quarter of last year af- hold assets can explain the difference.
hold spending will provide the largest
ter declining sharply in the third quarter. Overall household net financial assets
contribution to growth over the next two
Seen over the whole year, however, declined as a share of disposable in-
years.
consumption grew by 2.1%, compared come. In particular, households’ holding
with 3.6% in 2010. Thus, despite a of equities fell in value by about 10%, The monetary easing cycle has
strong growth in real disposable in- while housing assets was roughly un- ended
come, households prioritised savings, changed. Using estimates from Statis- The Riksbank kept the repo rate con-
which is an indication of the persist- tics Sweden (2006), this would mean a stant on April 17 at 1.50% and gave
ing elevated sense of economic un- decline in nominal consumption growth fairly strong signals that there would be
certainty. The savings ratio increased of about 1 percentage point, which can no more reductions, barring a signifi-
to 9.7% of disposable income in 2011 partly explain why consumption grew cantly worsening of the economy. Mar-
from 8.5% in 2010. In addition, credit by less than incomes last year. The ket expectations of a rate cut have de-
expansion continued to decline in early impact of a housing price decrease of clined recently and the new repo will be
2012, slowing the growth of household the same magnitude would be about 3 higher than we forecast in our January
indebtedness. Note that the statistics percentage points. report. At the same time, the Riksbank
were revised significantly downwards Against the background of a better la- is presenting a slightly worse economic
following the exclusion of nonprofit in- bour market than in our January fore- outlook, which leads us to believe that it
stitutions serving households (NPISH). cast, with higher employment and earn- is putting more weight on financial sta-
This did not, however, cause a change ings, together with stable asset prices, bility and household indebtedness.
in the pattern. we revise upwards our consumption Inflationary pressures have decreased,
Overall consumption continued to de- growth forecast to 1.3% for 2012 and to but with higher oil prices we expect in-
velop strongly in the first couple of 2.5% in 2013. The underlying quarterly flation to start picking up. However, ac-
months in 2012. Both consumer dura- growth rate for 2012 is expected to be cording to our current forecast, price
bles and nondurables picked up, while significantly higher than in our Janu- increases with fixed mortgage rates
consumer sentiment improved from low ary forecast. The reasons are a better (CPIF) will clearly undershoot the target
levels. Some hesitation remains, how- labour market where employment is of 2% at the end of the forecast period.
ever, as registration of cars dropped by gradually increasing and a higher real At the end of 2013, headline inflation is
almost 4% in the first quarter of 2012 disposable income in combination with expected to be 2.0%, while the CPIF is
compared with same quarter in 2011. In stable asset prices and a somewhat forecast at 1.6%. Thus there is clearly
all, we estimate that private consump- better global growth outlook. The im- room for a more expansionary mon-
Household balance sheet, 2005 - 2011 (% of disposable income) etary policy in the short run.
450 8,0
Despite falling exports at the end of last
400 7,0 year, the Swedish krona has strength-
Debt
350 ened since the beginning of the year,
6,0
Net assets primarily against the euro. The rela-
300
5,0 tively strong performance of the Swed-
250
4,0 Interest ish economy, together with the coun-
200 payments; try’s growing status as a safe haven
3,0 rhs
150 following the demonstration of solid
2,0 fundamentals in internal and external
100
balances (budget balance and current
50 1,0
Sources: Statistic
account), is likely to lead to an appre-
0 0,0 Sweden and real ciation of the krona. Against the US dol-
2005 2006 2007 2008 2009 2010 2011 estate statistics.
April 24, 2012 10

11. Sweden Swedbank Economic Outlook
lar, we do not expect much change, but Interest rate and currency outlook
the euro will lose in value. Together with Outcome Forecast
increasing wage costs and a slowing 2012 2012 2012 2013 2013
20 Apr 30 Jun 31 Dec 30 Jun 31 Dec
productivity growth, a stronger krona
will put pressure on Swedish competi-
Interest rates (%)
tiveness and increase the challenge of Policy rate 1.50 1.50 1.50 1.75 2.00
gaining export market shares. 10-yr. gvt bond 1.80 2.10 2.60 2.90 3.10
We expect the Riksbank to maintain the Exchange rates
repo rate at 1.50% for the remainder of EUR/SEK 8.84 8.70 8.65 8.60 8.60
USD/SEK 6.68 6.80 6.87 6.94 6.85
the year, before raising it twice in 2013.
TCW (SEK) 1/ 121.8 120.3 119.8 119.5 119.1
However, in our view, the monetary
Sources: Reuters Ecowin and Swedbank.
stance will dampen the economic re-
1/ Total Competitiveness Weights (TCW: i.e. trade-weighted exchange rate index for SEK).
covery and reduce the rate of decline of
unemployment. Thus, we would argue
hold tax payments, but increased con- ever, the impact on the economy will
for a continued reduction in the mon-
sumer spending will underpin revenues be offset by local governments’ striving
etary policy rate and would propose
from value-added taxes. Furthermore, to consolidate their balances through
dealing with financial stability issues by
as labour taxation will remain under spending restraint and tax hikes.
other means, primarily banking supervi-
pressure, we expect local governments
sion and fiscal policy. The room for expansionary fiscal policy
to increase their deficits in 2012. In the
is declining, but the biggest obstacle
A return to fiscal deficit complementary budget for 2012, the
to the implementation of the govern-
The public sector, according to pre- government presented reforms aimed
ment’s policy is the weak parliamentary
liminary estimates, ran a surplus corre- at improving housing market flexibility.
situation that it faces. The downward
sponding to 0.2% of GDP in 2011, which This will have a small budgetary impact
revision of productivity growth lowers
is an improvement over the previous in 2012, and only a limited one over the
potential GDP. Together with the fairly
year by 0.3 percentage point. While the coming years (SEK 1.6 billion).
rapid GDP growth seen in the last two
surplus in the pension system (0.5% of The public sector balance for 2013 is years, this will reduce the amount of
GDP) improved the bottom line, the lo- expected to improve as growth picks up business cycle-adjusted savings. Also,
cal governments continued to run defi- and unemployment starts to decrease. the seven-year rolling budget deficit
cits (0.3% of GDP). Furthermore, gov- Labour market-related taxes and profit indicator points toward reduced space
ernment consumption and investments taxes are expected to increase, and for increased deficits, and the expendi-
both declined as a share of GDP. The we forecast the public sector to have a ture ceilings will restrict the expansion
public sector debt decreased by almost small surplus corresponding to 0.2% of of permanent spending to about SEK
3 percentage points of GDP (according GDP. Included in the budget is an addi- 18 billion (0.5 % of 2011 GDP). How-
to the Maastricht criterion) as a result of tional fiscal stimulus amounting to SEK ever, we still believe that fiscal stimulus
the surplus, positive economic growth, 15 billion, the bulk of which will be on the would be appropriate, in particular dur-
and from revenues of sale of govern- expenditure side. The government has ing the current year of slowing growth.
ment assets (mainly Nordea shares). already signalled that it will increase its For next year, we would endorse not
The slowdown in growth, together with efforts to bring down unemployment, only a targeted spending initiative to
unfinanced reforms corresponding to and we expect targeted measures ad- reduce unemployment, but also tax
0.4% of GDP, is expected to move pub- dressing the situation of youth and reforms that support growth. The chal-
lic finances into deficit during 2012. A foreign born. Additional spending is lenge for the government is to develop
weaker labour market reduces house- also expected on infrastructure. How- reforms that can be supported by a ma-
jority in the parliament.
Inflation, the repurchase rate and exchange rate (index)
6,0 150 However, with the possibility of tax cuts
in 2013 and 2014, there is a risk that
5,0 145 a procyclical fiscal stance will force the
4,0
140 CPI yoy Riksbank to raise policy rates faster
3,0 than planned.
135 CPIF yoy
2,0 Magnus Alvesson
130 Jörgen Kennemar
1,0 Policy rate
125
0,0 Krona
(TCW, rhs)
-1,0 120
-2,0 115
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Sources: Riksbanken, Statistics
Sweden and Swedbank's forecasts.
April 24, 2012 11