At the threshold of the new decade it is clear that the world economy has finally moved out of recession. But in its latest research report, Economic Outlook, Nordea forecasts a moderate economic upswing that will only gradually gain momentum.
- The huge financial sector rescue packages and significant concerted G20 easing of economic policies to kick-start the economies have been highly successful, says Nordea's Global Chief Economist Helge J. Pedersen.
Economic growth especially in South-East Asia spearheaded by China has been strong, and industrial production in this region is now higher than before the collapse of Lehman Brothers. In the rest of the world, production has been set back several years despite the increased momentum. Global capacity utilisation remains weak, and this dampens investment needs and worsens the labour market situation. It further reduces the likelihood of strong private consumption growth.
- So even though the situation has improved, we still basically believe that the current economic upswing will be moderate and only gradually gain momentum. So far the upswing in the industrialised countries has been driven by expansionary economic policies and inventory changes, says Helge J. Pedersen.
- The coming six months will provide the ultimate litmus test of final demand and especially private consumption, says Helge J. Pedersen.
In terms of economic growth 2009 was an annus horribilis for the Danish economy. Now the Danish economy may be in for some years of growth in positive territory. The budding signs of international growth have brightened the prospects for Danish exports, and consumer spending looks set to increase noticeably again this year after a significant setback in 2009. Income tax cuts and lower interest rates will boost households' overall disposable income despite a persistent increase in unemployment in 2010.
The Swedish economy deteriorated sharply at the end of 2008 and the beginning of 2009, but recovered slowly during the following quarters. Economic growth is expected to pick up in 2010, mainly driven by private consumption and inventory changes. Exports, supported by improved global trade, will also contribute to this increase. Headline inflation is seen picking up in 2010, while core inflation will decline and remain below the Riksbank's two per cent target. With stronger growth, an improved labour market and high credit growth, the Riksbank will likely start raising the repo rate during the year. We expect the repo rate to be two per cent by end 2010.
In a historical context the setback in Norway was relatively strong, but compared to other countries it was fairly mild. In the second and third quarter last year growth in mainland production moved back into positive territory. Particularly the massive fiscal and monetary policy stimuli got the economy going again and contribute to growth also in 2010. In 2011 growth in the economy may slow as a result of higher interest rates, fiscal policy tightening and a decline in oil investment. With strong growth throughout 2010, Norges Bank will hike rates further, but in 2011 the pace of monetary tightening will slow. Norwegian interest rates will rise less than the market currently prices in and should therefore not trigger significant strengthening of the Norwegian krone.
The Finnish economy returned to growth in the summer of 2009 after a steep export-led collapse during the winter. This year exports will rebound in tandem with world trade and also household demand will recover supported by increased consumer confidence. On the whole, in 2010 the Finnish economy should grow faster than the rest of the Euro area. The unemployment rate has so far risen less than feared and it is set to peak in the summer. Finnish public finances will remain in relatively good shape and the public sector deficit is not expected to exceed the three per cent limit. Nevertheless, there will be challenges to overcome if the government is to meet the ambitious medium-term surplus targets, and this will shape the political debate ahead of the 2011 elections.
For further information:
Helge J. Pedersen, Global Chief Economist, +45 33 33 31 26