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October 2008

N o r d i c O u t l o o kEconomic a nd financial t rends

� Denmark: From quickstep to slow foxtrot

- A slower beat in the next couple of years

� Sweden: Optimism amidst the gloom

- Economy takes a hit - but should come through the crisis relatively well

� Norway: From sauna to ice bath

- Suffering from lower global growth and high interest rates

• Finland: Fiscal policy fight-back

- Growth under pressure - but healthy balances leave room to manoeuvre

� Global: On the brink of recession

- Fierce headwinds - progress will be slow

148173_omslag_dk 30/05/02 15:37 Side 3

2 D A N S K E B A N K

N O R D I C O U T L O O K O C T O B E R 2 0 0 8

Danske Research

Editorial deadline: 1. October 2008

Editor-in-Chief:

Steen Bocian

Chief Economist

+ 45 45 12 85 31

[email protected]

Macro economics:

Frank Øland Hansen Denmark + 45 45 12 85 26 [email protected]

Tore Damgaard Stramer Danmark + 45 45 12 80 61 [email protected]

Roger Josefsson Sweden +46 (0)8-568 805 58 [email protected]

Arne Lohmann Rasmussen Norway, UK, Commodities + 45 45 12 85 32 [email protected]

Frank Jullum Norway + 47 85 40 65 40 [email protected]

Peter Possing Andersen US + 45 45 13 70 19 [email protected]

Søren Peder Pedersen Dijohn Euroland +45 45 12 85 16 [email protected]

Flemming Jegbjærg Nielsen Asia +45 45 12 85 35 [email protected]

Lars Christensen Central and Eastern Europe + 45 45 12 85 30 [email protected]

Lars Rasmussen LATAM and CIS + 45 45 12 85 34 [email protected]

Allan von Mehren Global, FI strategy +45 45 12 80 55 [email protected]

Pasi Petteri Kuoppamäki Finland +358(0)105467715 [email protected]

Lauri Antero Uotila Finland +358(0)105467714 [email protected]

Morten Kongshaug Equities + 45 45 12 80 57 [email protected]

Sales contacts:

Søren Kyhl Head of Danske Research + 45 45 12 84 44 [email protected]

Anders Damgaard Head of TFM Sales +45 45 12 85 50 [email protected]

Henrik Voetmann Mikkelsen Head of Sales � Equities +45 45 14 73 05 [email protected]

Lars Norup Derivative Sales +45 45 14 69 50 [email protected]

Jesper Ronald Petersen FX/MM & Global Flow +45 45 14 68 68 [email protected]

Bo Wetterstein Debt Capital Markets +45 45 14 72 83 [email protected]

Lars Worsøe Andersen

Fixed Income

+45 45 14 69 97 [email protected]

This publication can be viewed at www.danskebank.com/danskeresearch Statistical sources: Datastream, Ecowin, OECD, IMF, National Institute of Social and Economic Research, Statistics

Denmark and other national statistical institutes as well as proprietary calculations. Printed by Schultz Grafisk A/S, Copenhagen

http://www.danskebank.dk/analyse

D A N S K E B A N K 3

O C T O B E R 2 0 0 8 N O R D I C O U T L O O K

Contents Denmark From quickstep to slow foxtrot 4 Forecast at a glance 11 Sweden Optimism amidst the gloom 12 Forecast at a glance 16 Norway From sauna to ice bath 17 Forecast at a glance 22 Finland Fiscal policy fights back 23 Forecast at a glance 26 Global On the brink of recession 27 Economic forecast 32 Financial forecast 33 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 • Euroland • Switzerland • Central and Eastern Europe • Asia

http://www.danskebank.dk/analyse



Denmark: From quickstep to slow foxtrot • The Danish economy has expanded rapidly in recent years � perhaps a little too rapidly. However, the

economy is now experiencing a much-needed breathing space � and the outlook is for the music to play a slower tune for the next couple of years. We do not expect the beat to pick up much until 2010.

• Weakness in the housing market is dragging private consumption lower, and the construction industry faces a pronounced slowdown. We expect that house prices nationwide will fall 10% from their peak be-fore the housing market achieves some sort of balance. However, given the rocketing prices of the past few years, such a fall is no reason for alarm, in our view.

• The global credit crunch has now been raging for more than a year � and September saw it intensify. The crisis is weakening the growth outlook for the Danish economy: export growth is set to slow, and tighter credit will contribute to slowing investments and to a lesser extent private consumption.

• Lower economic growth will result in a turnaround on the labour market in the not-too-distant future. Some of the adjustment will be via people leaving the labour market, though we expect that unemploy-ment will rise by 40,000 by the end of 2010.

Much-needed breathing space The Danish economy has expanded rapidly in re-cent years � perhaps a little too rapidly. Unem-ployment has fallen for 36 months in a row and a shortage of labour has squeezed wage growth higher. Now, however, the outlook is for the Danish economy to get some much-needed breathing space. The slower tempo is due, in particular, to the weakness in the housing market and the im-pact of the global financial crisis. We do not expect the beat to pick up until 2010, when the housing market may also achieve some balance. Had the economic quickstep continued, we may have had to sit out the next dance.

The Danish economy plunged into a technical re-cession when the Q1 national accounts figures showed negative growth. However, this was partly due to exceptional circumstances, such as when Easter fell this year. Therefore we had a more op-timistic outlook for Q2, which indeed brought slightly more cheer, though not as much as we had expected: quarterly growth of 0.6% � mainly due to inventory building � was simply not that impres-sive. A number of indicators suggest Q3 will not be that fantastic either.

Previous forecast

% 2008 2007 2010 2008 2009

GDP 0,5 0,2 1,2 1,0 0,8Private consumption 1,1 0,7 1,0 1,7 0,8Public consumption 1,7 1,8 1,6 1,6 1,7Gross fixed investment -0,5 -1,9 -0,2 0,5 0,1Exports 3,1 2,5 2,8 3,4 3,1Imports 3,8 1,6 2,3 4,1 3,4

Unemployment (thousands) 48,8 62,5 87,1 50,6 58,2Inflation 3,5 2,5 2,1 3,4 2,6Public sector bal., % of GDP 4,1 3,1 2,2 4,5 3,3Current account, % of GDP 1,0 1,3 1,5 1,0 0,6

Current forecast



The main thrust of our previous forecast still seems to apply, though we are revising our expec-tations down a little both for this year and next. The adjustment comes as a result of the more pro-nounced than expected weakness in the housing market and, not least, the global slowdown becom-ing more entrenched.

A slower beqt

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The global financial crisis has deepened more than previously expected. However, a clear willingness to act has been expressed by both the central banks and the US government, which is why we do not see the potential impact on the Danish econ-omy as having changed much. Bank lending contin-ues to grow, though the pace of growth is slowing. The tightening of credit standards is not sufficient in itself to drag economic growth down, and most people mainly feel the effects of the credit crisis in the shape of higher interest rates on, for instance, mortgages. Housing market developments are the largest element of uncertainty in our forecast. The pres-sures on the housing market have become more pronounced since our last forecast in July, and prices are falling a little faster. A rapid price ad-justment is not necessarily a negative thing, as a price adjustment is the medicine that will help the housing market achieve some balance. Still rising numbers of homes for sale and a relatively low turnover tends to indicate that there will be an ex-tended period of falling house prices. We expect that prices will continue to slide until 2010, and that the overall decline in prices nationwide will be 10% from their peak. However, we have to admit that sentiment is a major factor in the housing market at the moment, and it is difficult to predict when sentiment will shift. We expect, though, that the ECB will lend a helping hand.

The draft budget proposal has been presented since our previous forecast, and it surprised us that the mandatory pension contribution to the so-called SP pension (1% of wage income) looks set to be reintroduced in 2009. This is not a wise move in the current economic situation, in our view, and in our forecast we have assumed that this proposal will be dropped before the final version of the budget is passed. If, contrary to expectations, the SP contribution is reintroduced, private consump-tion may be a little lower than we forecast. This time around our forecast includes an as-sessment of developments in 2010. The outlook is that Denmark�s trading partners will be approach-ing the end of the slowdown, and so exports will slowly begin to pull growth up. The housing market is expected to reach some sort of balance in 2010, though without the prospect of any notable price increases. There may also be a welcome contribu-tion to improving the prospects for growth from the politicians if they succeed in transforming the work of the Tax Commission into a tax reform that encourages education and making an extra effort at work and will make it easier to attract and retain qualified labour. However, the economy will only improve gradually, and while unemployment has risen, the economy will still face capacity problems that limit growth.

Cautious consumers

A number of unfortunate events have hit Danish consumers. Rising interest rates combined with the slowdown in the housing market have made the average consumer more cautious, and this has put a damper on consumption. In addition, Danes are feeling the pressure of increasing inflation on their household economy. Hence, a substantial chunk of otherwise quite handsome wage increases are currently being eroded by inflation. Price increases have been most pronounced on energy and food � so most people have been hit. Happily, there are increasing signs that inflation has peaked, and thus there is the prospect of decent real wage growth in our forecast period. Perhaps surprisingly, consumers are still optimis-tic about their own financial situation. While the many negative news stories � not least about the



financial crisis � have caused Danes to take a very pessimistic view of the country�s economy in a year�s time, their assessment of their own eco-nomic situation is largely unchanged and positive. This view is perhaps not entirely misplaced, as un-employment remains record low, tax cuts may be on the cards, and the fall in house prices has only eroded a modest amount of the home equity of the average homeowner.

Consumers positive on own economic situation

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Consumer confidence

Economic situation of the country in a year

Indeed, the national accounts showed that private consumption is not falling � but rather has re-mained unchanged in H1 this year. For the year as a whole, we expect a modest increase in consump-tion of 1.1% relative to last year. We expect to see a further slowdown in consumption growth to 0.6% in 2009, and it will only be slightly higher in 2010.

Weak consumption

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We do not expect consumption growth to turn negative, but the stage is set for somewhat lower growth compared to 2004-06, when private con-sumption grew 4-5% annually. On the other hand, our forecast foresees rather higher growth than was the case in 1998-2003, when private con-

sumption stalled in the wake of the �Whitsun� aus-terity package launched in 1998. There is, however, a risk of a more pronounced slowdown in consumption than we forecast. The risk stems mainly from the housing market. The latest figures from the Association of Danish Mortgage Banks (Realkreditrådet) show that the slowdown in the housing market spread to most of the country in Q2. Only in northern Jutland are house prices still rising. The housing market slow-down is also evident in the still rising number of homes for sale, increasing sales times and declin-ing turnover.

House prices set to keep falling until 2010

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Latest developments suggest that prices might fall faster than previously expected. We expect to see prices fall by 4% nationwide this year � and per-haps a little more next year. The slightly faster pace of decline will contribute to dampening pri-vate consumption during our forecast period. The slowdown in the housing market is also appar-ent in the number of repossessions, which after a number of years at an �unnaturally� low level have been normalising. The number of repossessions will likely increase further, but we do not expect anything dramatic. This is mainly because unem-ployment is still low and most people can look for-ward to decent real wage growth in the forecast period. Further, most homeowners still have con-siderable home equity. Hence the increase in re-possessions will not in itself have much impact on private consumption.



Affordability still stretched for houses

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High interest rates are the main problem for the housing market. Affordability � which compares the monthly after-tax interest expenses for an av-erage house financed using a 30-year loan with disposable income � thus remains stretched de-spite falling prices. Some of the explanation of the affordability gap is presumably the financial inno-vation that has given homeowners the possibility of cheaper and more flexible home financing. Thus there is no real reason why affordability should fall back to the historical average. High wage growth and interest rate cuts during the forecast period will, furthermore, improve affordability and con-tribute to balancing the housing market.

Affordability improving for apartments

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There are some bright spots to be seen in the Co-penhagen apartment market. The number of apart-ments for sale is declining, and turnover is picking up a little, while the pace of price falls is slowing. Affordability with respect to apartments has im-proved considerably, though it remains stretched. The above suggests that the greater part of the adjustment to Copenhagen apartment prices has already occurred. The housing market can probably find its footing again in 2010, by when the overall fall in prices will have reached about 10% since prices peaked.

Unemployment to rise � but remain low It is completely normal that unemployment reacts with a lag to turns in the economy. Nevertheless, it has surprised us how unemployment has contin-ued to fall despite the economy apparently being in technical recession. Unemployment now stands at 1.6% of the labour force � the lowest level since 1974. It is difficult to determine the structural level of unemployment, but there is no doubt that Denmark is someway below it. Increasing employ-ment combined with low growth has resulted in surprisingly low productivity growth in the past year. Economic theory says that unemployment should increase, and we are convinced this will happen very soon.

Unemployment cannot go much lower

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There has been a widespread shortage of labour in recent years, but there are now signs that the situation is easing. Dansk Job Index, which tracks the number of vacancies posted on the internet, has levelled off since the start of the year. The construction industry in particular has seen a pro-nounced easing of its labour shortage problems � indeed the shortfall has largely disappeared. The construction industry has created around 30,000 additional workplaces since the start of 2004 � and we expect that around 20,000 of these will disappear again within the next couple of years. Employment expectations are falling fast in the industrial sector, according to new numbers from Statistics Denmark and the EU Commission. The picture for the service sector is a little less clear, though employment expectations have been gently weakening for some time. Even though unemploy-ment is beginning to climb, a number of sectors will continue to face labour shortages, and so it is still important that reforms are passed to ensure suffi-cient labour with the right qualifications.



Employment expectations falling

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We expect that the number of unemployed will have increased by 40,000 by the end of 2010. However, this still only represents unemployment at around the structural level. The reason that un-employment will not rise more is that the labour force is shrinking as some people elect to leave the labour market. Some of the labour drawn to Den-mark during the boom times will likely leave again when demand drops. In addition, some people have postponed decisions about taking early retirement or fully retiring, and others will choose further edu-cation rather than unemployment.

Investment expectations down

The upswing and the shortage of labour in recent years gave a pronounced boost to investment. However, corporate investment needs are now easing. Demand growth has weakened and the out-look is for the capacity pressures in the economy to subside over the forecast period. Moreover, greater uncertainty than normal, higher financing costs and tighter credit due to the financial crisis mean that some investment projects will be post-poned and others dropped altogether. The change in the economic climate has prompted a shift in focus from expansion to cost-cutting, and this of course will not be good news for investment. In-vestment expectations in industry, which are measured every half year, looked quite positive when surveyed in April, but the picture will pre-sumably look less rosy when the new investment expectations data come in November. Machinery investments are only expected to feel a limited impact from the tightening of credit stan-dards. Nevertheless, the downturn in demand and higher financing costs mean that � despite labour shortages in industry continuing for some time yet

� we expect a period of close to zero growth in ma-chinery investments. For a time it was hoped that commercial construc-tion could fill the gap left by residential construc-tion. However, this hope now looks unfounded, un-fortunately. Stagnating retail sales have hit the need for new shops, while the outlook of lower de-mand growth has made companies more cautious and cut the need for factories and offices. Some public sector construction and civil engi-neering projects have been postponed from 2008 to 2009. This might provide some uplift to con-struction next year, but it is far from a rescue package. The latest forecast from the Ministry of Finance suggests largely unchanged public sector investment from 2008 to 2009. However, the downturn in the private construction sector usu-ally results in a greater willingness by the govern-ment to launch public sector projects, which might offset some of the downturn in construction.

Construction: more than its fair share of the economy

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Residential constructions share of GDP

Construction - share of total employment

Residential construction faces a marked activity downturn. This sector peaked in 2006 at around 33,000 new homes, and has maintained high lev-els of production. According to the latest national accounts numbers, residential construction makes up around 6.5% of GDP. This is unsustainable in an environment of falling house prices, many homes for sale and a cooling economy. Moreover, financ-ing costs on residential construction have in-creased, and a number of investors in the sector now face tighter credit conditions, not least as a result of the collapse of Roskilde Bank. We esti-mate that residential construction will fall by 6 % next year and a further 2.5 % in 2010, though there is a risk of an even more pronounced drop.



Clear slowdown in construction

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Shortage of input materials

Shortage of labour

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Muted export growth Denmark�s competitiveness is being squeezed by high wage growth combined with just modest im-provements in productivity and a weak dollar. On top of this, growth in Denmark�s export markets has slowed. Nevertheless, Danish exports have held up well on key markets, perhaps due to ex-ports being pulled down in the final phase of the upswing by heavy domestic demand. Going for-ward, we foresee just modest export growth, as the economic growth of our trading partners will be limited, though there should be some pick-up in 2010 as export markets begin to recover.

Exports fine on key markets

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The downturn in domestic demand will, meanwhile, mean that import growth is set to be modest dur-ing the forecast period, and this will help ensure that the current account surplus is maintained. The current account was, in fact, under pressure during the final phase of the upswing, when domes-tic capacity pressures boosted imports and dragged down exports. High oil prices were one of the reasons that a dou-ble-digit billion-krone current account surplus could be maintained, and we expect that oil prices will remain high throughout the forecast period. Denmark�s competitiveness will continue to be squeezed by higher wage growth than its competi-

tors throughout the forecast period, though it will be helped a little by a slightly stronger dollar.

Inflation set to tumble

Inflation (CPI) has rocketed from just 1.1% in Au-gust last year to 4.3% this year, which represents the biggest jump in consumer prices since Decem-ber 1989. Much of the rise was due to sharp in-creases in global food and energy prices. Danish food prices have jumped more than 10% in the past year and energy prices have soared. However food and energy are not the whole story. Core inflation, which does not include food and en-ergy prices, has also surged, from 1.4% a year ago to 3.4% in August this year. Thus rising prices are not solely due to imports, but also stem from the economic pressures that fed high wage growth and ultimately led to accelerated price growth. This is a worry, as reducing domestic price pressures is often a lengthy process and this could harm Dan-ish competitiveness at an unfortunate time.

Inflation peaking

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Contribution from foodContribution from energy

We estimate that inflation is now peaking. The top comes on the back of global food prices (corn, wheat, rice) falling over the summer, in part due to the prospects of bumper harvests, and oil retreat-ing to around $100/bbl � in part due to a greater than expected drop in demand, especially in the US. However, we do not expect core inflation to come down any time soon. First, because, as already mentioned, the pace of wage growth takes a con-siderable time to slow, and second because high energy prices have squeezed companies� profit margins, which is demonstrated by domestic mar-ket-determined inflation (IMI) being low. Hence, the fall in companies� energy costs is unlikely to be fully passed on to consumers, and thus we expect that IMI will increase.



Global commodity prices have fallen

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We expect that inflation will fall below 3.5% by the end of the year � and perhaps approach 2% in 2009. Inflation will, however, remain above the ECB�s target.

Summary Forecast

Demand and output 2005 2006 2007 2008 2009 2010

DKK bn

Private consumption 759.8 3.8 2.3 1.1 0.7 1.0Gross fixed investment 306.9 14.0 6.2 -0.5 -1.9 -0.2Residential investment 92.9 12.2 4.5 -2.1 -6.2 -2.4Business investment 186.9 14.5 9.1 -0.1 -0.6 0.3Public consumption 401.3 2.0 1.6 1.7 1.8 1.6Public investment 27.1 16.5 -9.0 2.1 3.1 2.6= Final domestic demand 1467.9 5.2 3.0 0.9 -0.3 0.9Growth contribution from stockbuilding 3.8 0.8 -0.4 0.0 0.0 0.0= Domestic demand 1471.8 6.0 2.6 0.9 -0.3 0.9Exports of goods 496.2 4.6 0.4 1.1 1.8 3.3Exports of services 265.4 17.0 4.5 6.2 3.6 2.0Exports, total 761.6 9.0 1.9 3.1 2.5 2.8= Total demand 2233.3 7.0 2.3 1.7 0.7 1.6Imports of goods 460.4 12.1 3.2 2.8 1.2 2.4Imports of services 224.8 18.2 4.9 5.6 2.4 2.0Imports, total 685.2 14.1 3.8 3.8 1.6 2.3Growth contribution from net exports 76.4 -2.3 -1.0 -0.4 0.5 0.3

GDP 1548.2 3.9 1.7 0.5 0.2 1.2

Economic indicators 2006 2007 2008 2009 2010

Current account, DKK bn 47.4 18.7 18.4 23.2 28.9- % of GDP 2.9 1.1 1.0 1.3 1.5General govt. budget balance, DKK bn 79.9 81.1 72.1 56.1 41.7- % of GDP 4.9 4.8 4.1 3.1 2.2Gross public debt, DKK bn 500.1 447.7 375.6 319.5 277.8- % of GDP 30.5 26.4 21.3 17.4 14.6Employment (thousands) 2767.0 2813.6 2823.6 2795.7 2764.4Unemployment (thousands) 109.3 77.4 48.8 62.5 87.1Unemployment rate, % 3.9 2.8 1.7 2.2 3.1Oil price - USD/Barrel 66.1 72.7 114.0 126.0 126.0House prices 17.6 21.6 -4.5 -4.9 -1.2Hourly earnings in industry, % y/y 3.1 3.9 4.6 4.4 4.0Consumer prices, % y/y 1.9 1.8 3.5 2.5 2.1

Financial figures 26.9.2009 +3mths +6mths +12mths

Repo rate, % p.a. 4.6 4.35 4.10 3.852-year interest rate, % p.a. 5.18 4.85 4.40 4.5010-year government bond, % p.a. 5.01 4.70 4.45 4.50DKK/EUR 746 746 746 746DKK/USD 511 533 553 553

Denmark at a glance






Sweden: Optimism amidst the gloom • International demand continues to slide and the havoc in financial markets is hampering the trans-

mission mechanism of monetary policy on a global scale. Recent events have � if anything � postponed and prolonged our expected trough even further.

• The international outlook, which was expected to provide some relief to the export-laden Swedish economy in the latter part of 2009, has deteriorated compared to what was previously assumed.

• However, fiscal policy is becoming increasingly supportive to domestic growth. In the recent budget bill, the Finance Ministry announced SEK 32bn worth of fiscal stimuli. Furthermore, we expect to see a rapid shift in monetary policy from the current contractionary stance to a considerably more relaxed policy stance.

• The Riksbank�s policy error of keeping rates too high for too long will further aggravate the slowdown. Unemployment looks set to rise well above the 8%-mark and inflation could very well come in much lower than we expect � in fact, deflation cannot be ruled out.

• This highlights something that is of the utmost importance. Our forecasts for the Swedish economy are not � as is customary � unbiased. The current instability in global and domestic financial markets poses a significant downward risk and this is not fully discounted in our forecasts.

• Our optimistic main scenario assumes that interest rate risk premia gradually fall back and that fore-cast interest rate cuts have an immediate impact on the market rate that households and companies face. Assuming the normal lags of monetary policy, we should thus see a stabilisation of the Swedish economy sometime during the second half of next year. But again, risks are skewed to the downside, both in terms of the longevity and the depth of the slowdown.

Global recession on the cards Global growth slowdown broadening What was once claimed to be a contained slowdown in the US has now broadened and gained a foothold on both European and Asian soil. The Swedish export industry will thus face even lower international de-mand going forward, a situation that will not change much until late 2009 or even 2010. Swedish exports are expected to develop in line with international demand this year, implying export growth of around 3% y/y. Next year, export growth will likely fall below world market growth and is ex-pected to be only marginally above 0% y/y. Only in 2010 can we expect any noticeable improvement.

World market growth and Swedish export growth

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Economic conditions are set to improve Sweden�s domestic financial conditions have un-doubtedly tightened over the past few months. How-ever, inflation has outpaced this tightening, which means that in real terms financial conditions have actually become more expansionary. We foresee high inflation for much of the remainder of 2008, which is why financial conditions will probably continue to be rather expansionary. Thereafter, however, inflation will fall swiftly and economic developments will ne-cessitate a pronounced expansion of monetary policy



� ie, lower interest rates to keep financial conditions expansionary.

Financial conditions set to improve

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MCI

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Note: MCI is FX and interest rates. FCI I is MCI plus the stock market. FCI II is FCI I plus house prices. ECI is MCI plus the cyclically adjusted government balance. A number above 100 implies that financial conditions and/or eco-nomic policy are supportive to growth, whereas a number below 100 indicates that financial conditions and/or eco-nomic policy is contractionary. All measures are adjusted for inflation and are quoted in volume terms.

Archetypical small open economy Business spending brought to a halt As stated above, global demand has generally sof-tened. Since Sweden is the archetypical �small open economy�, this has worked to reduce investment growth during the past few quarters. As capacity utilisation has become less strained, we expect a dramatic reversal in business sector investment growth, even though public sector investment might hold up well due to the announced investments in infrastructure.

Investment growth declining

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Productivity gap >>

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To be sure, from a historical perspective the forecast slowdown in investment is rather mild given our growth forecasts, but this is mainly a result of the anticipated stabilisation of international demand to-wards the end of 2009. Taken together, investments are expected to slow to close to, or even below, 0%

y/y in both 2008 and 2009. In 2010, when interna-tional demand has accelerated and the more expan-sionary monetary policy has fed through the econ-omy, investment growth is expected to make a slight rebound.

Unemployment set to rise

Unemployment is currently low. Employment growth has been strong both in terms of new jobs and hours worked. However, and as is usual, a softening of the investment outlook has come hand in hand with less exuberant developments in the labour market, and indeed several signs of weakness have emerged over the past few months. Vacancies are down on a year-on-year basis, lay-off notices are accelerating swiftly and employment growth is declining. Further, accord-ing to the NIER�s business survey, hiring plans are being scaled back rapidly. In short, most indicators point to lower employment growth and a considerably higher unemployment rate going forward.

Unemployment to soar

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Due not only to slower employment growth, but also an unusually high structural increase in the labour force, we expect the unemployment rate to soar in the next two years. By 2010, we expect the unem-ployment rate to stabilise around 8%. This might seem dramatic, but it would, nevertheless, suggest that Sweden had come through the global demand slump and financial crisis rather unscathed. Consumption a tug-of-war between fiscal policy and increased cautionary savings A softer labour market is a bad omen for consump-tion. Not only does it imply lower income growth, a rising unemployment rate heralds a change in house-hold behaviour in which savings increase at the ex-pense of consumption.



Income and consumption

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% y/yDisposable income, vol.

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In the current environment of high financial market volatility, falling stock markets and markedly lower house price growth � even negative growth in some areas � there is a risk that this behaviour will be am-plified, causing the savings ratio to rise even more than is warranted from a cyclical perspective. This is not our main scenario, but it is another example of the major downside risks that surround our main scenario forecasts. Net exports to recover The need to adjust inventory levels to a lower exter-nal demand has historically implied a drastic cut back in imports. We see no reason for a different outcome this time around, and as the economic cycle evolves, lower domestic demand will require even lower im-port growth.

Imports and net exports

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<< Net exports (vol.)

Imports (vol) >>

% y/y

However, our international forecasts suggest a stabi-lisation of global demand � and thus a stabilisation of Swedish export growth � during the latter part of our forecast period. This should eventually lead to a stabi-lisation of import growth as well. On balance, we believe that net exports will be one of the main contributors to GDP growth over the fore-cast period � close to 1 percentage point for all years forecast.

Productivity to rebound after weak 2007 We have interpreted the weak productivity growth over the past few quarters as being a result of weak-ening demand and a lagging labour market. This has not been the general perception, however, and has been used as an argument for the Riksbank to hike further and faster. But this perception is not the causal relationship under an established inflation-targeting regime. We should instead expect a more pronounced slowing of the labour market in the near future, and then it should only be a matter of time before domestic inflationary pressures also start to recede. In short, the Swedish labour market will in-deed bear the brunt of the weakening as companies adapt to a lower demand situation. Hours worked will also increasingly moderate until inventory levels are normalised and profit margins are restored/improved. For this to take place, hours worked has to fall faster than demand. In other words, productivity growth will eventually accelerate after weak readings thus far.

GDP, hours worked and productivity

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<< Productivity

GDP, vol. >>

All in all, productivity growth is expected to be nega-tive for a second consecutive year in 2008, but will exceed 2% y/y in both 2009 and 2010. This is a notch or two below what earlier experiences suggest, but it fits well with the assumed less productive aug-mentation of the labour force. Resource utilisation will soon be disinflationary We have already touched on the subject of resource utilisation above. Lower GDP growth, where both the use of labour and capital diminish swiftly � especially compared to trend growth in both the labour force and productivity � will invariably lead to lower re-source utilisation.



Output gap will soon head into negative territory

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Inflation (CPI) >>

<< Output gap

Inflationary pressures are strong at present. Cost pressures are rising on most accounts, and prices on input materials have risen to unprecedented levels over the past few years. And as wage statistics dem-onstrate, wage pressures are also mounting (albeit by less than generally forecast). However, both global and domestic demand have fallen, which inflates cost pressures further due to the lagging labour market. Profit margins have come under pressure lately, and with little room for hiking prices due to lower demand, companies will have no other option than to start scaling back on investment plans and shedding employees. In our view, this could hardly be expected to lead to higher inflation. In addition, the higher inflation of late is largely attrib-utable to three factors: The Riksbank hiking policy rates has increased mortgage interest rate costs (1), which together with food (2) and energy (including oil and fuels) (3) account for well over 3 percentage points of current inflation. Most other components post flat or even falling prices. Even though the higher prices on food and energy are to a certain extent de-mand-led, both sectors have been exposed to large supply side disruptions over the past few years. We doubt that these negative developments will continue indefinitely, which would actually be necessary to keep their contributions to inflation at current levels. Indeed, prices on both energy and food have fallen back quite dramatically over the past few months, and it should only be a matter of time before we see the impact on Swedish inflation.

To conclude our discussion on inflation: We believe that GDP growth will continue to come in below po-tential, widening the output gap, and thus dampening cost pressures. To a large extent the current high inflation rates are a result of supply-side disruptions that should be resolved over the forecast period. In-flation (CPI) is thus expected to fall from current lev-els to average less than 3% y/y in 2008 and just above 1% y/y in 2009, and � finally � approach the inflation target in 2010.

When will the Riksbank cut?

To be blunt, the Riksbank should have already low-ered rates, in our view. Albeit new-found, the Riks-bank�s stubborn focus on spot inflation and lagging inflation expectations has proven a monetary policy dead-end that will only serve to deepen and prolong the current recession. In essence, the Riksbank has committed a policy error.

Riksbank to cut the Repo rate

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Riksbank policy rate

And now, somewhat ironically, the Riksbank will be forced to lower rates due � not to receding inflation � but rather because of the financial turmoil that threatens the Swedish economy. However, the ex-pected fall in inflation and inflation expectations should hopefully facilitate the Riksbank�s shift of monetary policy stance. We expect the Riksbank to cut rates by at least 100bp in 2009.



Sweden � forecast at a glance Demand and output 2007 2007 2008 2009 2010

SEK bnPrivate consumption 1434,0 3,0 1,3 0,8 1,7Government consumption 796,6 1,1 -0,8 1,4 2,2Fixed gross cap formation 581,6 8,0 1,6 3,1 1,6Stocks* 20,5 0,7 0,1 -0,3 0,1Domestic demand 2812,2 3,4 0,8 0,1 1,8Exports 1609,2 6,0 3,4 0,3 5,4Aggregate demand 4445,6 4,8 1,8 0,0 3,2Imports 1375,0 9,7 3,0 -1,6 2,8Net exports* -366,6 -1,2 0,4 0,9 1,6GDP 3070,5 2,7 1,3 0,7 3,4* contribution to GDP growth

Economic indicators 2007 2008 2009 2010

Trade balance, SEK bn 139 131 152 180in % of GDP 4,5 4,1 4,7 5,3Current Account, SEK bn 258 246 281 322in % of GDP 8,4 7,7 8,6 9,5Public sector savings, SEK bn 107 77 33 30in % of GDP 3,5 2,4 1,0 0,9Public debt ratio, % of GDP 42,0 37,5 35,2 33,1Unemployment, % of labour force 4,6 6,2 7,4 7,4Hourly wages, % y/y 3,5 4,1 4,2 3,2Consumer prices, % y/y 2,2 3,6 1,9 1,3

01.10.08 + 3 mths + 6 mths + 12 mthsFinancial figuresRepo-rate 4,75 4,75 4,50 4,002-yr swap yield 4,69 4,45 3,95 3,9510-yr swap yield 4,67 4,50 4,30 4,30SEK/EUR 978 950 945 940SEK/USD 381 679 700 696

Vol growth in %



Norway: From sauna to ice bath • Strong headwinds from the global crisis will reinforce the slowdown.

• Construction sector is already in trouble, as interest rates are dampening housing sales.

• Stress in the interbank market will push Norges Bank into an easing cycle from Q1. The risk is clearly on the downside as the financial crisis accelerates.

• The main risk to the Norwegian economy stems from a global recession deep enough to end the boom in global oil investments

On the brink There are two possible outcomes for the Norwe-gian economy as global inflation and growth slow. In one scenario, the US authorities� bailout package gradually stabilises financial markets. The next two to three years are then affected by the aftermath of what we have been through. Global growth slows, banks� losses are normal for an economic downturn, risk aversion subsides, and commodity prices more or less stabilise. In this scenario, in-terest in Norwegian assets grows, Oslo outper-forms other stock exchanges, and the NOK rallies. This is supported by central bank rates the world over reflecting relative growth differentials, which increases the interest rate spread between Nor-way and other countries. In this case we may be looking at two to four interest rate cuts in Norway, which would gradually stabilise the property mar-ket. More serious is if we end up in a true deflation scenario, which is a growing risk as financial mar-kets deteriorate. In this scenario, none of the bail-out packages from the authorities manage to stabi-lise financial markets, and more large financial in-stitutions go under. The crisis of confidence in the interbank market worsens, and banks further re-duce their risk exposure. This contributes to a negative spiral in both the housing market and the real economy, and this in turn exacerbates the problems in the banking sector. Global growth is very weak, commodities prices take a tumble, and risk appetite evaporates altogether. In the worst case, oil prices also drop below oil companies� breakeven levels, causing oil investment to plum-

met. The Oslo Stock Exchange crashes, and the NOK weakens markedly. The Norwegian economy performs far worse than other Western econo-mies, and Norges Bank may need to slash interest rates by 2-3pp. We would probably see the EUR/NOK cross heading for 9 in such a scenario. Despite the interest rate cuts, there are sharp drops in the prices of both housing and commer-cial property, because weak economic growth means that businesses need less space and un-employment will be higher. The stylised scenarios presented above present two very different outcomes for the Norwegian economy if we are now on our way into a new re-gime. However, there is one key common denomi-nator in these two scenarios. Whatever happens, interest rates will come down only as a result of weak growth in the real economy. The scenarios also illustrate that a more active fiscal policy to stimulate growth should not be used unless the country finds itself in deflation. Continued conser-vative use of oil revenue is called for in fiscal 2009, even if the political cost proves high. Interest rates already biting

It appears that the Norwegian economy peaked towards the end of last year. Growth in H1 this year was 1.8%, down from 5.8% in H2 last year. This sharp slowdown is due, in particular, to weaker growth in homebuilding and lower private consumption growth.



Dampening Mainland growth

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Although wage growth looks set to be close to 6% this year, we see growth in private consumption slowing from more than 6% in 2007 to well below 3% this year. Higher inflation, especially in food and energy prices, is counteracting the strong nominal growth in wages, with the result that real wage growth will slow from almost 5% last year to just over 2% this year. Coupled with higher inter-est rates, weaker employment growth and falling asset prices, this will drag down consumption growth. It also seems to be the classic capital goods, which can be expected to be more interest-rate-sensitive, that are now being hit. There are reports of weak growth in sales of building supplies, furniture, household electronics, boats and cars. The housing market also seems to have deterio-rated again somewhat during the summer. House prices are falling more quickly, and houses are tak-ing longer to sell. Although housing starts have dropped off sharply, new projects are still being completed, and apparently faster than the market can absorb. Particularly worrying, of course, is that this is happening while the labour market is still very tight.

Housing market in trouble

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Although bankruptcy rates have risen somewhat and the first lay-off notices have been issued, the construction sector seems to have been able to switch much of its capacity into commercial and public-sector projects. However, we are worried that this may turn out to be less of a safe haven than many had hoped. The outlook for the commercial property market is now very uncertain. The combination of higher hurdle rates and unexpectedly low growth in rents has led to a substantial drop in market values for commercial property. This is being exacerbated by the extreme conditions currently prevailing in do-mestic and global financial markets. The chances of one or more major players in this market having to throw in the towel due to financing problems are growing with the deterioration in financial markets. Tougher credit terms from banks for commercial property, in the form of higher credit margins and greater equity requirements, will also put a damper on demand. Falling resale values will in all probabil-ity limit both the will and the ability to start up new projects over the next couple of years. As though this were not enough, the ongoing budget process for 2009 at the country�s munici-palities has revealed a major need for belts to be tightened. Interest expenses are rising along with labour costs, while tax receipts and financial reve-nue are falling. We fear that this will hit municipal investment budgets just at the time when the con-struction sector could do with a helping hand. All in all, therefore, it would seem that we are look-ing at a period of greatly reduced construction ac-tivity. With more bankruptcies in the construction sector and falling property values, Norwegian



banks� substantial exposure to the construction boom may prove a challenge in 2009. All the signs are that the boom in oil-related indus-tries will continue. Investment statistics for the oil sector suggest an increase in investment in the Norwegian sector of the North Sea of almost 20% in 2008, and the first projections for 2009, pro-duced in May this year, are 30% up on the projec-tions for 2008 from May last year. However, there have been some major changes since the last Nordic Outlook in June that could prove significant for oil-related industries. First, oil prices have fallen around 40% from their peak. Although oil prices are still very high by historical standards, this serves as a reminder that there are actually limits on how high prices can rise be-fore global demand for oil is affected. This puts a ceiling on how high costs can grow in the supply sector. Far more important, though, is that the global fi-nancial crisis is now also hitting oil-related compa-nies hard. A growing number of companies in the shipping and offshore sectors are struggling to source finance for their new building programmes, which could significantly slow investment growth. Despite high levels of activity in oil-related indus-tries, indicators for industry as a whole are begin-ning to point seriously downwards. Lower global demand, a strong NOK and high domestic cost growth are probably curbing interest in expansion in the industrial sector. The PMI appears to have peaked in early summer last year, and has trended clearly downwards since then. With virtually full capacity utilisation across large parts of Norwegian industry, one might imag-ine that expectations of slower output growth would be due purely to capacity constraints. How-ever, a closer look at the PMI�s sub-indices reveals that the downward trend is due primarily to a de-crease in new orders. This indicates that it is the demand side that is expected to curb activity, not capacity constraints.

Manufacturing sector in recession

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Index Index

This is confirmed by order statistics for Norwegian industry. New orders in H1 were more than 12% down on the same period last year. The drop in new orders has been so sharp that order books now seem to be flattening out after climbing 30-40% a year since 2003. Downturn in the labour market

The Norwegian labour market has become increas-ingly tight since 2005. In our last Nordic Outlook in June, we wrote that it had reached a turning point after a five-year upswing. Incoming data have so far shown only signs of levelling off, while leading indi-cators are clearly pointing to a substantial drop in demand for labour. Employment as measured by Statistics Norway in its Labour Force Survey is now more or less flat, with roughly zero growth in the last three-month period. The reason why unemployment has never-theless remained extremely low is that growth in the supply of labour has weakened in 2008. The reduction in recruitment to the labour force needs to be seen in the light of very high participation rates in Norway and the high levels of labour immi-gration in recent years. When job opportunities are declining, far fewer will be tempted into the labour market. Viewed in this light, the low growth in labour supply is a sure sign of the labour market having become less tight.



Turnaround in the labour market

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Similarly, all leading indicators suggest that de-mand for labour will fall further. For example, the employment indicator in the PMI fell from around 62 in Q3 last year to below 53 after two months of the same quarter this year. We see a similar trend in TNS Gallup�s expecta-tions survey for Norges Bank, which includes all sectors, including manufacturing. The employment indicator in this survey fell from 65 in Q2 to below 54 in Q3. This shows that the downturn in the Norwegian economy outside manufacturing over the summer was relatively sharp. Wage growth peaking Wage growth looks set to be around 6% in 2008. Higher unemployment and lower profitability across much of the business sector will probably lead to somewhat lower wage growth next year. There is an unusual amount of uncertainty about how the economic downturn will impact on wage growth. There has been an abnormally large influx of foreign labour since the EU was enlarged in 2004, and it is far from clear how much of this la-bour will stay in Norway. We have also seen signs of changes in the wage model in Norway during the economic upswing. The substantial improvement in profitability since 2004, coupled with a shortage of skilled labour in many industries and businesses, has led to unusu-ally large temporary wage supplements in the form of bonuses and other performance-based pay. This may mean that wage growth will slow more rapidly than normal now that profitability is coming under pressure in a variety of sectors.

Given the prospect of a rapidly weakening labour market, there is reason to expect that cost-push inflation will gradually ease. Unless we have an-other round of higher global commodity prices, the chances of an inflation problem in the medium term have decreased substantially. On the other hand, there are still signs of many prices being raised to compensate for the cost increases of recent years. In particular, it appears that we should expect higher prices for electricity, food and some services with a high energy content.

Inflation lagging fundamentals


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With the reduction in global risk appetite, we have also seen the NOK depreciate markedly over the summer. The currency is currently almost 4% weaker than at the time of our last Nordic Outlook in June. We must therefore expect inflation to re-main relatively high well into next year, and we have still not seen it peak in this cycle. Changes in the risk picture

As at central banks the world over, Norges Bank�s principal objective in 2008 has been to anchor inflation expectations. However, recent develop-ments in the financial markets have changed the risk picture for Norges Bank too. As mentioned above, there is now only a limited risk of an inflation problem in the medium term. Falling commodity prices and much weaker eco-nomic growth than expected are hardly likely to fuel a major lift in inflation expectations.



Instead, we believe that the combination of rapid deterioration in the real economy and substantial increases in banks� funding costs entails a sub-stantial risk of the Norwegian economy being hit hard by the global financial turmoil and economic slowdown.

The market finishes the job

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We believe that this will squeeze two rate cuts out of Norges Bank in H1 next year. Both households and businesses must nevertheless be prepared for financing costs to rise considerably before Norges Bank takes action. The speed and size of increases in banks� lending rates could affect Norges Bank�s rate-setting deci-sions. On the other hand, the combination of high inflation and an ever weaker NOK could stop Nor-ges Bank from intervening in time. Greater uncertainty about the NOK Despite record-high oil prices and a relatively large interest rate spread to other countries, the NOK has been surprisingly weak in recent months. This is probably because the low global risk appetite is also hitting interest in carry trades in the foreign exchange market. The liquidity risk in Norway is quite simply too high.

The NOK has been hit especially by the drop in oil and commodity prices during the summer in tan-dem with the slide on the Oslo Stock Exchange. As mentioned earlier, uncertainty about the outlook for global financial markets is making it particularly hard to predict where the NOK is headed. As we believe that the downside for the global economy will be limited to a normal slowdown, both risk appetite and commodity prices should return to levels that warrant a much stronger NOK against the EUR. On the other hand, a global defla-tion scenario would hit the Norwegian economy particularly hard and probably lead to a much weaker NOK.

NOK: Impotent interest rates


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Norway � forecast at a glance Demand and output 2004 2005 2006 2007 2008 2009 2010

NOK bn

Private consumption 760,9 3,5 4,4 8,6 2,1 2,0 2,8Public consumption 370,8 1,9 3,3 5,1 3,5 3,2 3,2Gross fixed investment 309,8 11,2 7,3 14,5 4,6 2,9 4,1 Petroleum activities 65,3 16,8 5,8 12,2 7,8 6,6 7,0 Mainland Norway 227,44 15,3 7,6 9,6 3,3 1,4 2,9 Dwellings 62,7 17,5 6,6 5,8 -10,2 -3,5 1,8 Enterprises 116,4 18,9 7,1 12,6 3,2 0,2 2,5 General government 48,3 -0,4 9,1 14,7 3,8 6,2 4,5Mainland demand 1359,1 4,1 4,8 9,1 4,1 2,0 2,8Total domestic demand 1441,5 5,9 5,2 8,4 3,7 2,3 3,1Growth contribution from stockbuilding 16,6 1,1 0,5 -0,3 0,7 -0,1 0,0Exports 736,8 0,7 1,6 19,5 1,9 1,8 1,8 Crude oil and natural gas 337,3 27,0 -6,7 -2,9 -1,4 1,9 1,2 Traditional goods 322,9 9,2 6,2 8,8 -1,4 1,9 1,2Total demand 2195,0 4,2 4,0 11,8 3,1 2,2 2,7Imports 489,6 8,6 8,1 10,3 5,4 2,0 2,7 Traditional goods 322,9 8,6 9,5 8,2 4,7 1,8 2,8Growth contribution from net exports 247,2 -2,2 -1,8 4,7 -0,9 0,2 -0,1GDP 1743,0 2,9 2,8 3,7 2,4 2,2 2,7 GDP Mainland Norway 1355,31 7,3 4,8 6,3 2,8 1,9 2,4

Economic indicators 2005 2006 2007 2008 2009 2010

Current account surplus, NOK bn 317 373 351 610 745 703- % of GDP 16,6 18,7 18,7 16,9 25,7 28,3Employment, % y/y 1,2 3,4 4,0 3,0 0,5 1,1Labour force, % y/y 1,4 2,2 3,1 3,1 1,1 1,0Unemployment (LFS), % 4,6 3,4 2,5 2,5 2,7 3,2Annual wages, % y/y 3,8 4,9 5,6 5,9 5,3 4,9Consumer prices, % y/y 1,5 2,3 0,7 3,6 2,6 2,5Core inflation 1,6 2,3 0,8 3,6 2,5 2,5

Financial figures 29.9.08 3 mths. 6 mths. 12 mths.

Deposit rate 5,75 5,75 5,25 5,003-mth interest rate, % p.a. 6,25 6,40 6,30 6,4010-swap rate, % 5,33 5,55 5,50 5,70EUR/NOK 829,8 800 790 780USD/NOK 578,1 571 585 578



Finland: Fiscal policy fights back • We expect Finnish GDP growth to slow to 2.4% in 2008 and 1.5% in 2009.

• Growth is mainly driven by private consumption, because capex is slowing down and exports already face headwinds from a weaker global economy.

• We expect inflation to reach 4.1% in 2008 before falling to 2.6% in 2009 owing to lower raw material prices and VAT cuts in food prices.

• Strong public finances should allow a fiscal stimulus in 2009, which should help households endure the slowdown.

Growth to fall below potential In 2007, GDP growth declined by 0.5 percentage points to 4.5%; this is a revised figure and slightly higher than previously reported. GDP growth for Q1 08 was, however, revised downwards. The downward revision was mainly due to major changes in the source data on the metal industry and taxes on products. In Q2 08, the volume of GDP increased by 0.8% q/q and by 2.8% y/y. After a long period of growth, the volume of investments fell by 3.3% y/y in Q2 08. Thus, the economic slowdown is now visible and economic cooling is expected to continue in 2009, when we expect GDP to rise by less than 2%. The decline in the unemployment rate is likely to end with weaker demand for labour. Strong growth in exports about to face weaker demand Growth in exports of goods and services in 2007 has been revised upwards to 8%, marking the fourth year of fast expansion. Export prices rose on average by more than 1%. During the first six months of 2008, exports rose 6% y/y with signifi-cantly faster growth in exports of services. Weaker global demand is likely to drag growth further down during the latter half of the year and in 2009. Value of processed wood product exports has al-ready fallen by more than 20% while paper and pulp industry exports have declined by 2%. Metal engineering and chemical exports have continued their fast expansion. Western export markets have continued to get weaker, but growth still exists in

the East. With all its opportunities and risks, Rus-sia has again become an important market for Fin-nish industries. A strong euro and relatively fast rise in labour costs have burdened Finnish export industries for a long time. The recent weakening of the euro has helped a little, but there is no major boost in sight from exchange rates. In particular, the export outlook for forest industries continues to be modest. We expect export volumes to rise by 3% during 2008 and decelerate in 2009. Investment activity starting to suffer from weak outlook Investment volume grew by nearly 8% in 2007. Housing investment growth stalled, but other build-ing construction rose by 22%. Machinery capex rose by 11% and infrastructure construction by c3%. Due to the strong expansion, the invest-ments-per-GDP ratio has risen to over 20% for the first time since 1992. Investments shrank during Q2 08 year on year, but given a strong Q1 the combined increase was 2.5% during the first six months. Housing construction and machinery capex shrank, but other construction continued to rise. We expect the full-year rise in investments to be only 1.5%. Housing construction continues to fall. Given a bleaker economic outlook and lower indus-trial confidence, capex is likely to slow further in 2009 and could even contract.



Private consumption adjusting to a slower pace Volume of private consumption rose 3.2% in 2007. Although a fairly high figure, the rise was nearly one percentage point less than a year be-fore. Households kept shopping during the first six months of the current year and volumes rose by about 4%, boosted by automobile tax changes and the final phase of TV digitalisation. Accelerated inflation and financial market turmoil have scared households and weaker consumer confidence is about to leave its mark on consump-tion. We believe private consumption is likely to grow by less than 3% in 2008 and at most 2% in 2009. We expect average earnings to rise by more than 5% in 2008 and almost as much in 2009. Em-ployment will grow clearly this year, but the growth is likely to stall next year with the economic slow-down. Tax cuts planned by the government should allow continued growth in household purchasing power in 2009. Production continues to cool and demand for la-bour will follow GDP rose 4.5% in 2007, with agriculture and for-estry up 17%, manufacturing 9%, construction 7% and trade slightly over 3%. Manufacturing was boosted by metal engineering output expanding 14%, while forest industry output was flat. During H1 08 GDP rose by 2.5% y/y. With a broad-based slowdown in the economy, we expect GDP to expand by 2.4% during the full year and decelerate to 1.5% next year. Housing construction and forest industry output are likely to fall. Employment rose by 2% or 50,000 employees in 2007, with the strongest expansion in construc-tion and services. The unemployment rate fell by 0.8 percentage points to 6.9%. Employment con-tinued to rise by 2% between January and July. The construction workforce grew by a staggering 8%, despite a visible slowdown in housing construction. Manufacturing employment fell by 1%, although hours worked increased marginally. The unem-ployment rate has continued to fall year on year and was 0.3 percentage points lower in August. The seasonally adjusted figure, however, stabilised

during the summer and an unemployment rate of 6.4% in August was marginally higher than during the spring. We expect the full-year average to fall to 6.3%. Opposite forces are starting to influence employment; large generations are beginning to retire and demand for labour is getting weaker in the face of the economic slowdown. We think the unemployment rate is likely to remain at 6.3% in 2009 Central government gross debt amounted to EUR 55.6bn at the end of May. The debt to GDP ratio stood at 32% � one of the lowest in EU15. Debt is expected to decrease further towards the end of the year. Despite some challenges in local government, public finances are in good shape for an expansionary fiscal policy if the economic cycle

continues to worsen.

Growth of GDP and employment

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Consumer prices have risen over 4% in a year, but the headline is likely to fall below 3% in 2009. The rise has been driven both by global factors, namely higher food and energy prices, and domestic fac-tors. The government raised taxation on alcohol and energy at the beginning of the year. Between January and July, housing costs rose by 6% y/y. Wage agreements in several industries have led to higher unit labour costs, which has probably also contributed to inflation. The headline figure might have peaked at 4.7% in August, but we think it is still likely to stay well above 4% during the final months of 2008. We expect the full-year average to amount to 4.1%. Inflation is forecast to decline in 2009, because pressure from raw material



prices is getting lighter, reduction of food VAT will cause a one-off decline during the latter half of the year, and interest rates are expected to be slightly lower. The housing market is cooling down as apartment sales take longer and nominal prices have re-mained relatively flat. Development differs from one area to another, and buyers have become more sensitive to price and quality. Uncertainty about euribor rates, which are the most common reference rate for housing loans, is adding to buyer caution. A small nominal decrease in the national price index is also possible. Nominal housing prices are likely to remain more or less unchanged or decline marginally over the forecast period, causing real prices to decline. The risk of nominal price declines in housing will increase if the global slowdown continues in 2009. Stable employment, higher earnings and diminishing supply of new apartments support the housing market. Regular earnings rise still stronger than inflation

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Strong public finances and current account are stabilising factors The current account has been in positive territory since 1994. Thanks to stable terms of trade and a positive trade balance, the current account sur-plus was EUR 8.3bn last year. With slightly weaker terms of trade, the current account surplus could shrink by EUR 1bn and record a cEUR 7bn solid surplus both in 2008 and 2009. The budget surplus increased by EUR 1.8bn to EUR 4bn in 2007. Central government tax income rose by 6% and total income had a similar in-crease. Expenditure rose only by 2%, even though transfers to local government, state pensions and debt interest expenses grew by 4-7%. Expenditure was constrained by a decrease in transfers to businesses and households, largely due to declin-ing unemployment. Income continued to rise at almost the same rate over January-July 2008. Ex-penditure has caught up with the rise, but a sur-plus has been maintained. The surplus acts as a buffer against a slowdown and the government is going to cut income tax and food VAT in 2009, which should prevent a large decline in private consumption. Central government gross debt amounted to EUR 48.5bn at the end of August. The debt-to-GDP ratio was under 30%, a marked decline from 70% 10 years ago. The government also has significant financial assets, which have yielded more interest and dividends than the interest expense on gov-ernment debt over the few past years. Therefore, the near-term outlook for public finances is good and there is room for expansionary fiscal policy. However, in the medium term, an ageing population will challenge the strength of public finances and new policy for sustainable economic growth and public finances will be needed.



Finland � forecast at a glance National account 2007 2007 2008 2009

mia. EURGDP 179,7 4,5 2,4 1,5Imports 73,1 6,6 2,0 1,5Exports 82,2 8,2 3,0 1,0Consumption 128,8 2,7 2,3 1,9- private 90,6 3,2 2,8 2,0- public 38,2 0,8 1,0 1,5Investments 36,5 8,5 1,5 0,5- private 31,9 8,3 1,5 0,5- public 4,6 9,4 0,0 0,5Stockbuilding* 3,6 0,1 0,0 0,0Net exports* 0,0 1,4 0,7 0,0* Contribution to to GDP growthEconomic figures 2007 2008 2009

Unemployment rate, % 6,9 6,3 6,3Salaries, % y/y 3,3 5,3 4,8Inflation, % y/y 2,5 4,1 2,6Current account, bn.euro 8,3 7,0 7,0CA / GDP, % 4,6 3,7 3,6Budget balance, % of GDP 5,3 5,0 3,7Public debt, % of GDP 35,4 32,5 31,0

Financial figures 29.09.08 + 3 mth + 6 mth + 12 mth

Repo rate, % p.a. 4,25 4,25 4,00 3,752-yr swap rate 4,71 4,45 4,00 4,3010-yr swap rate 4,77 4,55 4,30 4,40EUR/USD 143,5 140 135 135

Vol. change %



Global: On the brink of recession • The global economy continues to languish following the two major shocks to growth that have hit in the

past year � the financial crisis and the run-up in commodity prices. The financial crisis was a substantial blow to housing markets globally, while the rise in commodity prices squeezed private consumption.

• In the coming quarters the developed economies will totter on the brink of recession, with very weak growth in the US, Euroland, the UK and Japan. We expect a gradual � but fragile � recovery to kick off in the US in H1 09, and this will spread to the rest of the developed economies later in the year.

• Our US growth forecast is broadly unchanged. We expect to see another leg down in growth in H2 08 as the boost from the Q2 tax package reverses and housing continues to be a drag. Exports will provide less support as global growth falters. However, we expect a gradual recovery in H1 09 as lower inflation un-derpins consumption growth and the drag from housing gradually fades. Lean inventories will provide a good base for improving production once demand growth recovers.

• We have revised down our Euro area growth forecast and expect further weakness in activity for the rest of the year and into H1 09. Sluggish consumption growth, rapidly slowing exports and depressed housing markets will be the focal point of the slowdown. We expect a slow recovery to materialise in H2 09 on the back of higher US growth and a rise in real income growth as inflation comes down.

• The slowdown has spread to most emerging markets, with GDP growth and industrial activity weaken-ing in Asia, Central & Eastern Europe and Latin America. The Middle East is now the only major pocket of strength. The spike in inflation on the back of higher crude oil and commodity prices has hit EM Asia espe-cially hard and forced reluctant Asian central banks to tighten monetary policy.

• Central banks: In the US Fed is expected to stay on hold for a long time. Falling inflation and a decline in inflation expectations should buy them time. We don�t see any rate hikes until H2 2009. In Euroland ECB is now expected to deliver three rate cuts of 25bp in December, Februrary and April taking the refi rate to 3.5%.

Focus swings back to financial crisis and risks to growth Over the past quarter, the focus of the global econ-omy has shifted sharply from the inflation scare back to growth fears and the financial crisis. Euro-land data have weakened substantially, while we see signs that the boost from the tax cut in the US is already fading. Emerging Market data have also indicated an export-led slowdown, while the rise in food prices has helped weaken consumption.

USA Euroland Japan China

2008 1.9 (1.5) 1.3 (1,4) 0.8 (1.5) 10.0 (10.4 )2009 1.5 (1.5) 0.7 (1.2) 1.3 (1.6) 9.5 (9.7)

2008 4.6 (4.4) 3.6 (3.8) 1.6 (1.7) 6.3 (7.7) 2009 3.1 (2.6) 2.6 (2.5) 0.8 (0.8) 3.6 (5.0)

--- CPI ---

--- GDP ---

GDP & CPI forecasts

Note: Previous forecasts in brackets

Overall the global economy continues to languish due to two major shocks: the financial crisis and the sharp run-up in commodity prices witnessed earlier in the year.

Downturn goes global

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The financial crisis yet again took a turn for the worse during the summer and has led to a series of interventions from the US authorities. Fears of a financial melt down rose substantially over the



past month and the US Treasury decided to bail out Fannie Mae and Freddie Mac as well as the insurance giant AIG. The investment bank Lehman Brothers was not rescued, though, and the bank-ruptcy led to substantial strains in money markets with rates going up sharply as liquidity is again a scarce resource. As we write the US government is trying to get a more grand scale rescue package through to fight the financial crisis. US Treasury will set up a fund to take over �toxic assets� from the banks � a measure similar to the Resolution Trust Corporation which was set up in 1989 dur-ing the Savings and Loan crisis. This will be impor-tant in turning the financial crisis as it will reduce the fear of further bankruptcies among major banks (see Flash Comment USA: Massive Fiscal Intervention). However the process towards nor-malisation will be very gradual and still with risks of more tensions arising. Inflation concerns have eased on the back of a de-cline in commodity prices � not least oil. The high oil price fanned its own demand destruction, and on the supply side OPEC upped production. Weaker demand and increased supply added up to a slide in oil prices that has most likely been exac-erbated by speculation (see �Commodities�). Credit spreads widen as financial crisis resurfaces

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Growth outlook In the US we are entering the second leg of the W-shaped growth pattern that we have been expect-ing for some time. Growth in the first half of 2008 was stronger than expected, averaging 2.1% q/q AR on the back of temporary tax rebates and very strong export growth. Housing market activity con-tinued to be a drag, however. Now well into the second half of the year, the economy is faltering again, and GDP growth is expected to fall to zero by

Q4 as the effects of the temporary fiscal boost fade and put downward pressure on consumption growth, while exports will likely start to suffer from the global slowdown. Housing is again expected to be a major drag on GDP growth as well. In 2009, however, we expect to see a gradual � albeit fragile � recovery. What will spark the recov-ery? There are three factors that should help lift growth rates: 1) Inflation should fall rapidly next year and help underpin real income growth � posi-tive for private consumption. 2) Construction spending has plummeted, and we expect the drag to abate in early 2009. 3) Inventories have been eroded, and this should provide a good platform for increased production once demand starts to im-prove. 4) The US Treasury�s grand-scale interven-tion should help unfreeze credit markets and pave the way for the Fed�s easing of monetary policy to finally gain some traction. G3 private demand to slow further going into 2009

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Developments in the US housing market are criti-cal to the stabilisation of the economy and the eas-ing of the financial crisis. As long as house prices continue to decline, uncertainty over future losses in the banking system will remain. Fears continue to mount about the negative feedback loop in hous-ing: lower house prices lead to more insolvent homeowners, which leads to more foreclosures, which in turn puts more houses on the market and pushes prices even lower. We expect house prices to fall further, but to find a bottom in the middle of 2009. Our forecast is based on improving afforda-bility, which should help underpin demand. We can already see some encouraging signs in the housing market, as home sales have stabilised over the past six months. The main risk is that the financial crisis deepens further, as this would again spill-over onto housing.

http://danskeanalyse.danskebank.dk/link/Bailoutplan220908/$file/Bailoutplan_220908.pdf

http://danskeanalyse.danskebank.dk/link/Bailoutplan220908/$file/Bailoutplan_220908.pdf



In Euroland, things have taken a pronounced turn for the worse over the past quarter. Germany in particular has suffered, and morphed from last man standing to last man falling. Industrial produc-tion has shrunk and the risk of recession in H2 08 is high. Slowing export markets, rising commodity prices, strong euro appreciation and the financial crisis in the end proved too strong a storm for the Euro economy to weather. Countries with booming housing markets in the run up to the crisis � especially Spain, Ireland and France � are now being particularly hard hit by the effects of tighter credit and more expensive fund-ing costs. In Germany, a major build-up of invento-ries in the first half of the year is adding to its prob-lems. It seems likely that Euroland will have to go through a painful period of adjustment in the com-ing year, with the result being rising unemployment in the remainder of 2008 and in 2009. Japan�s economy has contracted sharply in Q2 and could well slip into recession this year. The recent spike in inflation has cut into real incomes, and private consumption and exports plunged in Q2 as the crisis turned increasingly global. The short-term outlook for Japan remains weak, but we ex-pect it to recover in 2009. A sharp decline in infla-tion and possible tax cuts are expected to boost private consumption next year. Furthermore, the global economy is expected to strengthen again, especially in H2 09 In Emerging Markets, weakness has become more widespread, with GDP growth and industrial activ-ity slowing in Asia, Central & Eastern Europe and Latin America. The Middle East is now the only ma-jor pocket of strength. The spike in inflation due to higher crude oil and commodity prices hit EM Asia particularly hard and forced reluctant Asian cen-tral banks to tighten monetary policy. However, with growth now slowing, most Emerging Market central banks are shedding their tightening bias and they will probably start easing in early 2009 if the expected decline in inflation materialises. Lower inflation and gradual monetary easing should support recovery in domestic demand in the Emerging Markets.

China remains a bright spot among Emerging Mar-kets. Growth here is slowing to more sustainable levels on the back of slower export and investment growth, although private consumption remains exceptionally strong. Importantly, inflation has de-clined faster than expected, freeing the govern-ment to support growth. The odds of a soft landing in the Chinese economy are increasing. Inflation has peaked The decline in commodity prices means that global inflation rates have peaked. Headline inflation has already come down in many countries and is ex-pected to decline further in 2009. This will ease global inflation concerns and give central banks more leeway to address the slowdown. Falling in-flation is itself part of the healing process, as it will boost real income growth globally and help stabi-lise consumption growth.

G3 inflation looks set to come down

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G3 core inflation will likely continue to rise over the coming year due to the pass-through of the earlier increases in commodity prices. Going into 2010, core inflation will, however, come down again as rising unemployment dampens wage growth and the current fall in commodity prices works its way through the inflation pipeline. Declining inflation should lead to a decline in infla-tion expectations. Household and market expecta-tions tend to be based on recent experience. This was evident in the spring, when inflation expecta-tions rose.



Inflation expectations in the bond markets have already come down. Hence implied 5y5 forward break-even inflation has come off strongly recently as growth worries increased and commodity prices declined. This development is also likely to unfold in consumer inflation expectations, but it may take a bit longer. 5Y5Y forward inflation expectations derived from

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Central bank outlook The decline in inflation expectations will be impor-tant for central bank policy, as the need to be alert to an un-anchoring of expectations will fade. Recently speculation arose that Fed might reduce rates again but Fed held steady through the esca-lation of the financial crisis and if the government succeed in stabilising the financial markets Fed cuts are off the table again. The recovery is quite fragile, though, and hence it will take a while before Fed starts normalising monetary policy. They do not want to make the same mistake again of keep-ing rates too low for too long. But on the other hand the improved inflation picture allows them to keep rates on hold for some time to wait for the econ-omy to get traction. We believe Fed will stay on hold until late 2009 where a process of policy normalisation is likely to take place. However in the short run further rate cuts cannot be ruled out as the financial crisis is taking its toll on growth. ECB has been challenged by very high inflation rates and decided to draw a line in the sand in July by raising rates. Since then the economy has dete-riorated strongly and commodity prices have come down. With inflation expectations likely to ease this will give ECB room to ease policy and we expect ECB to cut by 25bp in December, February and April � a total of 75bp.

The Bank of Japan (BoJ) is expected to remain on hold for the next year despite headline inflation temporarily exceeding the 0-2% price stability range in July. Core inflation is still barely positive and inflation is not really a major issue for the BoJ. On the other hand, the BoJ is unlikely to cut rates to stimulate growth. With its leading interest rate at just 0.5%, the BoJ still regards monetary policy as very accommodative. Risk factors

Primary forecast uncertainties • Financial crisis

The financial crisis has proven very unpredict-able, as events have repeatedly unfolded in un-expected ways. However, while new problems have arisen, there have been new solutions. Our main scenario is that the latest measures from the US authorities will mark the beginning of the end of the crisis but that it will be a long and gradual process before we achieve something approximating normality. The risks are mainly to the downside: the crisis deepening and drag-ging on, leading to an extended credit crunch. This would prolong the downturn in the US economy and deepen the problems in European housing markets.

• Commodity prices As with the financial crisis, commodity prices have been very unpredictable, with wide fluc-tuations during the past year. We see risks in both directions. A deeper global downturn could lead to further falls in oil prices. On the other hand, a renewed weakening of the dollar on the back of the financial turmoil and political inter-vention could again push commodity prices higher, with negative effects on growth and an upside impact on inflation.

• Emerging Markets

Emerging Markets are important for exports from the developed economies. The risks here are mainly to the downside, as several Emerg-ing Markets are facing new strains � not least Russia and other countries in Eastern Europe.



• Central bank reaction functions On the political front a key uncertainty is whether monetary policy behaviour has changed. This is especially the case for the ECB, where long-term inflation worries seem to be having a greater im-pact � though exactly how much greater impact is uncertain.

With regards to the US, there is uncertainty over how much it would take for the Fed to raise rates once the economy begins to recover. Usually it waits for unemployment to head down, but lessons from the previous mistake of keeping rates too low for too long may lead to an earlier normalisation of monetary policy.



Economic forecast

Macro forecast, Scandinavia

Denmark 2007 1,7 2,3 1,6 5,9 -0,3 1,9 3,8 1,7 2,8 4,8 27 1,22008 1,0 1,7 1,6 0,5 -0,1 3,4 4,1 3,4 1,8 4,5 22 1,02009 0,8 0,8 1,7 0,1 0,0 3,1 3,4 2,6 2,1 3,3 18 0,6

Sweden 2007 2,9 3,1 1,3 8,2 0,7 6,2 9,9 2,2 6,2 3,5 42 8,42008 1,0 1,2 -1,2 1,2 0,1 2,9 2,6 3,7 6,1 2,4 37 7,72009 0,9 0,8 1,6 -2,9 -0,3 0,6 -1,4 2,1 8,0 2,3 35 8,6

Norway 2007 3,7 6,5 3,6 9,5 -0,3 2,7 8,8 0,7 2,5 8,0 26 18,12008 3,1 2,8 3,2 3,2 1,1 3,1 5,9 3,8 2,6 12,0 26 23,52009 2,7 2,8 2,8 4,6 0,0 3,5 4,8 2,7 2,7 13,9 26 22,4

Macro forecast, Euroland

Euroland 2007 2,6 1,6 2,3 4,3 -0,1 6,0 5,2 2,8 7,4 -0,8 67 -0,82008 1,3 0,4 1,7 1,4 0,1 2,9 2,2 3,6 7,4 -1,1 65 -0,52009 0,7 0,6 2,2 -1,2 0,0 1,5 1,1 2,6 7,8 -1,5 65 -0,7

Germany 2007 2,7 -0,2 1,9 5,6 -0,1 8,5 5,5 2,9 8,3 -0,5 65 5,82008 1,3 0,4 0,6 2,6 0,1 3,2 2,5 3,3 7,8 -0,5 64 6,02009 0,5 0,5 0,7 0,1 -0,1 2,0 1,5 2,4 8,1 -0,2 64 6,3

France 2007 1,9 1,9 2,0 4,1 -0,2 3,5 6,6 2,0 8,0 -2,3 63 -2,32008 0,9 1,1 1,4 0,5 0,0 1,5 1,8 3,5 7,8 -2,7 62 -2,32009 0,7 1,2 1,5 0,2 0,1 2,0 2,0 3,1 8,0 -3,0 62 -2,3

Italy 2007 1,8 1,7 0,8 2,8 0,0 2,5 1,8 2,6 5,9 -2,6 105 -1,72008 0,0 -0,6 1,2 -0,3 0,0 0,3 -0,8 3,7 6,2 -2,5 103 -2,42009 0,4 0,3 1,2 -1,0 -0,1 0,6 -0,2 2,2 6,5 -2,7 102 -2,5

Spain 2007 3,8 3,2 5,1 6,4 -0,4 5,5 6,8 3,4 8,0 1,5 37 -9,02008 1,3 1,2 4,0 -1,0 0,0 2,5 1,7 4,5 9,0 0,7 35 -10,02009 0,4 1,2 4,0 -3,0 0,0 2,5 1,5 2,3 9,5 -0,3 35 -8,0

Holland 2007 3,0 1,8 3,2 4,8 -0,1 6,0 5,5 2,4 3,3 0,0 60 7,02008 1,7 0,5 1,2 1,0 0,1 2,5 2,0 2,3 3,0 0,0 59 6,52009 1,2 0,6 1,2 1,5 -0,1 2,5 2,0 1,7 3,2 0,0 59 6,5

Finland 2007 4,5 3,2 1,3 8,3 0,1 8,2 6,6 2,5 6,9 5,3 35 5,32008 2,6 2,4 1,6 4,0 0,0 2,0 1,5 3,9 6,3 4,7 33 4,02009 1,8 2,8 1,8 0,0 0,0 2,5 2,0 2,5 6,3 3,9 31 3,0

Macro forecast, Global

USA 2007 2,0 2,8 2,1 -1,8 -0,4 8,4 2,2 2,9 4,6 -1,2 60 -5,32008 1,9 0,9 2,4 -3,3 -0,2 9,2 -2,5 4,6 5,6 -2,7 60 -5,02009 1,5 0,4 2,1 -0,3 0,1 6,0 -1,1 3,1 6,7 -3,3 61 -3,1

Japan 2007 2,0 1,4 0,7 -0,5 -0,1 8,6 1,7 0,0 3,8 -3,4 180 4,12008 0,7 0,7 0,4 -2,4 0,0 6,0 0,4 1,6 4,1 -3,6 182 4,02009 1,3 1,0 1,1 0,0 0,0 4,4 1,5 0,8 4,2 -4,0 183 4,2

UK 2007 3,1 3,1 1,9 4,1 0,0 4,2 -2,0 2,3 3,0 -2,5 43 -3,32008 1,4 1,3 2,3 4,2 -0,2 3,8 3,5 3,8 2,8 -2,5 43 -4,12009 0,6 1,3 2,4 3,0 0,0 3,4 3,0 2,8 3,0 -2,5 43 -4,0

2007 3,3 2,1 -1,1 5,7 -1,4 9,4 5,9 0,7 2,8 1,3 55 16,82008 1,9 1,9 -0,5 -0,5 0,4 3,8 3,6 2,5 2,5 0,3 54 9,42009 1,5 1,5 0,6 0,7 0,4 4,2 4,9 1,5 2,6 0,1 53 10,3

Switzer-land

Year GDP 1Private cons.1

Current

acc.4

Current acc.4

Infla-

tion1Unem-

ploym.3Public

budget4Public

debt4

Public debt4

Infla-tion1

Unem-ploym.3

Public budget4

Year GDP 1Private

cons.1Public

cons.1Fixed

inv.1Stock

build.2Ex-

ports1Im-

ports1

Im-ports1

Public budget4

Public debt4

Year GDP 1Private cons.1

Public cons.1

Fixed inv.1

Stock build.2

Ex-ports1

Current acc.4

Public cons.1

Fixed inv.1

Stock build.2

Ex-ports1

Im-ports1

Infla-tion1

Unem-ploym.3



Financial forecast

Bond and money marketsKey int.

rate 2-yr swap yield10-yr swap

yieldCurrency

vs EURCurrencyvs USD

Currencyvs DKK

USD 01-okt 2,00 3,40 4,43 140,6 - 530,8+3m 2,00 2,90 4,15 140 - 533+6m 2,00 3,15 4,25 135 - 553

+12m 2,00 3,60 4,55 135 - 553

EUR 01-okt 4,25 4,62 4,65 - 140,6 746,0+3m 4,00 4,45 4,55 - 140 746,0+6m 3,75 4,00 4,30 - 135 746,0

+12m 3,50 4,30 4,40 - 135 746,0

JPY 01-okt 0,50 1,12 1,68 149,3 106,2 5,00+3m 0,50 0,90 1,65 147 105 5,07+6m 0,50 1,00 1,70 142 105 5,25

+12m 0,50 1,30 1,85 147 105 5,07

GBP 01-okt 5,00 5,29 5,02 79,1 177,8 943,5+3m 4,50 4,90 4,80 82,0 171 910+6m 3,75 4,40 4,85 80,0 169 933

+12m 3,50 4,60 4,90 78,0 179 956

CHF 01-okt 2,75 2,81 3,36 157,8 112,3 472,7+3m 2,75 2,65 3,20 158 113 472+6m 2,75 2,50 3,10 158 117 472

+12m 2,50 2,75 3,25 156 116 478

DKK 01-okt 4,60 5,02 4,89 746,0 530,8 -+3m 4,60 4,85 4,70 746,0 533 -+6m 4,35 4,40 4,45 746,0 553 -

+12m 4,10 4,50 4,50 746,0 553 -

SEK 01-okt 4,75 4,73 4,64 973,4 692,5 76,6+3m 4,75 4,45 4,50 950 679 78,5+6m 4,50 3,95 4,30 945 700 78,9

+12m 4,00 3,95 4,30 940 696 79,4

NOK 01-okt 5,75 6,49 5,46 827,7 588,9 90,1+3m 5,75 6,40 5,55 800 571 93,3+6m 5,25 6,30 5,50 790 585 94,4

+12m 5,25 6,40 5,70 780 578 95,6

PLN 01-okt 6,00 5,99 5,35 338,2 240,6 220,6+3m 6,00 6,60 6,20 340 243 219+6m 5,75 6,50 6,10 340 252 219

+12m 5,50 6,40 6,00 345 256 216

Equity markets

RegionalRisk

Price trend3 mth.

Price trend12 mth.

Regional recommen-

dationsUSA Low -5% to +5% +5% to +10% OverweightJapan High -5% to +5% +5% to +10% NeutralEmerging markets (USD) High -5% to +5% +5% to +10% UnderweightPan-Europe (EUR) Low -5% to +5% +5% to +10% Neutral

NordicsDenmark Average -5% to +5% +5% to +10% NeutralSweden High -5% to +5% +5% to +10% OverweightNorway High -5% to +5% +5% to +10% Neutral

Commodities

01-okt Q1 Q2 Q3 Q4 2008 2009

ICE Brent 96 97 123 118 103 110 110Aluminium 2.441 2.779 2.995 2.850 2.700 2.831 2.850Copper 6.440 7.741 8.309 7.590 7.100 7.685 7.550Gold 895 924 897 870 850 885 858CBOT Wheat* 681 1.026 838 789 790 861 839CBOT Corn* 516 527 630 582 575 578 633* Note: US$/bushel

2008 - average Average



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