october 8, 2014 monthly macro update - macro research - handelsbanken capital...

Macro Research

October 8, 2014

Monthly Macro Update

As the Fed winds down, the ECB gears up

China: Political worries

US: A first hike early next year to avoid market turbulence

Eurozone: Draghi will do whatever it takes

Sweden: Likely to get inflationary boost from the US

Contents

GLOBAL As the Fed winds down, the ECB gears up 3

CHINA Political worries 5

EUROZONE Draghi will do whatever it takes 6

US A first hike early next year to avoid market turbulence 8

SWEDEN Likely to get inflationary boost from the US 10

NORWAY Downside risk to Norges Bank’s growth estimates 11

FINLAND ECB’s actions are no quick fix for investment gloom 12

DENMARK Revised GDP figures do not alter overall picture 13

UNITED KINGDOM Weak wage growth despite strong economic growth 14

EASTERN EUROPE Russia edging closer to recession 15

BRAZIL Incoming president to inherit a very weak economy 16

INDIA High inflation is curbing monetary easing 17

SOUTH EAST ASIA Emerging Asia getting ready for the US rate change 18

FX MARKETS EUR/USD will drop much further 19

Key ratios 20

Disclaimer 23

ContactInformation

Jan Häggström, +46 8 701 1097, [email protected]

Petter Lundvik, +46 8 701 3397, [email protected]

Gunnar Tersman, +46 8 701 2053, [email protected]

Helena Trygg, +46 8 701 1284, [email protected]

Anders Brunstedt, +46 701 54 32, [email protected]

Eva Dorenius, +46 701 50 54, evdo01@ handelsbanken.se

Tiina Helenius, +358 10 444 2404, [email protected]

Tuulia Asplund, +358 10 444 2403, [email protected]

Knut Anton Mork, +47 2239 7181, [email protected]

Kari Due-Andresen, +47 223 97007, [email protected]

Marius Nyborg Hov, +47223 97 340, [email protected]

Jes Roerholt Asmussen, +45 4679 1203, [email protected]

Bjarke Roed-Frederiksen,+45 4679 1229, [email protected]

Rasmus Gudum-Sessingø, +45 4679 1619, [email protected]

http://www.handelsbanken.se/research

mailto:[email protected]



http://research.handelsbanken.se/Macro-Research/

Monthly Macro Update, October 8, 2014

3

Global

As the Fed winds down, the ECB gears up

Recent data and news confirm our view that the US and eurozone are moving in different directions. As the

US economy continues to expand and more jobs are added, the Federal Reserve is gearing up for a

normalisation of monetary policy. In the eurozone, the picture remains starkly different, with looming

deflation risks, particularly in the south, as the economy has failed to take off. China, the second global pillar

of growth apart from the US, is developing as expected. As such, the global recovery remains on track.

At the height of the financial crisis in 2008, the Federal Reserve lowered its policy rate to

zero to prevent the economy from falling into a 1930s-style depression. Subsequently, the

central bank started a massive bond buying spree to aid the recovery from the deepest

slump in post-war period. The Fed’s balance sheet was expanded in an unprecedented way.

Looking at economic outcomes since then, this policy proved quite successful. While the

American economy returned to growth, unemployment has steadily fallen toward what

economists would describe as “consistent with neutral capacity utilisation”.

As more jobs are added and the economy heats up, it is high time for the Fed to normalise

monetary policy. The phasing out of the central bank’s bond purchases, under the third and

final round of “quantitative easing”, is well underway and will be completely over after the

next policy meeting of the Federal Open Market Committee (FOMC). The next step is to

adjust the policy rate. The prevailing view among Fed officials suggests that a first move is

likely once unemployment approaches its natural rate, a theoretical concept that embodies

the idea of a normalised level of employment when the economy is in neutral gear.

Based on the Fed’s own assessment of a probable range for this measure and our forecasts

for growth and employment, that point is not far away. In our view, the faster-than-expected

decline in unemployment suggests a first hike in January of next year. In addition, we expect

the last remaining calendar-dependent part of the Fed’s forward guidance, that “it will likely

be appropriate to maintain the current target range of the fed funds rate for a considerable

time after the asset purchase programme ends”, to be removed . Thereafter, it will become

completely clear that monetary policy is data-dependent and that Fed officials are free to

raise the fed funds rate whenever it is appropriate. Anxious not to fall behind the curve and

cause turbulence in financial markets, we think that the Fed will hike the policy rate gradually

but steadily over the next couple of years.

Fed hands the QE baton to the ECB

The picture in the eurozone could hardly be more different. The situation in the crisis-ridden

economies in the south remains highly problematic. Even from Europe’s main economic

powerhouse, Germany, we have seen disconcerting signals lately. Clearly, policymakers will

have to do more. It is not a question of “if” but “when” the ECB will deliver on its famous

pledges to “do whatever it takes”. Weak macro data and downside inflation surprises are

forcing the ECB to undertake unconventional measures. The ultimate measure of success

will be a turnaround in inflation. One essential precondition for this, we think, is a continued

rapid weakening of the euro. If the euro were to start strengthening again, we believe that

the ECB will have to be more aggressive.

The ECB variant of QE is also different from what the Fed, the Bank of England and the

Bank of Japan have done. Unlike the others, the ECB will not purchase government bonds.

Some commentators argue that the ECB variant is not “real” QE, but we do not share this

opinion. In our view, balance sheet expansion matters much more than what assets the cen-

tral bank decides to buy. The impact on different segments of the financial markets will of

course be different. However, there are good reasons for the ECB to act in a different way.

Lending to companies in the eurozone mostly takes place via bank loans rather than through

the corporate bond market.

Unprecedented Fed

easing in response to

financial crisis

High time for policy

normalisation

Fed to hike its policy

rate in January

Policymakers in the

eurozone have to

step up

Different market

structures require

different solutions


4

The ECB’s strategy will likely achieve several objectives. First, it will expand the size of the

ECB balance sheet and help push down the value of the euro. Second, it will move risky

assets off the bank’s balance sheet, which reduces the amount of capital they need to hold

and improves their capital ratios. Third, it will help create a better market for securities

backed by corporate loans and, by doing so, will hopefully lead to lowered corporate loan

rates. Markets are already anticipating this scenario unfolding. Indeed, the euro has fallen

significantly against the dollar recently in response to the ECB’s signals and we expect it to

continue to weaken during the next couple of years.

Limited scope for Chinese stimulus

Together with the US, China remains a global growth engine. Nevertheless, the economy is

slowing in a gradual fashion, in line with our expectations. In the corporate sector, recent

PMI readings confirm that the wheels are running more slowly. In other sectors, the glut of

unsold new apartments suggests that the housing slowdown will last well into next year and

that construction growth is unlikely to return to the pace of recent years. Policymakers seem

unsure of what to do. The bottom line is that it is unlikely that China can aim for the same

growth rates that it was able to achieve in the past.

Some call for broader monetary stimulus, but others warn of systemic risks. Indeed, it is not

clear which monetary instrument or instruments policymakers have at their disposal in this

situation. After the full liberalisation of bank lending rates, an official rate cut will only affect

deposit rates. Moreover, a cut in deposit rates could lead the public to move savings from

bank accounts into wealth management products, which could raise systemic risks and lead

banks to curtail lending given China’s requirements for loan-to-deposit ratios. A reserve re-

quirement cut would seem more logic. However, such a move could well prove ineffective if

loan-to-deposit ratios restrict bank lending.

A deeper issue is China’s commitment to continued market reforms. Rumours are circulating

about the impending departure of Zhou Xiaochuan as Governor of the People’s Bank. His

departure would not necessarily mark a change in monetary policy. However, Zhou is widely

regarded as a champion of free-market reforms. As such, his replacement could be viewed

as weakening the top leadership’s reform commitment. Hong Kong represents more of a

fundamental test of China’s will to reform. While President Xi may be a reformer, he is no

democrat. We should not be surprised by the fact that these challenges are coming to the

surface, and more challenges are sure to come. Implementing deep reforms is hard to do.

Swedish election results in parliamentary gridlock

After last month’s election in Sweden, a rather weak minority government has been formed

comprising the Social Democratic Party in partnership with the Green Party. Even with the

support of the Left Party, the new government will struggle to push through the more contro-

versial parts of its agenda. Against this backdrop, major reforms are unlikely. Most of the tax

cuts introduced by the previous centre-right coalition are expected to stay in place. Given

broad support for the existing rule-based framework, we are not worrying about unpleasant

fiscal surprises. While further structural reforms also seem unlikely, this does not represent a

significant deviation from the recent past four years under the minority centre-left coalition.

Monetary policy has more scope for action. As we have argued before, consumer price infla-

tion should accelerate until year-end, due to both domestic and foreign factors. So far, the

boost in domestic cost growth is in line with our forecast, but the pick-up is still fairly limited.

However, higher cost growth should affect consumer prices further out and at higher re-

source utilisation. In contrast, the rise seen in imported inflation is already significant and

import prices should impact inflation more rapidly, both on producer and consumer prices,

we believe. Considering the effects on the dollar from the Fed hikes in the pipeline, the

Riksbank is likely to decouple from ECB policy and follow the Fed instead, hiking its policy

rate next year.


The ECB is targeting

several objectives

China set to slow over

the next few years

Monetary stimulus

has its limitations

Hong Kong a test of

will to reform

Limited policy shift

under new minority

government

The Riksbank to fol-

low the Fed


5

China

Political worries

As the slowdown continues, expectations of renewed demand stimulation are growing. Although some such

measures have been introduced, the deeper issue of structural reforms is creating divisions among China’s leaders.

The pro-democracy demonstrations in Hong Kong underscore the depth of the Chinese policy dilemmas.

The slowdown in the Chinese economy continues. The weakness in the August data created

suspicions of a statistical fluke, and the preliminary Markit/HSBC PMI for September provid-

ed some support to that suspicion. However, the revised index changed that picture, as did

the official PMI, as Q3 GDP growth now seems likely to be closer to 7.0 percent than 7.5

percent y-o-y. The glut of unsold new apartments suggests that the housing slowdown will

last well into next year; and subsequent construction growth is unlikely to return to the pace

of recent years.

Policymakers seem unsure what to do. The special restrictions on the purchase and financ-

ing of second and third homes that were introduced a couple of years ago have been rolled

back, and mortgage rates are being discounted for some buyers. Nevertheless, we doubt

that these measures are sufficient to relieve the huge surplus of housing units that has ac-

cumulated in the wake of local governments’ eagerness to exploit land sales as a regular

source of revenue.

Many voices call for broader monetary stimulus, but others warn of systemic risks. Further-

more, it is not clear which broad monetary instrument or instruments China has available.

After the full liberalisation of bank lending rates, an official rate cut will only affect deposit

rates. Moreover, a cut in deposit rates could lead the public to move savings from bank ac-

counts into wealth management products, which could raise systemic risks and paradoxical-

ly lead banks to curtail lending given China’s requirements for loan-to-deposit ratios. A cut to

reserve requirements seems more logical, but even that would be ineffective if loan-to-

deposit ratios restrict bank lending.

A deeper issue is China’s commitment to continued market reforms. Rumours are circulating

about the allegedly impending departure of Zhou Xiaochuan as Governor of the People’s

Bank. His departure would not necessarily mark a change in China’s monetary policy; how-

ever, he is widely regarded as a champion of free-market reforms. As such, his replacement

could be viewed as weakening the top leadership’s reform commitment.

The democracy demonstrations in Hong Kong present a different and deeper test of the

Chinese leadership. President Xi may be a reformer, but he is no democrat. If he concedes

to the demonstrators’ demands, it would be considered a sign of weakness and a signal to

separatists in Tibet and Xinjiang to press for concessions. On the other hand, a harsh re-

sponse in Hong Kong would weaken the city’s reputation as a safe place to do business.

Additionally, it could make mainland China look even less inviting to international investors

than the picture that has formed after the recent crackdown on alleged price fixing, and it

would also hurt the prospects of getting Taiwan under the umbrella of “one country, two sys-

tems.” Almost regardless of what the leadership does in Hong Kong, the risk is that the de-

mand for more democracy could spread to the mainland, perhaps with student demonstra-

tions in the streets of Shanghai. That would definitely raise the stakes of the game.

We should not be surprised that these challenges are coming to the surface. More challeng-

es are sure to come. Implementing deep reforms is hard to do.

Knut Anton Mork, +47-2239-7181, [email protected]

Q3 growth closer to

7.0 than 7.5 percent

Policy easing

unlikely to remove

housing surplus

Speculation about

PBoC Governor

raises concerns about

reform commitment

Hong Kong repre-

sents a fundamental

test of will to reform


6

Eurozone

Draghi will do whatever it takes

Weak macro data and downside inflation surprises force the ECB to take unconventional measures. The

ultimate measure of its success will be a turnaround in inflation. One essential precondition for this is a

continued rapid weakening of the euro. If the euro were to start strengthening again, we believe the ECB

would have to be more aggressive.

There was some disappointment after the press conference following the ECB board meet-

ing on October 2. Even though ECB Governor Mario Draghi announced that the ECB’s vari-

ant of QE would start in October with the purchase of covered bonds, to be followed later in

Q4 with the buying of securities backed by corporate loans, Draghi refused to set specific

targets for the size and speed of these measures. The Governor hinted again that the aim

was to return the size of the ECB balance sheet to where it was in early 2012, a little above

EUR 3 trillion. That would be an increase of around EUR 1 trillion from today’s level.

Will this be enough? Or is it too little or maybe even too much? This is virtually impossible to

estimate, so it is easy to understand why the ECB is not setting a specific target. Among

other things, monetary policies are starting to diverge sharply between the ECB and the

Fed. This will have an impact on the euro on top of what the relative expansion of the ECB

balance sheet will accomplish (see separate article in this Macro Update).

We find that relative expected short-term rates are important explanatory variables for

EURUSD. But in order to fully capture the swings in the exchange rate, we need to take into

account the relative size of the balance sheets of the Fed and the ECB. A rapidly expanding

Fed balance sheet since the autumn of 2012 combined with a contraction of the ECB bal-

ance sheet helps explain why EURUSD rose sharply, despite very little movement in relative

interest rates (read more in the FX article in this Macro Update)

The ECB variant of QE will be different from what the Fed, the Bank of England and the

Bank of Japan have done. Unlike the others, the ECB will not purchase government bonds.

Some commentators argue that the ECB variant is not “real” QE, but we do not share this

opinion. It does not matter which specific assets the central bank buys; the balance sheet

expansion is most important.

The various segments of financial markets will, of course, be impacted differently. However,

we still think there are good reasons for the ECB’s approach. Lending to companies in the

eurozone mostly takes place via bank loans; little funding is raised in the corporate bond

market. This is the opposite of how the US credit market is organised. When the Fed bought

government bonds, interest rates also fell for corporate bonds, and companies could thus

get cheaper funding.

ECB aims to return

balance sheet size to

EUR 3 trillion

Regardless of the

type of asset bought,

ECB balance sheet

expansion is what

matters for EURUSD


7

While this mechanism also works in the eurozone, it reaches too few companies. We reiter-

ate that the ECB must undertake actions that lead to lower interest rates for companies, not

just for banks or governments. Cheaper funding costs for banks have not been enough to

lower borrowing costs for firms, so we find it natural that the ECB is now trying another way

to accomplish this.

ECB purchases of securities backed by corporate loans will serve multiple purposes. First, it

will expand the size of the ECB balance sheet and help push down the value of the euro.

Second, it will move risky assets off banks’ balance sheets, which reduces the amount of

capital they need to hold and improve their capital ratios. Third, it will help create a better

market for securities backed by corporate loans and by doing so hopefully lead to lowered

corporate loan rates.

The euro needs to decline more

One important measure of the success of ECB action is how much and how quickly the euro

declines. EURUSD is down from a peak of 1.40 before the summer to around 1.25 today. Is

this enough? We do not think so. Draghi said earlier this year that a 10 percent decline in

the euro would lift inflation by around 0.4-0.5 percentage points. Clearly the 10 percent de-

preciation so far is not enough to lift inflation back to 2 percent. We think the euro needs to

decline by a further 10-20 percent to get inflation and inflation expectations back to where

the ECB wants them to be.

This is also our forecast for the EURUSD, which we expect to eventually reach parity. Part

of this will be due to a more aggressive Fed rate policy than is currently priced in and the

rest will have to be due to ECB action. The exact amount of assets the ECB needs to buy is

difficult to guess, but EUR 1 trillion sounds like a good start to us. It is not clear precisely

why markets were disappointed by Draghi last week, but we stick to our baseline for the

ECB: it will to do whatever it takes. The slower the ECB acts, the lower eurozone inflation

will go, and the ECB will have to make up for that by doing more later on. However, ultimate-

ly, it will get its way on inflation.

Jan Häggström, +46 8 701 1097, [email protected]

ECB purchase of se-

curities backed by

corporate loans serve

multiple purposes

Euro needs to de-

cline 10-20 percent

for inflation to reach

ECB’s desired level

EUR 1 trillion of as-

sets bought is a good

start


8

US

A first hike early next year to avoid market turbulence

Fed officials have revised their policy rate forecasts so that they are now roughly in line with our view. We

expect the Fed to hike the fed funds rate to 1.50 percent by the end of 2015, to 2.75 percent by the end of 2016

and to 3.75 percent by the end of 2017. The first hike will come in January of next year, in our view. Given

officials’ rather aggressive rate path, they need to deliver a first hike in early 2015 to avoid market turbulence.

Unemployment has declined faster than expected. In September, the rate hit 5.9 percent

and we expect the decline to continue further at roughly the same pace during the rest of

this year. Our forecast is that the unemployment rate will hit 5.6-5.7 percent in January of

next year. Other labour market indicators are improving more or less in line with the unem-

ployment rate. Thus, it is high time to normalise monetary policy. The QE3 programme will

end at the next interest rate meeting in October. The prevailing zero percent policy rate will

be maintained until unemployment has declined to almost its natural rate, which Fed officials

currently assess at 5.2-5.5 percent. Our unemployment rate forecast points to a first hike in

January of next year; thereafter, the balance sheet should gradually normalise. Monetary

policy during the normalisation process will be implemented through adjustments in the in-

terest rate on banks’ excess reserve holdings at the central bank. Despite that, the policy

rate during this process should continue to play a role in the operating framework and in

communication.

Large excess liquidity is putting the limelight on the monetary multiplier and the risk of future

inflation. The normal transmission mechanism is that money printed by the central bank

(QE) is multiplied by the banking system. Specifically, the Fed’s asset purchases are credit-

ed to the banks’ reserve deposits at the Fed. The banks then use those excess reserve de-

posits to expand credits to households and businesses, which ultimately increase checkable

demand deposits in the banking system. Those demand deposits are accounted for as

money. Eventually, a larger stock of money will drive consumer prices upward. However, the

transmission of central-bank-created excess reserves to inflation has a long and variable

time lag that is hard to assess. At present, the monetary multiplier has collapsed because

banks are unwilling to expand credits, despite their large excess reserve deposits at the

Fed. However, once the demand for credit and banks’ willingness to lend eventually in-

crease, the Fed has to wind down or lock in those excess reserves to avoid inflation.

There is a relationship between inflation and the monetary aggregate M2, but it is unstable

over time. However, we have identified two fairly stable inflation regimes. In the first regime,

1970-97, inflation was driven empirically by the 24-month moving average of money growth

lagged 30 months and by energy prices lagged by two months. Remember that the period

includes drastic oil price shocks. Specifically, in the regression, an increase in M2 growth of

1 percent eventually tends to increase core inflation by 0.43 percentage points, while an

Now high time to

normalise policy

Risk of future infla-

tion in the limelight

Money growth mat-

ters for inflation...


9

increase in energy producer-price inflation of 1 percent instantly tends to increase core infla-

tion by 0.07 percentage points.

In the second regime, 1998-2014, inflation is driven by a Phillips-curve-like relationship. In the

regression, inflation is determined by the 24-month moving average of money growth lagged

30 months, the exchange rate lagged by three months and the unemployment gap. An in-

crease in M2 growth of 1 percent eventually tends to increase core inflation by 0.12 percent-

age points, while a strengthening of the trade-weighted exchange rate index by 1 percent

tends to decrease core inflation by 0.02 percentage points. Finally, an increase in the unem-

ployment gap of 1 percentage point tends to decrease core inflation by 0.11 percentage points.

The impact on inflation from money growth has likely increased after the financial crisis and the

collapse of the monetary multiplier. An inflation regression with the estimation sample confined

to 2007-14 indicates that the impact on inflation after the financial crisis is roughly two-tenth of

a percentage point larger. A possible explanation is an awareness that the expansion of the

Fed’s balance sheet will eventually lead to inflation unless it is reversed before the multiplier

begins to function again. This larger-impact regression supports our inflation forecast: we ex-

pect core inflation to average 1.7 percent in 2014, 2.2 percent in 2015 and 2.3 percent in 2016.

Preparations to hike rates earlier than financial markets presently anticipate are likely un-

derway. At the next interest rate meeting, in October, we expect the Fed to remove the last

remaining calendar-dependent part of its forward guidance; namely, that “it will likely be ap-

propriate to maintain the current target range of the fed funds rate for a considerable time

after the asset purchase programme ends”. Thereafter, it will become completely clear that

monetary policy is data-dependent and that Fed officials are free to raise the fed funds rate

whenever it is appropriate.

At present, the median of Fed officials’ assessments for the appropriate fed funds rate is

1.375 percent by the end of 2015, 2.875 percent by the end of 2016 and 3.75 percent by the

end of 2017, which roughly correspond to our forecasts for 1.50, 2.75 and 3.75 percent at

the same time points. In other words, Fed officials have revised their policy rate forecasts so

that they are now roughly in line with our view. Moreover, we know that 14 of 17 Fed officials

believe in a first hike during 2015, although the precise timing is unknown. We expect a first

hike in January. As Fed officials want to hike at approximately the same pace as we do, they

really have to start early in the year to avoid turbulence in financial markets.


...even in the new

millennium

Money growth now a

major determining

factor of inflation

Fed officials free to

hike rates

A first hike early next

year to avoid market

turbulence


10

Sweden

Likely to get inflationary boost from the US

Instead of the general perception, we expect the Riksbank to pay much less attention to the ECB’s actions

than to Fed policy. Despite the higher eurozone trade-weight, US price trends and the USD are more

influential to Sweden than eurozone prices and the EUR. In our view, less inflationary impact in the eurozone

than in Sweden is a key factor that will push Riksbank policy to diverge from that of the ECB and follow the

Fed instead, resulting in policy rate hikes next year.

Despite fiscal policy uncertainty, the election outcome – a weak minority government – was

expected. This implies low probability for any major reforms. More specifically, the left-green

government heading into office has pledged not to revoke much of the former (right-wing)

Alliance government’s tax cuts. In addition, the commitment among political parties to fiscal

rules is broad-based and comforting for the fiscal sustainability outlook. In our view, four

years of weak governing seem probable ahead, with Sweden likely to miss out on further

structural reforms. Yet, this would not be in stark contrast to the past four years, at least if

we compare to the rapid reform tempo during the Alliance government’s first four years.

This outlook is not promising, but it is also difficult to identify strong competition in this area

(structural reform) in peer markets. Nevertheless, an unusually bumpy road for the new gov-

ernment seems likely this autumn. The risk of the budget not passing in parliament and a re-

election cannot be ruled out, but such political disruptions would affect financial markets in

the short term rather than the real economy in the medium term, we assess.

We believe inflation and monetary policy should remain at the heart of Swedish macro. As

we have forecast for some time, consumer price inflation should accelerate until year end,

due to both domestic and foreign factors. So far, the boost in domestic cost growth is in line

with our forecast, but the pick-up is still fairly limited. However, higher cost growth should

affect consumer prices further out and at higher resource utilisation. In contrast, the rise

seen in imported inflation is already significant and import prices should impact inflation

more rapidly, both on producer and consumer prices, we believe. And we forecast that a

significant inflationary impulse to Sweden remains.

Data in the past few years (see graphs above) support our view that the potential boost from

a stronger USD and rising trend in US (and OECD) producer prices should raise producer

prices much more in Sweden than in the EMU. This Swedish “divergence vis-à-vis the euro-

zone” has to do with swings in exchange rates, but also with size and compositional effects.

If our forecasts prove correct, with the rising trend in US inflation (including producer prices)

and the markedly stronger USD (vs. SEK and EUR), a sizeable push to Swedish producer

prices will follow. Also, recent data support our outlook on inflation and the Riksbank, which

we expect to decouple from ECB policy and instead follow the Fed in rate hikes in 2015.

Anders Brunstedt, +46 701 54 32, [email protected]

As expected, a weak

minority government

was the election out-

come

Uncertainties in fiscal

policy would affect

financial markets in

short term, but not

the real economy

The Riksbank and

inflation to remain

the crucial factors to

the Swedish outlook

Expect Sweden to get

a US-driven inflation-

ary boost, much

stronger than that in

the eurozone


11

Norway

Downside risk to Norges Bank’s growth estimates

Norges Bank no longer sees a possible rate cut, citing that risks to the economy have become more balanced.

As we see it, however, risks to the downside have increased. Oil investments are set for a large drop next year

and the recent fall in oil prices could lead to an even bigger drop. Household spending is already weaker than

Norges Bank expected, unemployment is rising, and consumer confidence is low. With that said, banks have

cut their lending rates, which for now should prevent Norges Bank from lowering its key policy rate path.

Household spending already running below Norges Bank’s estimates

At its meeting in September, Norges Bank removed the possibility for a rate cut ahead. We

deemed this move as a bold step, given the uncertain outlook for the economy. Information

received since September points to a weaker growth outlook than Norges Bank had fore-

seen. Contrary to what Norges Banks expected, retail sales have continued to move along a

downward trend. Consumer confidence seems to be stuck at low levels and a larger share

of households now expects to increase savings over the coming 12 months.

Lower oil prices add to the downside risks

Oil prices have decreased sharply in recent weeks, increasing the possibility for oil invest-

ments to drop by a larger amount than what Norges Bank has projected. We are also con-

cerned Norges Bank is underestimating the ripple-effects following from lower oil invest-

ments. Households are already adjusting their behaviour towards weaker income and labour

market prospects; we see a risk of adjustments speeding up with higher unemployment.

The data for people registered as either unemployed or on government schemes may give the

impression of ongoing improvements in the labour market. The reason for this, however, is that

scheme positions are being reduced and the pace of the reduction has picked up. A significant

fraction of these people are now showing up in the figures for registered unemployment. From

January to July, the average rise in registered unemployment was only 200 people a month.

Over the past two months it has picked up to 970. Due to the ongoing layoffs in the oil industry,

we believe registered unemployment, which is Norges Bank’s favoured measure of labour

market slack, will show further upward movements. Due to a weaker outlook, we see a risk

that unemployment will rise faster than Norges Bank has projected.

No downward revision to the key policy rate path at this stage

Summing up, we believe Norges Bank is too optimistic with regards to growth ahead. That said, banks have lowered their lending rates, which for now should prevent Norges Bank from lowering its key policy rate path.

Marius Gonsholt Hov, +47 2239 7349, [email protected]

The drop in oil prices

increases the risk for

an even steeper de-

cline in oil invest-

ments

Weaker growth out-

look, but balanced by

the fact banks have

lowered rates


12

Finland

ECB’s actions are no quick fix for investment gloom

Finland has the lowest real corporate loan costs in the eurozone, but loans to housing corporations have been

responsible for corporate loan stock growth after 2008. A lack of demand is restraining production much

more than financial constraints. We expect private investments to grow again in 2016.

In our September Finnish Macro Forecast, we revised down our GDP growth forecast for

2014 and 2015 to -0.3 and 0.8 percent respectively. The weakness in economic perfor-

mance is broad-based. In September, household sentiment and confidence indicators for

service, manufacturing, retail trade and construction sectors decreased from already weak

levels, which indicates that the course of the economy is unlikely to change for the better in

Q4. Fiscal austerity will intensify in 2015, but the common monetary policy of the European

Central Bank will likely remain accommodative for years to come. How likely are loose mon-

etary policy and recent actions able to turn the trend in private investments in Finland?

Financing costs for non-financial corporations – a component in investment decisions – were

the second lowest in Finland among eurozone countries in August, when the average loan

rate for 1-5 year corporate loans was 2.3 percent. When deflated by harmonised CPI, Fin-

land has the lowest real corporate loan costs in the eurozone. As the non-financial corporate

stock is increasing at a decent pace, 5.9 percent y-o-y in August, a quick conclusion could

be that the demand for and supply of corporate credit are growing healthily and that invest-

ment growth should recover accordingly. However, loans to housing corporations are in-

cluded in non-financial corporations’ loan stock, although households, not companies, are

really the final debtors. Additionally, the credit is mostly used to repair ageing residential

building stock. Compared to the end of 2008, loans to housing corporations have practically

single-handedly been responsible for the growth in the corporate loan stock and, during the

same period, their share of the total corporate loan stock has steadily increased to over 30

percent in August 2014. That may have held back the pace of the contraction in residential

investments, but by Q2 2014, total private investments had dropped by more than 20 per-

cent from the previous peak of 2007-08.

Statistics do not indicate that companies would have resorted to sources of finance other

than bank loans in a significant way recently and business sentiment surveys confirm that

missing demand is limiting production much more than financial constraints. The recent ac-

tions by the ECB are therefore unlikely to boost investment in Finland by much. But if the

central bank manages to improve sentiment, boost demand in the eurozone and weaken the

euro further while keeping interest rates low, the indirect effects would be positive for Fin-

land. We expect private investment growth of -4.3 percent, +0.2 percent and +5.5 percent

for 2014, 2015 and 2016 respectively.

Tuulia Asplund, +358 10 444 2403, [email protected]

All confidence indi-

cators dropped fur-

ther in September

Financial conditions

for companies look

rosy...

...but a closer look

reveals that loans to

housing corporations

account for most

loan stock growth

Positive indirect ef-

fects from ECB ac-

tions more likely

than direct boost to

investments


13

Denmark

Revised GDP figures do not alter overall picture

GDP growth in the second quarter was revised up from -0.3 percent to 0.2 percent q-o-q. The revisions to the

quarterly GDP data were due to the implementation of new guidelines from the European System of National

and Regional Accounts (ESA 2010) and an improved method for seasonal adjustment. However, the overall

picture of a weak and fragile recovery remains; we continue to expect lacklustre economic growth.

The revised GDP figures for the second quarter show the economy grew by 0.2 percent q-o-

q, which is an improvement from the first reading that showed a contraction of 0.3 percent q-

o-q. The revisions were partly due to the implementation of the new national account guide-

lines from the ESA 2010, which now has brought accordance between the main revised an-

nual and quarterly GDP figures. However, an improved method for seasonal adjustment,

which has lowered volatility in the data, was also a major factor in the revision.

On the surface, the revised figures place the Danish economy in a slightly better light, as the

momentum in the economy seems to have been stronger over the last year. However, GDP

growth in the first quarter was also revised down from 0.6 percent to 0.1 percent q-o-q. Fur-

thermore, the main revisions lowered annual GDP growth in 2013 from 0.4 percent to -0.1

percent. As such, if we take a broader view of the overall effects of the revisions, the down-

turn following the Great Recession was smaller than earlier assumed, but the contraction

from 2011 to 2013 was more pronounced. As a consequence, GDP is still approximately 4.5

percent lower compared to the peak in 2007. Thus, the picture of a very weak and fragile

recovery has not changed despite the upward revisions to second quarter GDP.

In sum, and looking at the development in the first half of 2014, not much has changed due

to the revisions. GDP grew by 0.8 percent compared to the first half of 2013 versus an earli-

er estimate of 0.5 percent, but growth was lifted by a 0.5 percentage point contribution from

stock building. Private consumption was flat over the same horizon, and investments and

exports grew less than earlier assumed. Even though the momentum in private consumption

looks slightly better, it is still hard to characterize internal demand as being strong, and ex-

ports have clearly disappointed with two consecutive quarterly contractions.

Despite the positive spin that some have taken on the upward revisions to second quarter

GDP growth, we see no reason to alter our relatively pessimistic outlook for the Danish

economy. A major reason for the positive growth in the second quarter was an increase in

industrial production, but the manufacturing sector has been hard hit over the summer,

which will dampen growth in the second half of the year. Weaknesses among some of Den-

mark’s main trading partners will keep a lid on exports, and we do not see private consump-

tion being strong enough to offset these developments. As such, we do not believe there is a

need to alter our GDP growth forecast for this year of around 0.5 percent.

Jes Roerholt Asmussen, +45 4679 1203, [email protected]

GDP-growth in Q2

revised up from

-0.3% to 0.2% q-o-q

GDP is still about

4.5% lower than the

peak in 2007

Not much has

changed due to the

revisions

No reason to alter

our GDP growth

forecast this year of

0.5%


14

United Kingdom

Weak wage growth despite strong economic growth

Following the financial crisis hitting the world economy in 2008-09, GDP in the UK is finally back at the

same level as in Q1 2008. Economic growth has surprised most forecasters and is approximately 3 percent

this year. Wage growth, on the other hand, is weak. In the services sector, the driver of the economy, services

inflation is higher than services wage growth.

In Q2, regular pay for employees in the United Kingdom was 0.6 percent higher than a year

earlier. This was the lowest annual growth rate since records began in 2001 and reflects low

pay growth across a wide range of industrial sectors. Bank of England Governor Mark Car-

ney has told the UK's trade unions that wages should start rising in real terms "around the

middle of next year" and "accelerate" thereafter. Addressing the annual conference of the

TUC, he said workers "deserved" more money and added that unemployment should fall to

5.5 percent. But labour hoarding at the beginning of the crisis is now being reflected in weak

wage growth. Since January 2008, employment has increased by more than 3 percent while

GDP increased by 0.2 percent in the same period.

The correlation between unemployment and average wages is negative; when unemploy-

ment falls, wages should rise as employees are in a better position to negotiate their sala-

ries. At present, however, when unemployment falls, so do wages. But looking at national

accounts from the income side, there seems to be some mismatch. In Q1 this year, overall

gross national income rose is at the same level as total compensation for employees, mean-

ing that wages have increased just as much at GNI. But as long as total corporation profits

are weak and employment increases faster than economic growth, then these are reasons

for sluggish wage growth. However, the problem remains – a rate of inflation that increases

more than wages, which in turn decreases purchasing power. So, is it possible that Gover-

nor Carney is right when he predicts that real-term wages will rise 'next year'?

For a start, he has to be right. As monetary policy is widely expected to be less expansion-

ary at the beginning of next year, higher interest rates and weak wage growth are not a solid

combination. But will corporations be able to raise wages as long as productivity remains

sluggish? Weekly worked hours increased more than GDP in Q1, causing GDP per hour to

turn negative. If productivity growth increases and inflation stays on the lower bound, wages

could pick up during next year. If not, the British economy will have more challenges than

Mark Carney addressed in his speech at the annual conference of the TUC in September.

Helena Trygg, + 46 8 701 1284, [email protected]

Low pay growth in a

wide range of sectors

Wages should rise as

unemployment falls

Higher interest rates

and weak wage

growth


15

Eastern Europe

Russia edging closer to recession

While Russia’s economy has been slowing for several years, the country has managed to avoid outright

recession. However, it is becoming increasingly difficult for its economy to stay afloat. External headwinds

are intensifying, especially with oil prices continuing to fall. In Central Europe, by contrast, growth looks

quite robust. Exports are increasing, while domestic demand has bounced back strongly.

The Russian economy has been slowing ever since the global financial crisis. To a large

extent, this is a reflection of its well-known structural weaknesses. While there

are many interrelated factors, the excessive dependence on oil and gas in combination with

the increasingly authoritarian approach taken by the Kremlin are essential ingredients that

explain the country’s current state of affairs. So far, Russia has avoided outright recession.

However, given the accumulated costs of the standoff with the West over Ukraine, as well as

lower oil prices, it is becoming increasingly challenging task for Russia’s economy to stay

afloat. The economy is clearly stalling.

Several prominent forecasters have already pencilled in recession in the coming quarters.

Looking further out, an extended period of slow growth seems highly likely. In the absence

of an unforeseen thaw in geopolitical relations, sanctions imposed by the EU, the US and

others are unlikely to be removed anytime soon. In response, Russia has imposed its own

set of sanctions, which not only have tangible effects on the EU, but also tend to be costly

for Russia itself given that imported goods from Western Europe are hard to source locally

or find elsewhere. On top of that, oil prices are falling, with obvious negative implications for

the federal budget and the balance of payments. Further capital outflows, a continued fall in

the rouble and downward pressure on related asset prices seem likely.

For Russia’s trading partners, the deterioration in trade relations in the aftermath of the

Ukraine crisis carries significant costs. Russia has already imposed an embargo on a broad

range of European farm produce and additional restrictive measures cannot be ruled out.

While the negative effects have yet to be documented in actual data, the consensus view,

which we also subscribe to, is that the moderate upswing in most Eastern European EU

economies will not be derailed. Neither will sluggish demand in the eurozone be enough to

stop those economies from growing. Unlike the problem economies in Southern Europe,

they can afford to let domestic demand play the role of shock absorber. In some of the larger

economies, there is also scope for some policy stimulus, especially as the ECB gears up to

expand its balance sheet. Even in the Baltic countries, we are confident that reasonably pos-

itive forecasts are warranted.


Russia is not yet in

recession

The rouble falls out

of favour

Central Europe is

safe for now


16

Brazil

Incoming president to inherit a very weak economy

The economy is in a technical recession as GDP fell in both Q1 and Q2. With the World Cup behind us, the

economy should recover, but only very slowly, as potential GDP growth has fallen due to a lack of structural

reforms and not enough investment. In the presidential election, incumbent president Dilma Rousseff won the

first round of voting, but not by enough to avoid a second round, which will be held on October 26.

With macroeconomic indicators continuing to surprise on the downside, we and consensus

have had to lower economic growth forecasts repeatedly. We now see GDP growth at only 0.3

percent this year and 1.1 and 2.0 in 2015 and 2016, respectively. Brazil is technically in a re-

cession as GDP fell in both Q1 and Q2. However, GDP should have grown in Q3 as the nega-

tive drag from fewer working days and lower activity during the world cup this summer sub-

sides. The economy should recover going into 2015, but we expect only very slowly, as poten-

tial GDP growth has fallen due to lack of structural reforms and not enough investments. Thus,

Brazil may not experience the 4.5 percent annual growth the country experienced on average

in 2004-10 for some time.

Private consumption growth has followed a downward trend in recent years, and falling

credit growth suggests this negative trend will continue in the short term. Ironically, private

consumption is the main positive contributor to GDP growth. The investment situation is

even worse, as investment growth is negative amid very low business confidence. However,

confidence (both business and consumer) could get a boost once uncertainty related to the

presidential election fades.

In the presidential election, incumbent president Dilma Rousseff (Workers’ Party) won the

first round, but not by enough to avoid a second round of voting on October 26. Thus, Brazil-

ians will have to choose between Rousseff and Aecio Neves (Brazilian Social Democratic

Party) after his surprise comeback in overtaking Marina Silva’s (Socialist Party) position as

the opposition’s lead presidential candidate. It looks a close race, as Rousseff only got 42%

of votes and the two opposition parties received a combined total of 55%. A victory by Neves

would be seen as market positive, given Rousseff’s rather populist approach to public spend-

ing at the expense of stable inflation.

We maintain our view that the BRL should weaken versus the USD in the forecast period

amid USD strength, and have adjusted our short-term forecast in accordance with the recent

weakening. The BRL weakened markedly versus the USD in September, along with (but

more pronounced than) most other emerging market currencies, as the first rate hike in the

US seems to have moved closer. The central bank continues to intervene to support the

BRL via FX swaps and ramped up the size of the programme recently.

Bjarke Roed-Frederiksen,+45 4679 1229, [email protected]

The economy should

recover from the

technical recession,

but only very slowly

The presidential

election off to a

second round


17

India

High inflation is curbing monetary easing

The slowdown has been driven more by structural than cyclical factors. Our forecast is that GDP growth will

remain subdued in coming years. Looser monetary policy is likely to do little to boost prevailing weak domestic

demand, as the room for easing is small. The Reserve Bank of India has taken a hawkish stance since Governor

Rajan took office. The ambition is to ultimately lower inflation to 4 percent, from 7.8 percent at present.

After a change in leadership, we are optimistic about India’s economic prospects in the long

run, although we expect growth to remain subdued in coming years. The slowdown has

been driven more by structural than cyclical factors. Our forecast is that GDP will grow by

5.5 percent this year and increase by 6.0 percent next year.

Fiscal policy is likely to be kept tight, as the government wants to get public finances in order,

but there might be room for a modest easing of monetary policy. In August, consumer price

inflation declined to 7.8 percent, from 8.0 percent in July. That is good news, as inflation has

now fallen below the Reserve Bank of India’s temporary target for January 2015 of 8 percent.

The decline was in large part due to a recent fall in local food prices that likely has further to

run. Moreover, the INR has likely stabilised against the USD, indicating that inflation will not be

affected much by import prices in the future. The decline in global oil prices is unlikely to add

downward pressure on inflation; rather, we expect the government to use that decline to un-

wind fuel subsidies, which amount to approximately 2 percent of GDP. Thus, fiscal balances

rather than consumers are benefiting the most from falling oil prices.

Looser monetary policy is likely to do little to boost prevailing domestic demand weakness,

as the room for easing is small. The Reserve Bank of India has taken a hawkish stance since

Governor Rajan took office. The ambition is to ultimately lower inflation to 4 percent; the tem-

porary goal of 8 percent is only a first step.

Monetary tightening in the US might weaken the INR. However, we believe that the

USD/INR rate will continue fluctuating around 61. The current account deficit is modest, at

roughly 2 percent of GDP, while long-run expectations of deregulation and improving eco-

nomic prospects are boosting foreign investment. Many multinational businesses are likely

to want to be present in India once economic progress eventually speeds up.


Prospects in the long

run are good

Some modest easing

of monetary policy

High inflation is

curbing RBI easing

USD/INR to fluctu-

ate around 61


18

South East Asia

Emerging Asia getting ready for the US rate change

The appreciation of the US dollar has often been a litmus test for emerging economies. The ones with solid

economic fundamentals can cope with more expensive dollar funding.

Emerging world financial markets experienced less favourable conditions during September, as

investors started to prepare themselves for the eventual US central bank exit from QE and the

ZIRP (zero interest rate policy). An appreciation of the USD and rising US interest rates have

traditionally meant increased debt servicing costs to those emerging economies that have had a

high exposure to USD funding. With ultra-loose US monetary policy since the outbreak of the

financial crisis, the US dollar has clearly been an important source of global funding. The Asian

emerging economies nevertheless performed better in September than some other emerging

markets, namely South Africa, Turkey and Brazil. The Indonesian rupee weakened by 4 percent

in September, the Indian rupee by 2.3 and the Thai baht by 1.5 percent whereas the South Afri-

can rand and the Turkish lira dropped by some 6 percent and the Brazilian real fell almost 10

percent, as investors suddenly turned much more risk-averse.

When looking at the Asian region as a whole, one conclusion that can be drawn is that the

Asian assets are currently much more attractively priced than before the Fed tapering trig-

gered turbulence in autumn 2013. Bond yields for the Asian emerging economies were re-

priced back in H2 2013 along with the currencies, and we are now starting to see the bene-

fits of weaker currencies in accelerating exports and moderating imports. GDP growth

picked up in Q2 2014 in most Asian economies, yet in China, the region’s largest economy,

growth has been lacklustre as China is reining in debt growth and demand on its property

markets. This explains why Asian intra-regional trade has been so modest this year. The

less construction investment-driven nature of Chinese growth has meant weaker Chinese

demand for commodities, and this way the demand shortage is passed on to commodity

producers, such as Indonesia.

With the eurozone’s growth momentum fading, the US and Asia must provide the engines

for the global economy to sustain a decent expansion of activity during the rest of the year

and in 2015. The Asian business cycle has seldom been out of sync with the US economy;

and hence the acceleration in US growth should soon support Asian activity. Most Asian

economies have current account in surplus and this makes them less exposed to rising US

interest rates. Of the two current account deficit countries in Asia – India and Indonesia –

Indonesia is more vulnerable since its current account deficit to GDP widened again to 4.2

percent in Q2, whereas India has succeeded in cutting its deficit to a mere 1.6 percent.

Tiina Helenius, +358 10 444 2404, [email protected]

Emerging markets

experienced turbu-

lence in September

as global investors

prepare themselves

for US monetary

tightening

Asian assets are cur-

rently more attrac-

tively priced than

before the taper-

tantrum of 2013

The Asian business

cycle has seldom

been out of sync with

the US economy



19

FX markets

EUR/USD will drop much further

Policy easing by the ECB and tightening by the Fed – both realised and expected – have strengthened the

USD sharply against the EUR. We have anticipated this for quite some time and expect those currencies to

hit parity in 24 months. In July, low inflation in Sweden led to policy easing. However, to alleviate a likely

sharp depreciation of the SEK relative to the USD, which probably would lead to inflation overshooting, the

Riksbank needs to start raising rates fairly soon after the Fed’s first hike. In 24 months, EURSEK and

USDSEK are likely to reach 8.

USD to parity against the EUR

Since the beginning of May, the USD has strengthened by 10 percent against the EUR. The

appreciation is driven by widening interest rate spreads between the US and Germany, as

well as by differences in quantitative easing (QE) measures between the Fed and the ECB,

both realised and expected. We are convinced that the large difference in economic condi-

tions has to eventually be reflected in monetary policy and market interest rates. We have

been forecasting for some time that the USD will appreciate to parity against the EUR.

We expect the Fed to start rate hikes at the beginning of next year and then gradually un-

wind its excess asset holdings, which are currently five times larger than the normal opera-

tional requirement. On the other side of the Atlantic, we expect the ECB to hold the policy

rate at zero for the next couple of years. However, crisis-hit euro states need more support

to avoid getting stuck in a deflationary downward spiral. Thus, the ECB has to ease policy

further and will now start to deliver a QE-like programme.

SEK to move to 8 kronor against the USD and the EUR

Prevailing inflation in Sweden is much lower than the Riksbank’s target. The rate cut in July

was the latest sign that monetary policy is not forward-looking. Rather, at present, the overall

aim is to ensure that inflation will return rapidly to its target. However, we believe that once

inflation rises and approaches its target, policy will go back to becoming more forward-looking.

The USD is much more important for Swedish inflation than the EUR; as evidence, look at

the strong covariation between the KIX index and the USDSEK rate. If the SEK remains un-

changed against the EUR at the same time as our forecast of a sharp USD appreciation

against the EUR is realised, prices for Swedish imports would increase much faster than

expected. Thus, the Riksbank has to raise rates fairly soon after a Fed’s first hike to prevent

inflation from overshooting. Our forecast is that the SEK will depreciate against the USD and

appreciate against the EUR until both the USDSEK and EURSEK reach 8.


Economic conditions

reflected in policy

Fed to tighten and

ECB to easing policy

At present all focus on

inflation...

...but expect a shift

to avoid inflation

overshooting


20

Key ratios Real GDP forecasts

Source: Handelsbanken Capital Markets

Inflation forecasts


Unemployment forecasts


Sweden 1.6 2.4 2.4 3.0 3.1 2.6 2.6

Norway 0.6 1.8 1.9 1.5 1.8 1.6 1.6

Norway Mainland 2.0 2.2 2.2 1.8 2.0 1.8 1.8

Finland -1.2 -0.3 0.4 0.8 1.5 1.8 1.8

Denmark 0.4 0.8 0.9 0.9 0.9 0.6 0.6

EMU -0.4 0.9 0.9 1.2 1.2 1.5 1.5

USA 2.2 2.2 2.1 3.2 3.1 2.7 2.7

UK 1.7 2.9 2.9 2.5 2.5 2.2 2.2

Japan 1.4 1.2 1.2 1.0 1.0 1.0 1.0

Brazil 2.3 1.0 1.0 1.7 1.7 2.5 2.5

Russia 1.3 0.0 0.2 0.9 1.0 1.6 1.6

India 4.7 5.5 4.7 6.0 5.5 6.5 6.5

China 7.7 7.4 7.5 7.0 7.0 6.8 6.8

Czech Republic -0.9 2.5 2.5 2.7 2.7 3.0 3.0

Hungary 1.1 3.0 2.8 2.3 2.3 2.7 2.7

Poland 1.6 3.2 3.2 3.5 3.5 3.8 3.8

Slovakia 0.9 2.3 2.3 2.9 2.9 3.2 3.2

2013 2014f

(Previous

forecast) 2015f

(Previous

forecast)

(Previous

forecast) 2016f

2013 2014f 2015f

Sweden 0.0 0.0 0.1 1.8 1.9 3.0 2.8

Norway 2.1 2.4 2.0 2.0 1.8 1.8 1.5

Finland 1.5 1.0 1.2 1.6 1.6 2.0 2.0

Denmark 0.8 0.7 1.0 1.4 1.4 1.5 1.6

EMU 1.3 0.5 0.5 1.3 1.3 1.5 1.5

USA (core) 1.3 1.7 1.6 2.2 2.2 2.3 2.3

UK 2.6 1.9 1.9 2.0 2.0 2.1 2.1

(Previous

forecast)

(Previous

forecast)

(Previous

forecast) 2016f

2013 2014f 2015f

Sweden 8.0 8.0 8.0 7.7 7.7 7.4 7.3

Norway 3.5 3.4 3.4 3.6 3.6 3.9 3.9

Finland 8.2 8.5 8.4 8.6 8.2 8.4 8.0

Denmark 7.0 6.6 6.6 6.5 6.4 6.5 6.4

EMU 11.9 11.7 11.7 11.5 11.5 11.1 11.1

USA 7.4 6.2 6.2 5.4 5.4 5.0 5.0

UK 7.6 6.7 6.7 6.3 6.3 6.1 6.1

(Previous

forecast)2016f

(Previous

forecast)

(Previous

forecast)


21

Currency forecasts


Interest rate forecasts


October 7 <1 m <3 m <6 m <12 m <24 m <36 m

EUR/SEK 9.09 9.10 9.00 8.90 8.60 8.00 8.00

USD/SEK 7.23 7.17 7.26 7.67 7.82 8.00 8.00

GBP/SEK 11.58 11.52 11.39 11.27 11.03 10.67 10.67

NOK/SEK 1.11 1.12 1.08 1.07 1.05 0.99 0.99

DKK/SEK 1.22 1.22 1.21 1.19 1.15 1.07 1.07

CHF/SEK 7.50 7.46 7.38 7.30 7.05 6.50 6.40

JPY/SEK 6.62 0.00 6.66 6.97 7.11 7.27 7.27

EUR/USD 1.26 1.27 1.24 1.16 1.10 1.00 1.00

USD/JPY 109.17 109.00 109.00 110.00 110.00 110.00 110.00

EUR/GBP 0.785 0.790 0.790 0.790 0.780 0.750 0.750

GBP/USD 1.60 1.61 1.57 1.47 1.41 1.33 1.33

EUR/CHF 1.21 1.22 1.22 1.22 1.22 1.23 1.25

EUR/DKK 7.44 7.45 7.45 7.45 7.45 7.46 7.46

USD/DKK 5.92 5.87 6.01 6.42 6.77 7.46 7.46

GBP/DKK 9.48 9.43 9.43 9.43 9.55 9.94 9.94

CHF/DKK 6.14 6.11 6.11 6.11 6.11 6.06 5.96

JPY/DKK 5.43 5.38 5.51 5.84 6.16 6.78 6.78

EUR/NOK 8.17 8.15 8.30 8.30 8.20 8.10 8.10

SEK/NOK 0.90 0.90 0.92 0.93 0.95 1.01 1.01

USD/NOK 6.50 6.42 6.69 7.16 7.45 8.10 8.10

GBP/NOK 10.41 10.32 10.51 10.51 10.51 10.80 10.80

CHF/NOK 6.74 6.68 6.80 6.80 6.72 6.59 6.48

JPY/NOK 5.96 5.89 6.14 6.50 6.78 7.36 7.36

USD/BRL 2.42 2.50 2.60 2.65 2.80 2.90 2.90

USD/RUB 39.86 40.00 41.00 43.50 43.50 41.00 40.00

USD/INR 61.59 61.00 61.00 61.00 61.00 60.00 58.00

USD/CNY 6.14 6.12 6.10 6.08 6.05 6.00 6.00

EUR/PLN 4.18 4.15 4.15 4.10 4.00 3.90 3.80

Policy rates October 7 <1 m <3 m <6 m <12 m <24 m <36 m

Sweden 0.25 0.25 0.25 0.25 0.75 1.75 2.25

US 0.125 0.125 0.125 0.50 1.25 2.50 3.75

Eurozone 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Norway 1.50 1.50 1.50 1.50 1.50 1.50 2.00

Denmark 0.20 0.20 0.20 0.20 0.20 0.30 0.35

UK 0.50 0.50 0.50 0.75 1.00 2.00 2.50

3m interbank rates October 7 <1 m <3 m <6 m <12 m

Sweden 0.47 0.50 0.50 0.50 1.00

US 0.23 0.25 0.30 0.60 1.35

Eurozone 0.08 0.10 0.10 0.10 0.10

Norway 1.65 1.70 1.70 1.70 1.70

Denmark 0.29 0.20 0.20 0.20 0.20


22

Interest rate forecasts, continued


2y govt. yields October 7 <1 m <3 m <6 m <12 m <24 m <36 m

Sweden 0.14 0.20 0.20 0.55 1.10 1.70 2.05

US 0.53 0.55 0.60 1.25 1.75 2.75 3.75

Eurozone (Germany) -0.07 0.00 0.00 0.15 0.15 0.15 0.30

Norway 1.48 1.50 1.50 1.50 1.50 2.00 2.50

Denmark -0.03 0.00 0.00 0.20 0.20 0.25 0.45

Finland -0.04 0.00 0.00 0.20 0.20 0.20 0.35

UK 0.94 0.95 1.00 1.25 1.50 2.50 3.00


Sweden 0.55 0.60 0.60 1.30 1.90 2.35 2.40

US 1.69 1.70 1.75 2.25 2.75 3.25 3.75

Eurozone (Germany) 0.15 0.20 0.20 0.30 0.60 0.90 1.20

Norway 1.73 1.80 1.80 1.80 2.00 2.20 2.80

Denmark 0.22 0.30 0.30 0.45 0.75 1.05 1.40

Finland 0.30 0.30 0.35 0.50 0.80 1.10 1.40

UK 1.69 1.75 1.80 2.25 2.50 3.00 3.50


Sweden 1.45 1.50 1.50 1.85 2.20 2.50 2.50

US 2.42 2.45 2.50 3.00 3.40 3.60 3.70

Eurozone (Germany) 0.90 0.95 0.95 1.25 1.50 1.75 2.00

Norway 2.34 2.50 2.50 2.60 2.60 3.10 3.30

Denmark 0.84 0.90 1.00 1.25 1.55 1.85 2.10

Finland 1.02 1.10 1.10 1.45 1.75 2.00 2.25

UK 2.36 2.40 2.45 2.75 3.00 3.50 3.70

2y swaps October 7 <1 m <3 m <6 m <12 m

Sweden 0.54 0.60 0.60 0.95 1.50

US 0.81 0.85 0.90 1.45 1.95

Eurozone (Germany) 0.20 0.25 0.25 0.40 0.40

Norway 1.79 1.80 1.80 1.80 1.80

Denmark 0.46 0.55 0.55 0.65 0.65

UK 1.21 1.25 1.30 1.65 1.90


Sweden 1.05 1.10 1.10 1.55 2.10

US 1.88 1.90 1.95 2.45 2.95


Norway 2.06 2.20 2.20 2.20 2.20

Denmark 0.75 0.80 0.80 0.90 1.15

UK 1.93 2.00 2.05 2.30 2.60


Sweden 1.72 1.75 1.75 2.50 2.85

US 2.57 2.60 2.65 3.15 3.55


Norway 2.56 2.80 2.80 2.90 2.90

Denmark 1.45 1.50 1.55 1.75 2.00

UK 2.43 2.50 2.55 2.75 3.00

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october 8, 2014 monthly macro update - macro research - handelsbanken capital...

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