Economic Outlook 2/2013

Illustration: Economic outlook 2/2013

(09.09.2013) DNB Markets has released Economic Outlook 2/2013. The report contains our analyses of and forecasts for economic growth and inflation, foreign exchange, interest rates and commodities.

Some highlights from the report:

Higher global growth
The global economy has been in an almost constant state of crisis for the last six years. The turning point came with the ECB’s promise to do «whatever it takes» to keep the Eurozone together, and this year the indicators have mostly been pointing in the right direction. The crisis is gradually fading. Admittedly, growth is mitigated by the mountain of private and public debt, budget cuts and weak demand. Despite this, we now project global growth of around 3 per cent this year and 3¾-4 per cent in the years 2014-16. Both capacity utilisation and inflation are still low. Monetary policies will remain expansive. The risk of a setback is still fairly high. We are less worried about the eurozone than before. There is, however, an increased risk of a hard landing in China.

Soft landing for Norway
After growing briskly last year, the pace of the Norwegian economy has slowed this year. Growth in employment has stagnated and the housing market has cooled. We believe that this is the beginning of a more moderate growth phase for the Norwegian economy. The business sector will not be able to lean on impulses from the oil and housing markets to the same extent in the time to come. More people will be unemployed and real wage growth will be relatively modest. As the distance to the inflation target has shrunk recently, Norges Bank will probably shelve its short run downward bias in its rate path. The rise in interest rates will come later and be less frequent than the central bank forecasted in June.

Sweden faces headwinds from abroad
Exports and investments are declining, with the manufacturing industry affected more than other sectors. Solid domestic demand has prevented a new recession. With house prices on the rise and household debt still growing Sweden’s central bank, Riksbanken, remains reluctant to carry out more rate hikes. We expect the first hike to be postponed to Q2 2015.

The oil price has peaked
We maintain our oil price forecast, and expect 102 $/b for 2014 and 100 $/b for 2015 – and then a gradual decrease in prices to 90 $/b during 2015-2020. We believe the oil price will mainly trade in an 80-100 $/b range after 2015.

Low interest-rates for a long time
We expect QE3-tapering to start in September, and that the market reaction will be muted. Our estimations of long-term swap rates are based on the assumption of stable interest rates for the next year. When the time of the first rate hikes approaches, we expect long-term interest rates to rise. We expect the US to be the first country to starting raising interest rates. Consequently long-term US interest rates are expected to rise before other majors. In addition, due to ripple effects, long-term swap rates for EUR and GBP could begin to climb before key policy rates are increased. This could be an incentive for leaving key policy rates unchanged for even longer in these countries.

Short term we expect the NOK to appreciate somewhat against the Euro, as the central bank in September may indicate an earlier rate hike than what they envisaged in June, and as the ECB might carry out a rate cut this autumn. Nevertheless we believe that the interest in the NOK will be limited going forward. Our forecast for economic growth is lower than consensus, and we expect that unemployment will rise while the central bank will keep its policy rate unchanged until the spring of 2015. These factors point to a weaker NOK. In addition, we estimate that the oil price will gradually decline, thus also indicating a weaker NOK. We estimate that EURNOK will be traded around 7.90 in one year’s time.

Over the next twelve months we expect increased risk-appetite, gradual reduction of the Fed’s asset purchases and the prospect of a rate hike in the US, while ECB cuts its interest rate and most likely launches new measures, to result in a strengthening of the USD against the Euro.

Also included in Economic Outlook
Chapters on Russia, Poland and the Baltics. Boxes: “An updated empirical order-flow model for the Norwegian krone” and “The Norwegian krone in the long term”

New forecasts

New forecast/prognosis economic outlook report