So far in 2024, the growth outlook has improved a bit.
"Despite geopolitical turmoil and the drama surrounding the US Federal Reserve and its postponed rate cuts, the overall picture of falling inflation and a normalisation of the global economy is holding up," says
Some improvement in global growth prospects in a more divergent world
The US economy has continued to defy headwinds from high interest rates and consumer prices, and we have revised our 2024 GDP growth forecast for the US upward by almost one percentage point, to 2.5 per cent. Our other GDP revisions are relatively small. A weak German economy will hold back growth in the euro area during the first half of the year, and GDP will grow by 0.6 per cent. Helped by fiscal stimulus,
"Several factors have a big impact on where countries end up in the growth tables: interest rate sensitivity, the degree of fiscal stimulus and industrial policy, changes in asset prices, the degree of dependence on manufacturing (especially if dependent on
Inflation on its way down, despite some setbacks
We regard the inflation downtrend as intact, but - like general economic performance - more divergent than expected. Yet most of the inflation upturns of recent years have been reversed. The economy has slowed down, including slightly in the US. This is expected to contribute to a weaker price trend going forward. Long-term inflation expectations are close to central bank inflation targets. Meanwhile the main concern is still the service sector. Demand has been sustained − combined with a labour market that has weakened only moderately − causing continued concerns. However, wage and salary increases have decelerated significantly in the US, and there have also been signs of a slowdown in
We now expect the US Federal Reserve to hold off on interest rate cuts until at least September and then proceed more slowly than we had previously estimated, with a total of two rate cuts this year and four in 2025. As for the
"US inflation disappointments have been somewhat too large to dismiss as merely temporary and as something the Fed could thus ignore. We believe that the
couple of rate-cutting rounds ahead of the Fed, but after that − and largely depending on market reactions - the obstacles may be larger. The question may come to a head if the Fed postpones interest rate cuts even further. From this perspective, data during the next few months will be important," says
Neutral or slightly contractionary fiscal policy
Long-standing crisis policies and the recent rise in interest expenditures limit fiscal manoeuvring room, with a few exceptions such as
political level.
"In many countries, political leaders must mobilise private capital through various types of incentives. One risk is that the US, the EU and
In
Strong investments (excluding housing) as industry defies euro area weakness
Exports are surprisingly strong given anaemic economic growth in
Large declines in consumption will soon end; no labour market collapse
The downturn in household consumption has almost been on a par with the deep recessions of the early 1980s and 1990s. Like during those periods, the decline has been driven by steeply rising prices. Now that inflation is decelerating, the volume of consumption has rebounded. Because of expected interest rate cuts and slowing inflation, combined with expansionary fiscal policy, there is good potential for a strong recovery in consumption during 2025. With a slight lag, the labour market is weakening − clearly but not dramatically. We expect unemployment to continue rising over the next six months, but when growth picks up in 2025, it will fall back to about today's levels. In a historical perspective, a moderate decline in resource utilisation supports the picture of a relatively mild economic slowdown.
Inflation is approaching target
After a late start,
Gradual interest rate cuts, beginning in May
In March, CPIF excluding energy fell by four tenths of a percentage point more than the Riksbank's forecast, making an interest rate cut in May highly probable. Inflation outcomes this spring and summer will determine how fast the Riksbank will cut its policy rate. We have changed our forecast of the second cut, from June to August, but we still expect four cuts in 2024 and three more in 2025, bringing the policy rate down to 2.25 per cent by October next year.
"We believe that against a backdrop of declining inflation but anaemic growth and a weak labour market, the Riksbank sees good reasons to cut its policy rate earlier than both the Fed and the
More fiscal stimulus, now that inflation has fallen
Despite increased expenditure in the Spring Fiscal Policy Bill, we believe that fiscal policy will be largely neutral in 2024. But falling inflation and strong central government finances will pave the way for expansionary fiscal policy in the 2025 Budget Bill, which will be unveiled in
"The government is likely to propose that the surplus target be lowered to a balance target. This would enlarge the scope of the budget by about
Key figures: International & Swedish economy (figures in brackets from Nordic Outlook,
International economy. GDP. Year-on-year changes, % | 2022 | 2023 | 2024 | 2025 |
1.9 | 2.5 (2.4) | 2.5 (1.6) | 1.8 (1.8) | |
Euro area | 3.4 | 0.4 (0.5) | 0.6 (0.5) | 1.7 (1.8) |
4.3 | 0.1 (0.5) | 0.2 (0.2) | 1.2 (1.4) | |
1.0 | 1.9 (1.7) | 1.0 (1.2) | 1.0 (1.2) | |
2.9 | 1.7 (1.6) | 1.7 (1.4) | 1.9 (2.0) | |
3.0 | 5.2 (5.2) | 5.0 (4.6) | 4.4 (4.4) | |
Nordic countries | 2.5 | 0.3 (0.1) | 1.2 (0.8) | 2.5 (2.4) |
Baltic countries | 1.9 | -0.9 (-1.0) | 1.2 (1.2) | 2.9 (2.9) |
World (PPP) | 3.4 | 3.2 (3.1) | 3.0 (2.9) | 3.1 (3.1) |
Nordic and Baltic countries. GDP, year-on-year changes, % | ||||
3.0 | 0.5 (0.5) | 1.7 (2.1) | 2.1 (1.6) | |
2.8 | 1.9 (1.0) | 2.5 (1.5) | 3.0 (3.0) | |
1.3 | -1.0 (-0.5) | -0.2 (-0.2) | 2.0 (2.0) | |
2.4 | -0.3 (-0.2) | 1.5 (1.5) | 2.8 (2.8) | |
3.0 | -0.3 (-0.4) | 1.9 (2.0) | 2.7 (2.7) | |
-0.5 | -3.0 (-3.4) | -0.5 (-0.5) | 3.5 (3.5) | |
Swedish economy. Year-on-year changes, % | ||||
GDP, actual | 2.7 | -0.2 (-0.4) | 0.5 (0.1) | 2.8 (2.8) |
GDP, day-adjusted | 2.7 | 0.0 (-0.2) | 0.5 (0.1) | 3.0 (3.0) |
Unemployment rate, % (EU definition) | 7.5 | 7.7 (7.6) | 8.5 (8.6) | 8.5 (8.7) |
CPI | 8.4 | 8.5 (8.5) | 3.0 (3.0) | 1.2 (1.4) |
CPIF | 7.7 | 6.0 (6.0) | 2.0 (1.9) | 2.0 (1.9) |
Public sector balance, % of GDP | 1.2 | -0.5 (-0.3) | -1.5 (-2.2) | -1.0 (-0.9) |
Policy rate (December) | 2.50 | 4.00 (4.00) | 3.00 (3.00) | 2.25 (2.25) |
Exchange rate, EUR/SEK (December) | 11.12 | 11.13 (11.13) | 11.15 (10.95) | 10.80 (10.75) |
For further information, contact:
Pia Fromlet:+46 70 445 1404
Marcus Widén: +46 70 639 1057
Press contact:
+46 70 763 8243
niklas.x.magnusson@seb.se
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