Nordea issued Economic Outlook August 2011


Nordea issued Economic Outlook August 2011

Leading economic indicators suggest that the world economy is facing a very uncertain period. Activity has slowed sharply in both the US and the Euro area, and our baseline scenario now factors in very low growth in the «old world» over most of the forecast period (now up to and including 2013).

However, Russia, Poland and the Baltics will be fairly resilient to a mild global downturn. The countries are experiencing a solid recovery of their domestic economies, which should offset at least part of the effects of the weakness abroad. Financial stability will not be a problem in this region this time round. While the Baltics are still growing strongly this year, we are lowering the growth forecasts for Russia and Poland. The economic outlook has become more uncertain in line with the increased global uncertainties, though, and consequently we see slower growth in all countries next year.

In Russia, consumers have remained in the driver’s seat, as expected. Further relief for consumers is expected as the unemployment rate is seen edging down further, and growth in wages and household credits has accelerated. Investment, on the other hand, is still lagging, but we see room for a recovery. Although the deceleration in food inflation has been a relief to the central bank, more monetary policy tightening is on the cards as inflation risks from eg a reacceleration of money supply growth should concern the central bank.

We have revised down our Polish growth forecast somewhat even though nothing much has changed in this economy, at least not yet. We expect a slowdown in exports in the coming quarters and the domestic economy is also likely to show slightly weaker momentum. Key themes are this autumn’s general elections, the government debt nearing self-imposed limits and the strength of the CHF given the widespread use of this currency for mortgage loans.

The Estonian recovery has exceeded expectations, and so far momentum in the economy has been good. However, the pace of the recovery is likely to slow down going forward as global uncertainties increase. Encouragingly, the recovery is getting increasing support from the domestic economy, indicating more independence from export markets, but challenges for domestic demand still exist in the form of a high unemployment rate and elevated inflation.

The Latvian economy has continued to climb. Strengthening domestic demand is expected to support the economy going forward, while easing inflation and gradually declining unemployment are expected to support domestic demand. The main event this autumn, the parliamentary elections, is unlikely to change Latvia’s path significantly, and the tight fiscal stance and work towards a tighter budget will likely continue.

Lithuanian growth is seen continuing despite the global uncertainties as all key indicators have continued to develop favourably. A widespread global slowdown would hurt the export industry, and at the moment we expect the recovery to slow down somewhat next year, but reaccelerate in 2013. However, improving employment growth and expectations that inflation has peaked are expected to support private consumption next year.

Nordea Economic Outlook August 2011

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