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Macro Research
January 25, 2017
Monthly Macro Update
Politics take centre stage
US: Moment of truth for Trump
Eurozone: Strong finish to 2016 bodes well for 2017
Nordics: Drifting apart
Monthly Macro Update, January 25, 2017
2
Contents
INTRODUCTION Politics take centre stage 3
US Moment of truth for Trump 5
EUROZONE Strong finish to 2016 bodes well for 2017 8
UNITED KINGDOM Set for a hard Brexit 10
NETHERLANDS Solid momentum in an uncertain world 11
CHINA Not everything can be stable at the same time 12
EMERGING MARKETS Coming to terms with Fed rate hikes; other challenges loom 13
SWEDEN Inflation to increase, but no case for a steep rise 14
NORWAY Norges Bank on hold despite the “lowflation” outlook 15
FINLAND Exports finally getting a lift from stronger manufacturing 16
DENMARK Better – but still not great 17
Key ratios 18
Disclaimer 21
Contact information
Ann Öberg: +46 8 701 2837, anob04@handelsbanken.se
Jimmy Boumediene: +46 8 701 3068, jibo01@handelsbanken.se
Anders Brunstedt: +46 701 54 32, anbr42@handelsbanken.se
Eva Dorenius: +46 701 50 54, evdo01@ handelsbanken.se
Petter Lundvik: +46 8 701 3397, pelu16@handelsbanken.se
Gunnar Tersman, +46 8 701 2053, gute032handelsbanken.se
Tiina Helenius: +358 10 444 2404, tihe01@handelsbanken.se
Janne Ronkanen: +358 10 444 2403, jaro06@handelsbanken.se
Kari Due-Andresen: +47 223 97007, kodu01@handelsbanken.no
Marius Gonsholt Hov: +47 223 97340, mago60@handelsbanken.no
Jes Asmussen: +45 4679 1203, jeas01@handelsbanken.dk
Bjarke Roed-Frederiksen: +45 4679 1229, bjro03@handelsbanken.dk
Rasmus Gudum-Sessingø: +45 4679 1619, ragu02@handelsbanken.dk
Monthly Macro Update, January 25, 2017
3
Introduction
Politics take centre stage
This year looks set to be dominated by politics. While the US now formally has a new president and the UK has
opted for a “hard Brexit”, the election season in Europe is not far away. There are plenty of worries and perhaps
some opportunities for analysts and markets to fret about. Although the course of the US administration re-
mains uncertain, a possible upswing is likely to be quite short, as the economy is already operating at full
capacity. The European economy ended last year somewhat stronger than expected. However, the ECB will
likely stick to its ultra-loose policy in the year ahead. In the Nordic area, Sweden continues to stand out with
its buoyant economy, which bodes well for the krona.
While underlying economic conditions have not
changed all that much in recent months, there have
been political changes on a monumental scale. Who
would have thought a year ago that the UK would vote
to leave the EU and that the US would elect such an
unconventional figure as Donald Trump? As the politi-
cal season heats up in Europe, it is not unlikely that fur-
ther upheaval will arise. It still remains to be seen if the
economic implications of all of that will be as earthshat-
tering. Be that as it may, analysts will no doubt be kept
busy for a long time trying to work it all out.
Moment of truth for President Trump
In the US, President Trump set high expectations for
the quick delivery of many of his ambitious campaign
promises. Accordingly, financial markets have priced
in large infrastructure investment programmes, tax
cuts and a major easing of business regulations.
Looking at current market conditions, it may be that
the hype has already started to fade. In particular, the
trade-weighted USD seems to have stalled. At the
same time, financial markets appear to have scaled
back expectations of aggressive policy rate increases
from the Fed. Equity indices have stopped rising.
Uncertainty over Trump’s fiscal policy remains.
Trump will no doubt deliver considerable stimulus,
but that will still fall short of the promises made dur-
ing the election campaign. To be able to push
through even a scaled-back version of his pro-
gramme, Trump will need to cooperate with Repub-
lican rank and file in the Congress. Such cooperation
cannot be taken for granted. There are deep scars
in the Republican party, with many traditionalists re-
maining deeply sceptical about Trump’s stance. For
one thing, they are not keen to expand the deficit in
the federal budget.
More fundamentally, what can realistically be cranked
out of the US economy at this point, given that it is
already operating at close to its full potential? While
some of the proposals floated recently, such as infra-
structure spending and corporate tax reforms, could
impact the underlying growth trend in theory, the
gains from structural reforms are far from certain and
may also take years to materialise. The direct effects
seem more relevant to consider at this point. Given
that the unemployment rate is already at a cyclical
low, fiscal stimulus risks causing overheating, eroding
profits and stoking inflation. The result could well be
higher growth in the short run followed by a downturn
once the cycle has fully run its course.
The Federal Reserve is likely very much aware of
this. Against that backdrop, more tightening than that
already on the cards should probably not be ex-
pected. Given Fed Chair Yellen’s rather dovish pos-
ture, we think that the central bank is likely to stick to
its prevailing strategy and avoid tightening policy in
a way that jeopardises growth. It is also likely to see
through any Trump-driven boom/bust episode. If
markets do the same, the case for further dollar
strength is not obvious.
Slight pickup in the eurozone
In the eurozone, recent data has revealed that the
economy appears to be in a sweet spot, finishing last
year on a relatively strong note, with unemployment
trending lower and inflation rising. While the latter may
be partly blamed on technical effects, higher inflation
has been taken as a reason for downgrading deflation
fears and re-examining the case for continued ultra-
loose ECB policies. We increase our real GDP fore-
cast for 2017 by a notch and lower the path of unem-
ployment. However, we see no reason to change our
view of the ECB remaining highly expansionary.
The ECB has undoubtedly played an important role in
securing the rebound in growth during 2016. Although
speculation about possible tightening has surfaced
lately, we think that the importance of the ECB playing
its part is unlikely to change much in 2017. It is hard
to argue the case for self-sustaining reflation without
support from economic policies. As we do not expect
fiscal policy to change by much, there is a need for
Monthly Macro Update, January 25, 2017
4
the ECB to stay on the same course. However, as im-
portant as those monetary deliberations may be, mar-
kets are likely to focus more on upcoming elections in
the Netherlands, France and Germany, looking for
signs of a further erosion in European unity. There is
certainly reason to expect voter discontent.
The UK economy has held up well. Sentiment in-
creased by even more than expected during the final
quarter of 2016. However, the UK economy should
slow this year. As inflation soars and mortgage rates
increase, we expect the housing market and private
consumption to weaken. It is also now clear that the
UK government is preparing for a hard Brexit. We
believe that the road to a new trade agreement will
be turbulent, keeping the pound weak. While a weak
currency benefits exporters, it poses challenges for
the Bank of England.
Relatively sanguine about BRIC
Despite political turmoil in mature market econo-
mies, we are quite sanguine about the outlook for
large emerging economies. In particular, the BRIC
quartet – Brazil, Russia, India and China – should do
reasonably well. The first three countries are not ex-
pected to be affected much by changes in US poli-
cies. Although China is a prime target if Trump tries
to deliver his trade policy ambitions, Beijing may find
ways to partly offset US trade restrictions should
they materialise.
Regardless, stable Chinese growth requires fresh
economic policy easing; however, that is likely to re-
sult in continued growth in debt. Similarly, a gener-
ally stable exchange rate is likely to require the cen-
tral bank intervening to counter capital outflows. The
authorities still have plenty of room for manoeuvre.
Indebtedness has not yet hit the ceiling and reserves
have not yet hit the floor. Against that backdrop, we
expect the authorities to ensure that economic
growth only slows gradually and that the CNY only
weakens gradually. The policy trade-offs should be
manageable.
Nordic currencies set to bounce back
In both a European and a Nordic context, Sweden
stands out. Growth has been considerably higher
than that of most peer countries for several years.
The trend is likely to continue, at least for some time.
Higher growth in the labour force is one factor. Here,
record immigration is obviously a key driver. Lately,
Sweden has also outperformed by posting higher la-
bour productivity growth.
Against that backdrop, unemployment has fallen to
levels that are likely to trigger higher wage and price
inflation. While the overall unemployment rate re-
mains rather high, it is mostly a structural issue, as a
considerable portion of the labour force lacks skills
that are in demand among employers. Given that the
economy appears close to its capacity ceiling, we
think that inflation will trend higher. The Riksbank is
still in no rush to tighten. However, the stronger out-
look for Sweden relative to the eurozone suggests
that the krona will continue to strengthen.
The Norwegian krone also looks good. While we
think that growth in Norway will pick up this year, we
suspect that underlying price pressures are weaker
than forecast by Norges Bank. In isolation, that
would call for a lowering of the policy rate. However,
owing to Norges Bank’s clearly-stated fears of spi-
ralling house prices and debt, we believe it will keep
its policy rate unchanged. Even so, that is likely to
be positive for the krone.
The other members of the Nordic group have both
suffered lacklustre growth in recent years. Denmark
has been weighed down by the sluggish eurozone
economy, while Finland has been impacted by the
recession in Russia. We have become slightly more
upbeat about Danish prospects, but we still expect
only moderate growth ahead due to structural factors
twinned with global economic and political uncertain-
ties. In Finland, manufacturing finally seems to be
picking up, although not sufficiently for us to raise our
modest growth forecast.
Gunnar Tersman, +46 8 701 2053, gute03@handelsbanken.se
Monthly Macro Update, January 25, 2017
5
US
Moment of truth for Trump
Trump has promised to kick-start job growth. However, so far, it has been mostly rhetoric and his policies in
the future remain uncertain. The current high resource utilisation would restrain growth. The increase in la-
bour costs would likely hurt profits rather than lead to inflation, which is held down by the strong dollar. Our
forecast is that Trump’s policy measures will prompt a short-lived expansion, followed by economic slowdown.
The Fed will likely tighten policy cautiously until economic prospects deteriorate in the second half of 2018.
President Trump set high expectations of a quick de-
livery of many of his ambitious campaign promises.
Financial markets priced in large infrastructure in-
vestment programmes, tax cuts and a major easing
of business regulations. However, these expecta-
tions seem to have faded slightly since election day.
Both the trade-weighted USD and the expectations
of aggressive rate increases by the Fed have peaked
and now seem to be weakening.
There is still great uncertainty about Trump’s fiscal
policy stimulus. Our view at present is that Trump will
deliver considerable stimulus, though significantly
less than he promised during the election campaign.
For this to come true, however, Trump must avoid
political gridlock by establishing a good working re-
lation with Republicans in Congress, building on co-
operation and compromise.
So far, Trump seems to believe that he has a mandate
to run the US in the same way that he ran his compa-
nies. It looks as if he counts on automatic support from
the Republican majority in Congress. Furthermore,
Trump has primarily nominated business executives
and generals to lead his administration and said that
most politicians are unapt to govern the country.
In the weeks after taking office on January 20, Trump
will likely begin to deliver on his campaign promises.
He will probably start with issues that have strong
support from fellow Republicans in Congress, such
as the repeal of Obamacare, stricter border control,
lifting rules restricting oil and energy production on
federal land and deregulation of businesses includ-
ing the financial sector.
Trump also has the ambition to move aggressively
on trade, since it would be a chance to show base
voters that he is delivering. However, proposals to
reform the tax system with the aim of advancing ex-
ports and punishing imports, such as House
Speaker Paul Ryan’s blueprint, have several major
problems. They would lead to unintended income re-
distribution (decreasing the chance of passing Con-
gress), be incompatible with the US WTO obligations
and be technically complicated. Rather, we believe
that Trump will start with direct negotiations with
Mexico and China, using the threat of tariffs on US
imports from those countries as a bargaining chip.
Eventually, if the negotiations fail in a year or two,
Trump might enforce his threats and impose tariffs
on US imports from Mexico and China.
Within a few months, the Trump administration and
Republicans in Congress will have to deal with the
deep split between traditional conservative princi-
ples and Trump’s campaign promises of unfinanced
enormous tax cuts and massive infrastructure in-
vestment. The appetite for large debt-financed fiscal
programmes among Republican leaders is small.
The Majority Leader in the Senate, Mitch McConnell,
has been openly frosty to the idea of big stimulus
packages and has said that he prefers any tax cuts
to be offset by other revenue so that the budget def-
icit remains unchanged. House Speaker Paul Ryan
is pushing his own “Better Way” agenda. However,
because Ryan refused to endorse Trump in the elec-
tion, the relation between the President and the
Speaker remains tense.
Monthly Macro Update, January 25, 2017
6
Generally, Trump sees an opportunity to dramati-
cally upend longstanding foreign and domestic poli-
cies. However, so far, it has been mostly rhetoric, ra-
ther than elaborate sustainable policy changes.
Trump frequently states that he has “a plan – a great
plan” - that he will communicate later.
Trump prompting a boost-bust episode
In the third quarter of last year, GDP growth re-
bounded to 3.5 percent, which ended a three-quarter
soft patch. In the fourth quarter, we expect GDP
growth to land around 2.5 percent and then remain
moderate until the second half of 2017 when
Trump’s anticipated fiscal policy stimulus would trig-
ger a short-lived economic expansion followed by an
economy slowdown.
At present, persistently low potential growth and la-
bour market overheating make it almost impossible
for general demand stimulation programmes to lift
growth to 3-4 percent over the coming years. We il-
lustrate this point by the following simple calculation.
Our assessment of potential GDP growth is 1.8 per-
cent, which also is the median of Fed officials’ individ-
ual assessments of longer-run growth. Our regression
implies that a decline of the unemployment rate by 1
percentage point corresponds to an increase in GDP
growth by 1.2 percentage points, on average.
Note that the quarterly variations in the short-term po-
tential growth rates are significant, which indicates
that the ratio between unemployment and GDP stated
above will provided little guidance for a single quarter.
The labour market is slightly overheated. In Decem-
ber, the unemployment rate was 4.7 percent, which is
slightly below the median of Fed officials’ projections
of the natural rate unemployment of 4.8 percent.
Our simple calculation implies that the unemploy-
ment rate needs to decline by 1 percentage point per
year to support a growth rate of 3 percent. Thus, the
unemployment rate needs to decline to 3.7 percent
by the end of 2017, to 2.7 percent by the end of 2018
and to 1.7 percent by the end of 2019. A widening
gap of this size between the unemployment rate and
its natural rate is very unlikely, in our view. To main-
tain growth at 3 percent in practice requires a sharp
rise in potential growth, which would mitigate the de-
cline in unemployment. Alternatively, the natural rate
of unemployment needs to decline by a couple of
percentage points. However, so far, Trump has not
presented any structural measures to raise potential
growth or to push down the natural rate of unemploy-
ment to levels that can support 3 percent growth.
We expect Trump’s infrastructure investment and
tax cuts to affect the economy in the second half of
this year. However, the current high resource utilisa-
tion will likely lead to labour market overheating,
wage increases, inflation and profit squeeze, rather
than lifting growth sharply. Slowing profits would
make businesses more cautious to invest and hire
workers. Eventually, dynamics would change and
set the economy in a recessionary spiral.
The period of sharp appreciation of the trade-
weighted USD is likely over, although we expect the
USD to appreciate modestly in the coming quarters.
Our forecast is that the EUR/USD rate will reach 1.05
by the end of the second quarter and then hover
around that rate. The graph above indicates that this
would ease the downward pressure on output prices
for non-financial corporate businesses markedly.
Monthly Macro Update, January 25, 2017
7
Our forecast of a stabilisation of the USD and mod-
est increases in output prices and inflation would mit-
igate the profit squeeze somewhat. However, more
importantly, we expect the tight labour market to be-
come even tighter and drive up labour costs further
at the expense of profits. The graph below shows
that this process has started already. Note that if
productivity growth is low, even modest wage growth
has the potential to erode profits.
This is in line with the pattern in the two latest reces-
sions. The profit share of value added dropped mark-
edly ahead of those recessions. However, the profit
share has trended up in the past 15 years. The bot-
tom was higher in the recession in 2007-09 than in
the recession in 2001, and we expect the bottom in
the next recession to be even higher. Furthermore,
inflation was relatively muted prior to the two latest
recessions. Core inflation was 1.9 percent just be-
fore the recession in 2001 and 2.3 percent just be-
fore the recession in 2007-09.
Aggregate corporate non-financial profits in current
prices have declined by 9.1 percent since the peak
in the third quarter of 2014. Despite the slowdown in
profits, US equity prices are at all-time highs and in-
creasing. Primary drivers are the exceptionally loose
monetary policy and expectations that Trump will cut
corporate taxes.
Yellen to remain very cautious
At its meeting in December of last year, the Federal
Open Market Committee (FOMC) decided to in-
crease the federal funds rate target range by 0.25
percent. Moreover, officials also raised their individ-
ual policy rate forecasts. The median of their projec-
tions for the federal funds rate points to three rate
increases of 0.25 percentage points each in 2017,
2018 and 2019, compared to the previous forecast
in September of two increases in 2017 and three in
2018 and 2019. The median for growth and unem-
ployment was only revised marginally, while the pro-
jections for core inflation (excluding food and en-
ergy) remained unchanged compared to the previ-
ous forecast. At present, financial markets are also
pricing in three rate hikes in 2018. This is the first
time in many years that the Fed and markets agree
about the number of hikes over the next 12 months.
Why did the FOMC revise up its rate forecast without
changing the GDP, unemployment and inflation fore-
casts correspondingly? At the press conference, Fed
Chair Janet Yellen said that the FOMC preferred to
wait until the uncertainty about Trump’s fiscal policy
has vanished before the committee will change its
growth forecast. Our interpretation is that the many
Fed officials wanted to signal a more rapid policy
tightening. They assess that the Fed is significantly
behind the curve and that it is necessary to normal-
ise interest rates to counter excessive risk-taking,
which threatens financial stability.
In practice, Fed Chair Janet Yellen runs monetary
policy. The FOMC’s voting members are the seven
members of the Board of Governors including its
Chair Yellen (two vacancies at present), the Presi-
dent of the New York Fed and four of the remaining
eleven regional Fed presidents, who serve one-year
terms on a rotating basis. The members of the Board
of Governors always vote like its Chair, while the Fed
Presidents with voting power usually deviate when
they disagree with the Chair. Thus, as long as this
pattern persists, Yellen always has a stable majority
for whatever policy she advocates.
We believe Yellen is more dovish than the median
FOMC member. The Fed will likely stick to its pre-
vailing strategy and avoid tightening policy that
would jeopardise growth. The central bank would
likely also see through the Trump-driven boost-bust
episode. Our forecast is that the Fed will increase
rates by 0.25 percentage points in September of this
year and then deliver another hike of the same size
in March 2018. That will likely be the last rate in-
crease in this business cycle as we expect the econ-
omy to slow in the second half of 2018.
Petter Lundvik, +46 8 701 3397, pelu16@handelsbanken.se
Monthly Macro Update, January 25, 2017
8
Eurozone
Strong finish to 2016 bodes well for 2017 The economy appears to have ended 2016 on a stronger note than expected, leading to increased speculation
about reflation and a more hawkish ECB. However, we expect a strong start to the year to be followed by a
weakening economy and that recent speculation about an ECB ‘tapering’ will prove to be unfounded.
The recent economic data indicate that the economy
appears to be in a sweet spot, with momentum build-
ing toward the end of 2016, unemployment continu-
ing to drop and inflation rising steeply. As a conse-
quence, this has led to increasing inflationary expec-
tations, even though much of the increase in annual
inflation is due to a technical base effect. This has
diminished fears of disinflation, although it has not
yet led to an increase in worries about rampant infla-
tion. Against this backdrop, we slightly increase our
real GDP forecast for 2017 and lower our forecast
for the path of unemployment. We still expect GDP
growth to decline in 2017, albeit less so, to 1.3 per-
cent from 1.6 percent in 2016.
Positive overhang heading into 2017
We believe that economic growth in the eurozone
will show a further increase in Q4 2016 to 0.5 percent
q-o-q, with domestic demand being the prime con-
tributor. Sentiment surveys have signalled such an
increase, see graph below, and the acceleration in
December strengthens the case of a larger overhang
(higher GDP path) heading into 2017 than we previ-
ously expected.
Thus, there was little evidence of negative effects
emanating from the recent increase in political un-
certainty following the ‘no vote’ in Italy’s referendum
on constitutional reform. In our view, such impacts
were likely outweighed by support from the recent
weakness of the EUR and increased optimism about
global growth (specifically in the US and China).
Apart from robust private consumption, prospects of
a brighter start to 2017 are buoyed by improvements
in manufacturing activity toward the end of 2016,
helped by some destocking in the third quarter, and
sentiment surveys reaching their highest points
since 2011. However, we find the potential for further
improvement to be limited, as the EUR is no longer
providing a significant tailwind, see graph below.
Not entering a long period of reflation
The positive trends have led to increasing specula-
tion that the eurozone is entering a period of benign
reflation. The argument here is that the continuing
rise in consumption results in lower unemployment
through a favourable feedback loop. Adding fuel to
this are the low interest rates in the eurozone, with
the short end of the bond yield curve having reached
record lows around the turn of the year. Accordingly,
the corresponding decline in real yields should sup-
port spending among households and businesses.
However, we doubt that a de facto reflation period
will persist for long. Not much has really changed
since the end of 2016 besides increasing expecta-
tions and confidence, partly inspired by Trump’s vic-
Monthly Macro Update, January 25, 2017
9
tory in the presidential election (although that as-
sumes such hopes are well-founded from a Euro-
pean perspective), more optimism about emerging
markets and a fully expected, albeit trivial, rise in
headline inflation. Still, core inflation and wage
growth are muted, with both having likely bottomed
out in 2015, see graph below. Moreover, rising head-
line inflation remains a prime challenge for private
consumption growth in 2017. Finally, we note that
the challenging political environment could just as
easily capsize the improving confidence.
ECB quite successful after all
The ECB has undoubtedly played an important role
in securing the rebound in growth in 2016.
This is despite the fact that the effect of QE on the
real economy (bank lending to the private sector)
has grown ever less visible (see graph above), even
as annual credit growth has increased further
throughout 2016. The transmission mechanism is
still disturbed by high outstanding private debt that is
limiting the loan appetite of households, as well as
the limited ability of banks to lend, combined with
negative rates and regulatory burdens. However,
while monetary policy has had difficulty in stimulating
private demand through increasing private sector
debt, it has achieved greater success through the
wealth effect, both on asset prices as well as rising
inflation expectations (and in this context, a weaker
EUR as well). In addition, the ECB is playing the cru-
cial defensive role of fending off debt crises and
banking risks. In our view, the healthy rise in employ-
ment over the past three years would not have taken
place if it were not for the ECB ‘doing what it takes’.
Thus, the ECB’s policy has been quite successful if
we consider the wider achievements and not just the
success in reaching its mandated inflation target.
We do not expect the importance of the ECB’s policy
support to change much in 2017, even though specu-
lation about possible policy tightening has surfaced
lately. In our view, it is difficult to envision a benign
reflation period continuing without some additional
support from economic policies. As we do not expect
fiscal policies to change much, we argue that the need
for accommodative ECB policy will probably remain.
We also interpret the main message from the De-
cember policy meeting as one of increased flexibility.
Restrictions on the asset purchase programmes
(APP) were loosened and the ECB lowered the size
of monthly purchases, while stressing that the size
can be adjusted along the way. Whether this can be
defined as ‘tapering’ is questionable, as we do not
view this as the beginning of the end of the APP. This
view was backed by the ECB extending the duration
of the APP to at least the end of 2017, and markets
generally interpreted the overall message as dovish,
sending the EUR and short-term yields lower.
With headline inflation expected to increase and
growth expected to maintain good momentum at the
beginning of 2017, speculation about an ECB taper-
ing could gain further traction during the next couple
of months before reversing course as growth and in-
flation moderate, which we expect will be visible in
the second quarter this year. We do not expect the
ECB to lower the monthly pace of purchases at the
next couple of policy meetings. That said, we
acknowledge that the uncertainty has increased due
to the ECB signalling increased flexibility in its ap-
proach. The ECB probably will be happy to save
some ammunition when possible – a message that
was confirmed in the minutes from the December
policy meeting.
Rasmus Gudum-Sessingø, +45 46791619, ragu02@handelsbanken.dk
Monthly Macro Update, January 25, 2017
10
United Kingdom
Set for a hard Brexit
Economic growth held up well toward year-end and sentiment increased even more than expected in Q4 of last
year. However, the economy should slow this year, in particular private consumption and the housing market
as inflation soars and mortgage rates increase. As we expected, the UK government is preparing for a hard
Brexit, and we believe the road to a new trade agreement will be turbulent, keeping the pound weak.
So far, so good
Output in the manufacturing and construction sec-
tors contributed to pulling GDP growth down in Q3.
However, better-than-expected sentiment indicators
point to an improvement toward year-end, especially
for manufacturing, helped by improved competitive-
ness due to the weaker pound. Retail sales have
been surprisingly strong, and sentiment indicates
that service sector growth stayed strong also in Q4.
The composite PMI suggests that GDP growth held
up at around 0.5 percent in Q4.
The economy set to weaken this year
However, hard data are set to weaken in 2017. Infla-
tion is picking up fast, and was higher than both mar-
ket and BoE expectations in December.
The accelerating inflation is a result of the weaker
pound, which has already led to sharply increased
price pressure among firms and fast increasing infla-
tion expectations. At the same time, we believe wage
growth will stay subdued, dampening disposable in-
come growth. We also believe the rise in swap rates
through H2 of last year could lead to some further
increase in mortgage rates ahead. We believe eco-
nomic growth will start to deteriorate this year, pulled
down by a weaker housing market and private con-
sumption in particular.
Set for a “hard” Brexit
In a speech on Tuesday, January 17, Theresa May
gave the clearest outline yet of the government’s
Brexit plan. The government is prepared for a hard
Brexit. To regain control of its borders, to be free from
the European Court of Justice and to be able to nego-
tiate trade deals with other countries, the government
is prepared to sacrifice access to the European single
market and the Customs Union. The government
wants a new free trade deal with the EU with “as few
barriers to trade as possible”. The plan is ambitious
and probably unrealistic both when it comes to con-
tent and time frame, as it sets out to have a deal in
place when the Article 50 deadline is up in two years.
By that time, however, the deal would have to be ap-
proved by both houses of the UK parliament and all
EU countries for it to apply. This realistically leaves
only 15-18 months for negotiations. When the UK
leaves, the government foresees a phase-in period,
and the rules applying during that period are for the
negotiations to decide, May said. The GBP has
strengthened a bit again in response to May’s speech,
but the bottom line is that her government is taking the
UK toward a hard Brexit. We reiterate our GBP ex-
pectation of 0.88 versus the EUR for the coming year,
but we expect the road toward Brexit to be turbulent
and volatility in the GBP to be high.
Kari Due-Andresen, +47 2239 7007, kadu01@handelsbanken.no
Monthly Macro Update, January 25, 2017
11
Netherlands
Solid momentum in an uncertain world
The Netherlands is still in a phase of solid economic recovery, with recent key figures indicating a continued
strong increase in GDP in Q4 last year. Confidence indicators remain at close to post-crisis highs and do not
yet show signs of being affected by international uncertainty and the Dutch general election in March.
Strong recovery continues
The Dutch economy continues to show signs of
strength and the solid economic recovery in 2016
has become more broad-based. GDP for Q3 last
year was revised up, from 0.7 percent to 0.8 percent
growth on the previous quarter, and the latest key
figures suggest that GDP also increased strongly in
the last quarter of the year. Furthermore, confidence
indicators for households and businesses remain el-
evated moving into the new year. While our forecast
of 2 percent growth for 2016 seems valid, the appar-
ent strong finish to the year puts our forecast for
growth in 2017 of 1.6 percent at risk of being a little
pessimistic. For now, we maintain our view that
growth will slow somewhat in 2017.
Broad-based recovery to cool somewhat
The recovery in the Dutch economy has become
broad-based, as exports, investments and household
consumption have been picking up strongly. Strong
growth in exports over recent months indicates that for-
eign trade has so far been unaffected by increasing in-
ternational uncertainties. As the Netherlands is more
exposed to the UK than other European countries, due
to its strong trade and financial links, there is a risk that
exports could be hurt disproportionally by Brexit.
Furthermore, our outlook for slower growth among
some of the Netherlands’ other main trading partners
also indicates that export growth will cool somewhat
further into 2017. Private consumption has been
supported by strong gains in real wages, a faster
than expected rise in employment and the EUR 5bn
package of tax cuts introduced on January 1, 2016.
As we expect inflation to gradually rise in the coming
months as the negative effect of oil prices disap-
pears, real wage growth will rise less strongly in
2017, thereby sapping households’ purchasing
power somewhat. However, some of the increase in
disposable income during 2016 will presumably not
be spent until this year, which adds a buffer to the
outlook for private consumption in 2017.
The most notable development over the last two
years has been the revival in residential investments
as the housing market continued to pick up pace. We
however expect housing investments to decelerate
in 2017 from the unsustainable +20 percent growth
rates of the past two years as we move closer to their
pre-2009 peak, which will also dampen overall do-
mestic spending. Despite those headwinds, our
main scenario remains that the Dutch economy will
again outperform the eurozone as a whole in 2017.
Political uncertainties – but no ‘Nexit’
The main risks to the Dutch economy lie on the politi-
cal front, both internationally and domestically. Any
Trump policies that affect global trade will hurt the rel-
atively open Dutch economy, as will negative conse-
quences on the UK economy from Brexit. Further-
more, political uncertainty ahead of elections in sev-
eral eurozone countries could also weigh on invest-
ment decisions and thus dampen economic growth.
In the short run, domestic political uncertainty could
also weigh as the general election on March 15
draws closer. Even though the eurosceptic, anti-im-
migration Freedom Party (PVV), led by Geert Wil-
ders, is ahead in the polls and stands to become the
largest party in parliament, it is unlikely that he will
be able to form a government. Prime Minister Rutte
recently said that the chances of cooperating with
PVV were zero and promptly adopted a stronger
anti-immigration stance to draw in PVV voters. As it
stands, the main scenario seems to be the formation
of a multi-party coalition that excludes the PVV and
that will not support an EU referendum. This also ap-
pears to be the sentiment in markets as illustrated by
the low and stable development in Dutch yields
spreads vis-à-vis its German counterparts.
Even in the unlikely event that the PVV is able to
form a government coalition, we still think that an EU
referendum is unlikely to be called, as few other par-
ties share the PVV’s euroscepticism. In such a situa-
tion, a knee-jerk widening in the Dutch-German yield
spread could occur, but we expect that to be short-
lived due to the favourable fundamentals of the Dutch
economy. In the event of PVV gaining enough votes
to form a government on its own, all gloves would be
off, as that would definitely increase the risk of an EU
referendum taking place; however, we view such a
scenario as highly unlikely.
Jes Asmussen, +45 4679 1203, jeas01@handelsbanken.dk
Monthly Macro Update, January 25, 2017
12
China
Not everything can be stable at the same time
Stable economic growth requires fresh economic policy easing, but that will likely result in debt growth con-
tinuing. On a similar note, a generally stable exchange rate likely requires that FX interventions continue to
counter capital outflows, resulting in tumbling FX reserves. However, debt has not yet hit the ceiling and re-
serves have not yet hit the floor. Against that backdrop, we expect the Chinese authorities to ensure that eco-
nomic growth only slows gradually and that the CNY only weakens gradually.
Official GDP growth landed at 6.7 percent for 2016
as a whole, comfortably inside the official growth
target interval of 6.5-7 percent. The trajectory of
GDP growth (y-o-y) has been remarkably stable
throughout 2016, contrary to many other indicators
of economic activity that dipped in 2015 and early
2016 but recovered since then. Our alternative
measure of economic growth, Handelsbanken’s
China Macro Index, also shows a strong rebound
recently. We introduced the index in a Macro Com-
ment China on December 8.
The recent growth rebound is, as usual in China,
policy-driven. Authorities supported the property
market through an easing of lending conditions and
regulations and also boosted infrastructure invest-
ments. The property market rebound means – once
again – surging house prices, although it also sup-
ports construction activity and related industries, as
well as households’ consumption of goods and ser-
vices related to the upgrade of dwelling standards.
However, we believe the rebound is likely to be
short-lived, as the authorities are already seeking
to dampen house price increases in the cities where
the housing market appears to be the most frothy.
Private consumption, especially car sales, received
a boost from a temporarily lowered tax on cars, but
that positive effect will likely fade soon as well. Fur-
thermore, the outlook for the export sector is more
uncertain, as a trade war with the US looms follow-
ing Trump’s inauguration as president.
Once growth starts to decline somewhat into 2017,
as we forecast, economic policies are likely to be-
come accommodative again and temporarily stabi-
lise growth. Interest rates might not necessarily be
cut, but the authorities still have many other easing
tools in their toolbox. Thus, we foresee another
‘mini-cycle’ in 2017, much like the ones China has
experienced in each of the past couple of years.
Stripping away the mini-cycles, China’s growth is
structurally slowing; we expect overall GDP growth
to decline gradually over the forecast period.
The USD strength following Trump’s election victory
has allowed the Chinese authorities to let the CNY
weaken versus the USD while still keeping the effec-
tive, or trade-weighted, CNY generally stable. De-
spite the authorities’ efforts to shift the focus toward
a basket of currencies, the USD/CNY remains the
point of focus when it comes to Chinese FX policy.
The weakening of the CNY versus the USD has in-
creased expectations of further CNY weakness and
spurred accelerated capital outflows. The outflows
and the consequent weakening pressure on the
CNY have been counteracted by currency interven-
tion, which in turn has resulted in tumbling FX re-
serves. However, reserves are not even close to be-
ing depleted yet, and taken together with a renewed
tightening of capital controls and stricter enforce-
ment of prevailing rules, the authorities are still fully
in control of the level of the exchange rate. That said,
the de-liberalisation of capital controls is a blow to
the process toward a fully convertible currency and
will likely, as an unwanted by-product, deter some
capital inflows. We expect a gradual weakening of
the CNY over the forecast period.
Bjarke Roed-Frederiksen, +45 4679 1229, bjro03@handelsbanken.dk
Monthly Macro Update, January 25, 2017
13
Emerging markets
Coming to terms with Fed rate hikes; other challenges loom
The Emerging Markets economies will likely weather the gradual tightening of US monetary policy better than
usual. However, other challenges loom, not least the political and geopolitical developments. The outlook for
slightly higher oil/commodity prices should support the recovery in Brazil and Russia, for instance; whereas com-
modity importers will have to find other ways to improve growth.
Except for some special cases, most Emerging
Markets (EM) economies and financial assets have
done well since the US presidential election. Gen-
eral risk appetite has increased as investors have
focused on the likely positive effects of fiscal policy
loosening under Trump. The Trump fever has, how-
ever, somewhat faded recently. EMs are usually
hurt when the US Fed tightens monetary policy, and
that would also likely have been the case following
the interest rate hike in December, had that not
been widely expected. Trump’s fiscal stimulus
might require more aggressive monetary tighten-
ing, which could prove challenging for many EM
countries. However, since we in fact foresee fewer
not more US interest rate hikes than generally ex-
pected, we do not see this as the most prominent
headwind for EM ahead.
Instead, the political situation is perhaps the biggest
threat to many EM economies and their financial
markets. In Brazil, the political situation is finally
improving, or at least it has stabilised. Thus, eco-
nomic growth is on track to finally become positive
in 2017 as the central bank has kick-started its cy-
cle of interest rate cutting. However, public finances
have not been consolidated; the political situation is
still messy and the outlook could easily deteriorate.
The domestic political situation in Russia seems
more ‘stable’. However, geopolitics (and the oil
price) remain important. Unless oil and other com-
modity prices increase significantly, the outlook is
still for positive but low growth for the foreseeable
future. It may be that the Trump administration will
prove less hostile to Russia than Obama was. That
could bring some benefits down the road but the
near-term impact is probably limited.
In South East Asia, geopolitics could also take centre
stage as China flexes its military muscles in the South
China Sea, North Korea’s nuclear programme moves
on, and several countries including the Philippines are
turning their backs on the US and instead looking to-
ward China. Trump’s anti-globalisation rhetoric and
threats of tariffs and interference with free-trade have
also created uncertainty for the region, and the rise of
commodity prices in 2016 is another matter for con-
cern. GDP growth was relatively stable last year in the
region. As global trade remained lacklustre, these
economies had to rely on domestic demand for
growth. This engine is also likely to be the key source
of expansion this year, when no major relief is likely to
appear, with China’s production model changing to
become more self-reliant and reorienting toward do-
mestic use.
To tackle India’s corruption, the government unex-
pectedly removed 86 percent of its currency from
circulation. All 500-rupie and 1000-rupie notes were
switched for new ones or converted into electronic
deposits. The immediate impact was cash short-
ages, long lines at banks and post offices, and a
slowdown in economic activity. To mitigate the eco-
nomic damages, the government rapidly introduced
new stimulus measures, while the central bank
eased monetary policy. Although GDP likely slowed
slightly in the fourth quarter of last year, we expect
a rebound in the following quarter.
Bjarke Roed-Frederiksen, +45 4679 1229, bjro03@handelsbanken.dk
Gunnar Tersman: +46 8 701 2053, gute03@handelsbanken.se
Petter Lundvik: +46 8 701 3397, pelu16@handelsbanken.se
Tiina Helenius: +358 10 444 2404, tihe01@handelsbanken.se
Monthly Macro Update, January 25, 2017
14
Sweden
Inflation to increase, but no case for a steep rise Weak cost growth appears to be a main reason behind low inflation over the past years. So far, the signs of
acceleration in costs are bleak, but hard evidence will surface at a later stage. The labour market is stretched
today, we argue, despite an unemployment rate of 7 percent. We assume rising cost growth will support higher
inflation, but not immediately: we do not forecast CPIF inflation at 2 percent until 2018 and we expect a first
rate increase from the Riksbank in April that year.
Labour market heat: a bit ‘under the radar’?
Despite strong employment growth in recent years,
unemployment remains high. One factor that should
inhibit lower unemployment ahead is the structural
rise in participation, which is at a record high. Moreo-
ver, the sharp increase in the foreign-born population,
a group that has a much lower average employment
rate, sets a higher ‘lower bound’ for unemployment.
This overlaps with the obvious mismatch between
jobs and jobseekers: while the estimated number of
unemployed persons was around 360,000 in Q4 2016
(according to the Labour Force Survey), the average
number of remaining vacancies stayed around
80,000. Unemployment spells have risen markedly in
2016, as have recruitment times. We do not expect
unemployment to fall significantly from where it stands
today. Nevertheless, we argue that the labour market
is rather stretched. Despite the high unemployment
rate, we find several factors that normally would result
in rising wages and cost growth. Eventually, we ar-
gue, cost growth will take off – just not immediately.
Perhaps wage growth isn’t that low after all?
While this tight labour market does not appear to
have led to higher wage growth so far, we argue that
the overall notion of weak wage growth might be
overblown. Wage and salary statistics (from the Na-
tional Mediation Office), the most monitored data,
are quite problematic: they undergo a year of revi-
sions, ranging between 0.0 and 2.0 percent on a
monthly basis (comparing final outcomes to first pre-
liminary readings). The cyclical aspect of the revi-
sions is a potential upside risk to this data: ‘wage
drift’ in 2016-17 will likely lift revisions higher than
those for ‘average years’. Also, wage data usually
appear to accelerate at a later stage than data on
labour costs per hour from the national accounts
(NA). We believe that the rise in cost growth in the
NA data (from 1.4 percent to 3.0 percent) is more
accurate than the flat growth rate in the wage data
(at 2.5 percent).
The most crucial factor for the inflation outlook
should be core inflation. Our core component calcu-
lation, covering 53 percent of the total CPI basket,
points to acceleration in 2017-18. Thus, our CPIF
forecast reaches the targeted 2 percent inflation in
H1 2018 (likely in March), which is why we expect a
first Riksbank rate hike in April that year. Rising in-
flation and the monetary policy turnaround is the ba-
sis for our forecast of a stronger SEK. Less expen-
sive imports in the CPI will then increasingly chal-
lenge the inflationary rise, but we believe this will be
trumped by other factors in 2017-18.
Anders Brunstedt, +46 701 54 32, anbr42@handelsbanken.se
Monthly Macro Update, January 25, 2017
15
Norway
Norges Bank on hold despite the “lowflation” outlook
Since our latest update on Norway, the inflation reading has yet again disappointed significantly on the down-
side. We see a risk that underlying price pressures are weaker than forecast by Norges Bank. In isolation, this
could contribute to a lowering of the policy rate. However, owing to Norges Bank’s clearly stated fears of spi-
ralling housing prices and debt, we believe the Bank will continue to keep its policy rate unchanged, at 0.5
percent, for the foreseeable future.
CPI-ATE still running below NB’s estimates
Since our latest update on Norway (“Housing market
puts (soft) floor under policy rate,” December 16), ev-
idence points to the inflation outlook being weaker
than forecast by Norges Bank. Recall that Norges
Bank, in its December report, lowered its inflation
forecasts quite significantly due to lower actual infla-
tion, combined with a more muted wage outlook. The
latest reading showed that the core inflation rate had
yet again disappointed significantly on the downside.
Despite solid base effects, which should have given
the CPI-ATE a temporary upward push in Decem-
ber, the y-o-y rate declined to 2.5 percent. This was
down from 2.6 percent in November, and the outturn
was 0.4 p.p. below Norges Bank’s estimate. In prin-
ciple, this may have been a “noisy” event which
tends to be reverted quite fast, but we are increas-
ingly worried that this decline is due to the underlying
price pressures being weaker than generally antici-
pated. More specifically, food prices were the key
contributor to December’s downside disappoint-
ment. However, food prices have declined for five
consecutive months, and we suspect that this has
more to do with the increasing slack in the retail sec-
tor, which can be attributed to stubbornly weak
household spending on consumer goods. At this
point, however, we choose to keep our medium-term
inflation outlook unchanged, as we are already an-
ticipating lower inflation relative to Norges Bank’s es-
timates. The risk to our 2017 inflation forecast is
skewed marginally to the downside.
No significant news for the real economy
With regard to the real economy, Labour Force Sur-
vey data released prior to the Christmas holidays
showed a monthly drop in overall employment, with
the longer-term trend still being flat. However, survey
unemployment is steady, although at elevated lev-
els, as more people have dropped out of the labour
force. Registered unemployment has been some-
what lower than expected, but the decline in people
registered as fully unemployed is hard to square with
the weak employment trends. Thus we continue to
suspect that the registered figures underestimate the
degree of labour market slack.
Policy rate to stay flat at 0.5 percent
Housing prices have continued to rise somewhat
faster than expected by Norges Bank, but on the
other hand household debt growth has been lower
than expected. In summary, however, financial sta-
bility concerns are probably as severe as they were
at Norges Bank’s December meeting. Recall that
Norges Bank (in December) included a new factor in
its interest account: namely, “Financial imbalances
and uncertainty”, which is central bank-speak for
“the housing market and credit growth”. This new
factor has some different characteristics than the
usual factors affecting the interest rate. The new
housing market factor will contribute to pulling up the
interest rate path as long as Norges Bank is worried
about potential financial imbalances coming from the
housing market.
We continue to believe that housing market con-
cerns will dominate the outlook for policy rates. The
deviation in regard to inflation trends, at least at this
stage, is probably too small to alter Norges Bank’s
policy rate path. We therefore continue to expect that
Norges Bank will resist lowering its policy rate any
further. Our base case is that Norges Bank will keep
the policy rate on hold, at 0.50 percent, for the fore-
seeable future.
Marius Gonsholt Hov, +47 2239 7349, maho60@handelsbanken.no
Key variables 2015 2016f 2017f 2018f
Mainland GDP 1.1 0.7 1.5 1.9
Unemployment (LFS) 4.4 4.8 4.8 4.8
CPI-ATE 2.7 3.0 2.2 1.2
Policy rate 0.50 0.50 0.50 0.50
EUR/NOK (end of year) 9.60 9.09 8.75 8.75
Monthly Macro Update, January 25, 2017
16
Finland
Exports finally getting a lift from stronger manufacturing
Finland’s GDP growth in 2016 is likely to end up a little stronger than our forecast of one percent. In 2017, we
expect that exports will join domestic demand as one of the engines of GDP growth as the broad-based manu-
facturing recovery lifts exports. Hence, we keep our modest 2017-2018 GDP forecast intact.
Growth outcome in 2016 likely to be stronger
At the start of the New Year, it looks likely that eco-
nomic growth for 2016 is going to be a couple of dec-
imal points stronger than our forecast of one percent.
The average GDP growth for Q1-Q3 alone, accord-
ing to the quarterly national accounts data,
amounted to 1.5 percent, and high frequency data
points to a relatively robust finish to the year. The
expansion in 2016 was much stronger in industry
and construction than in services, which reflects the
norm of secondary production being more respon-
sive in business cycle turnarounds. A look at GDP
from the demand side shows that domestic demand,
private consumption and construction investments
were the key drivers of growth.
Industry data indicates an export recovery
As we now have industry output data for almost all of
2016, we can make a conclusion that industrial activ-
ity has indeed bottomed out and experienced a broad-
based recovery, yet a more moderate one than the
historical norm. This is a promising development for
2017, particularly since the turn has taken place in the
second half of the year and carried over to the end of
the year. A strong pickup in industrial orders in No-
vember further supports this view.
Taking a closer look at the sectors, it is the metal and
chemical industries, both strongholds for exports,
which have contributed most to this turnaround. In
addition, forest industry and non-metallic mineral
production that are fuelled by robust domestic con-
struction activity have experienced a lift-off. One
sector clearly outshines the rest: the manufacture of
transport equipment has boosted output in the entire
metal sector. This is essentially traced to the revival
of Finnish shipbuilding and car manufacturing. The
recovery in manufacturing supports our view that in
2017 exports will gradually take the side of private
consumption and construction investments, as en-
gines of GDP growth.
Confidence and capacity utilisation rising
The business surveys support the brighter outlook
for Finnish manufacturing. In December, the confi-
dence indicator for manufacturing from the Confed-
eration of Finnish Industries improved its long-term
average of +1. This is the highest value since June
2011. Also 77 percent of companies evaluated in De-
cember stated that their production capacity was
fully utilised and the capacity utilisation rate for man-
ufacturing industry stood above 80 percent. This
should support corporate investments.
We have argued that Finland needs its export sector
to lead the recovery so that growth would not stem
from build-up of domestic leverage alone. An export
recovery ignites the expansion of manufacturing out-
put. Eventually, this should lead to growth of indus-
trial employment; yet there is a need for manufactur-
ers to increase the working hours of existing workers
and boost productivity and profitability. This is al-
ready happening. Corporate sector profitability has
improved, yet the turnaround starts after a major de-
terioration and hence industrial employment has not
responded yet to improved conditions. Both produc-
tivity and profitability will have to recover a good deal
more for the recovery to spread via industrial em-
ployment to domestic demand. For this reason, we
keep our modest 2017-18 GDP forecast intact.
Tiina Helenius, +358 10 444 2404, tihe01@handelsbanken.se
Janne Ronkanen, +358 10 444 2403, jaro06@handelsbanken.se
Monthly Macro Update, January 25, 2017
17
Denmark
Better – but still not great
Significant revisions to Denmark’s national accounts data have painted the recovery in the Danish economy in
a more favourable light, but trend growth in the wake of the financial crisis has fallen. We have lifted our GDP
growth forecast but still expect only moderate growth in the coming years, as supply-side constraints and the
uncertain global economic and political landscapes dampen the outlook.
Is the crisis over?
Significant revisions to national accounts data
painted the recovery in the Danish economy in a
much brighter light than previously assumed. Along-
side decent GDP growth in the first three quarters of
2016, this has led to a broadly held view that talk of
a low-growth crisis in the Danish economy is a thing
of the past.
We agree that the revised GDP data indicate a better
performance in the Danish economy, but we are not
yet convinced that we will see a stronger recovery
take hold. Despite the stronger growth picture over
the past couple of years, it is thus still clear that trend
growth has weakened in the wake of the great finan-
cial crisis, see graph below.
Even though the revisions also led to a more favour-
able development in productivity growth, the trend
over the past two years has still been down and cur-
rently stands at about 0.5 percent on an annual basis.
Thus, potential growth in Denmark is still considered
to be below 1 percent, and even a relatively slow in-
crease in demand could quickly give rise to an in-
crease in supply-side growth constraints. This is per-
haps already visible in business surveys and wage
trends. The percentage of businesses reporting lim-
its to production due to lack of skilled labour is clearly
on the rise, and wage growth in the manufacturing
sector has once again begun to grow faster than the
average among Denmark’s main trading partners.
If sustained, this labour/wage trend would under-
mine competitiveness and push already rising unit
labour costs even higher. This would hurt profits and
increase the risk of a weakening labour market.
Despite the stronger perception of the recovery in
the Danish economy, it is thus still imperative that
structural reforms are implemented to boost invest-
ment, productivity and potential output growth, in or-
der to enable a stronger, sustainable recovery.
Only moderate growth ahead
Given better-than-expected trends through 2016 we
have raised our GDP growth forecast for 2016 from 0.6
percent to 1.0 percent. However, even though GDP
growth came out at a healthy 0.4 percent
q-o-q in the third quarter last year, the composition of
growth was unfavourable, as it was almost entirely
driven by inventory accumulation and public spending,
whereas investments and private consumption cooled.
Given relatively weak consumer confidence and the
latest slowdown in retail sales, we are still not con-
vinced that private consumption will pick up signifi-
cantly this year.
The main wildcard in the Danish economy continues
to lie on the business investment side, where pent-
up demand could be released and support both the
short-term cyclical performance as well as the
longer-term structural view. Given the abundance of
uncertainties regarding the global economic and po-
litical situations, however, we are still not convinced
that businesses will increase investments in earnest.
In combination with an expected slowdown in eco-
nomic growth among several of Denmark’s main
trading partners, we thus retain our view that GDP
growth will be lacklustre in both 2017 and 2018.
Jes Asmussen, +45 4679 1203, jeas01@handelsbanken.dk
Monthly Macro Update, January 25, 2017
18
Key ratios
Real GDP forecasts
Source: Handelsbanken Capital Markets
Inflation forecasts
Source: Handelsbanken Capital Markets
Unemployment forecasts
Source: Handelsbanken Capital Markets
2015 2016f
(Previous
forecast
2016) 2017f
(Previous
forecast
2017) 2018f
(Previous
forecast
2018)Sweden 3.8 3.2 3.2 2.5 2.4 2.0 2.1Norway 1.6 0.7 0.5 0.5 0.5 1.0 1.0Norway Mainland 1.1 0.7 0.7 1.5 1.5 1.9 1.9Finland 0.2 1.3 1.0 1.0 1.0 0.8 0.8Denmark 1.6 1.0 0.6 0.7 0.5 0.7 0.5
EMU 1.9 1.6 1.5 1.3 1.1 1.2 1.3USA 2.6 1.6 1.6 2.4 2.4 1.8 1.8UK 2.2 2.1 2.1 1.4 1.3 1.1 1.1The Netherlands 2.0 2.0 1.6 1.6 1.3 1.5 1.3Japan 1.2 1.0 0.6 1.2 0.7 0.8 0.6
Brazil -3.8 -3.5 -3.3 0.6 0.7 2.3 2.3Russia -3.7 -0.6 -0.8 1.1 1.1 1.5 1.5India 7.2 7.5 7.5 7.6 7.7 7.6 7.7China 6.9 6.7 6.6 6.4 6.3 6.0 5.9Poland 3.6 2.7 3.0 3.0 3.3 3.3 3.5
2015 2016f
(Previous
forecast
2016) 2017f
(Previous
forecast
2017) 2018f
(Previous
forecast
2018)Sweden -0.1 1.0 1.0 1.4 1.4 2.2 2.1Norway 2.1 3.6 3.6 2.1 2.1 1.2 1.2Finland -0.2 0.4 0.3 0.9 0.9 1.2 1.2Denmark 0.5 0.3 0.3 1.0 1.1 1.3 1.3
EMU 0.0 0.2 0.2 1.3 1.3 1.3 1.3USA (core) 1.4 1.7 1.7 2.0 2.0 2.1 2.1UK 0.0 0.7 0.7 2.6 2.3 2.5 2.5The Netherlands 0.2 0.1 0.0 1.0 1.0 1.0 1.0
2015 2016f
(Previous
forecast
2016) 2017f
(Previous
forecast
2017) 2018f
(Previous
forecast
2018)Sweden 7.4 6.9 6.9 6.8 6.9 7.1 7.2Norway 4.4 4.8 4.8 4.8 4.8 4.8 4.8Finland 9.4 8.8 8.8 8.5 8.5 8.4 8.4Denmark 6.2 6.2 6.1 6.5 6.3 6.6 6.5
EMU 10.9 10.1 10.2 9.8 10.1 9.8 9.9USA 5.3 4.9 4.9 4.4 4.4 4.6 4.6UK 5.4 4.9 4.9 5.3 5.3 5.5 5.5The Netherlands 6.9 6.1 6.3 5.6 5.9 5.5 6.0
Monthly Macro Update, January 25, 2017
19
Currency forecasts
Source: Handelsbanken Capital Markets
Interest rate forecasts
Source: Handelsbanken Capital Markets
Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
EUR/SEK 9.50 9.55 9.40 9.30 9.20 9.00
USD/SEK 8.84 9.27 8.95 8.86 8.76 8.18
GBP/SEK 11.04 10.85 10.68 10.57 10.45 10.23
NOK/SEK 1.06 1.06 1.06 1.04 1.05 1.03
DKK/SEK 1.28 1.28 1.26 1.25 1.23 1.21
CHF/SEK 8.85 8.93 8.79 8.69 8.60 8.26
JPY/SEK 7.82 8.43 8.14 8.05 7.97 7.79
CNY/SEK 1.29 1.32 1.24 1.20 1.17 1.04
EUR/USD 1.07 1.03 1.05 1.05 1.05 1.10
USD/JPY 112.99 110.00 110.00 110.00 110.00 105.00
EUR/GBP 0.860 0.880 0.880 0.880 0.880 0.880
GBP/USD 1.25 1.17 1.19 1.19 1.19 1.25
EUR/CHF 1.07 1.07 1.07 1.07 1.07 1.09
EUR/DKK 7.44 7.44 7.44 7.45 7.45 7.46
SEK/DKK 0.78 0.78 0.79 0.80 0.81 0.83
USD/DKK 6.92 7.22 7.09 7.10 7.10 6.78
GBP/DKK 8.64 8.45 8.45 8.47 8.47 8.48
CHF/DKK 6.93 6.95 6.95 6.96 6.96 6.84
JPY/DKK 6.12 6.57 6.44 6.45 6.45 6.46
EUR/NOK 8.99 9.00 8.90 8.90 8.75 8.75
SEK/NOK 0.95 0.94 0.95 0.96 0.95 0.97
USD/NOK 8.36 8.74 8.48 8.48 8.33 7.95
GBP/NOK 10.45 10.23 10.11 10.11 9.94 9.94
CHF/NOK 8.38 8.41 8.32 8.32 8.18 8.03
JPY/NOK 7.40 7.94 7.71 7.71 7.58 7.58
USD/BRL 3.16 3.40 3.60 3.70 3.80 4.00
USD/RUB 59.42 58.40 57.20 56.70 56.70 54.40
USD/INR 68.14 68.25 68.50 68.75 69.00 70.00
USD/CNY 6.85 7.00 7.20 7.40 7.50 7.90
EUR/PLN 4.37 4.35 4.30 4.25 4.15 4.00
EUR/RUB 63.87 60.20 60.10 59.50 59.50 59.80
Policy rates Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden -0.50 -0.50 -0.50 -0.50 -0.50 0.00
US (range midpoint) 0.625 0.625 0.625 0.875 0.875 1.125
Eurozone -0.40 -0.40 -0.40 -0.40 -0.40 -0.30
Norway 0.50 0.50 0.50 0.50 0.50 0.50
Denmark -0.65 -0.65 -0.65 -0.65 -0.65 -0.45
UK 0.25 0.25 0.25 0.25 0.25 0.25
3m interbank rates Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden -0.57 -0.45 -0.35 -0.30 -0.25 0.25
US 1.04 1.05 1.05 1.10 1.10 1.25
Eurozone -0.33 -0.25 -0.25 -0.25 -0.25 -0.10
Norway 1.02 1.00 1.00 1.00 1.00 1.00
Denmark -0.23 -0.20 -0.20 -0.20 -0.20 0.00
Monthly Macro Update, January 25, 2017
20
Interest rate forecasts, continued
Source: Handelsbanken Capital Markets
2y govt. yields Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden -0.57 -0.55 -0.45 -0.20 0.10 0.25
US 1.15 1.20 1.25 1.30 1.35 1.40
Eurozone (Germany) -0.69 -0.60 -0.60 -0.60 -0.50 -0.40
Norway 0.55 0.50 0.50 0.50 0.50 0.60
Denmark -0.60 -0.55 -0.55 -0.55 -0.50 -0.30
Finland -0.61 -0.50 -0.50 -0.50 -0.35 -0.20
UK 0.16 0.25 0.25 0.30 0.30 0.45
5y govt. yields Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden -0.28 -0.25 0.05 0.10 0.25 0.60
US 1.86 1.90 1.90 1.90 1.90 1.85
Eurozone (Germany) -0.45 -0.40 -0.40 -0.40 -0.30 -0.20
Norway 1.11 1.00 1.00 1.00 1.00 1.10
Denmark -0.24 -0.20 -0.20 -0.20 -0.10 0.05
Finland -0.39 -0.35 -0.35 -0.35 -0.20 -0.05
UK 0.58 0.50 0.50 0.50 0.60 0.70
10y govt. yields Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden 0.65 0.55 0.60 0.65 0.75 0.90
US 2.40 2.20 2.10 2.10 2.10 1.90
Eurozone (Germany) 0.40 0.25 0.25 0.25 0.35 0.50
Norway 1.71 1.60 1.60 1.60 1.60 1.70
Denmark 0.36 0.25 0.25 0.25 0.40 0.60
Finland 0.56 0.40 0.40 0.40 0.55 0.80
UK 1.38 1.20 1.20 1.20 1.20 1.30
2y swaps Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden -0.31 -0.25 -0.10 0.15 0.50 0.65
US 1.45 1.50 1.55 1.60 1.70 1.80
Eurozone (Germany) -0.17 -0.15 -0.15 -0.15 -0.10 0.00
Norway 1.26 1.10 1.10 1.10 1.10 1.20
Denmark 0.01 0.05 0.05 0.05 0.15 0.25
UK 0.67 0.55 0.55 0.55 0.55 0.60
5y swaps Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden 0.32 0.30 0.55 0.55 0.65 1.00
US 1.91 1.90 1.95 2.00 2.10 2.20
Eurozone (Germany) 0.12 0.05 0.05 0.05 0.05 0.15
Norway 1.55 1.40 1.40 1.40 1.40 1.50
Denmark 0.36 0.20 0.20 0.20 0.30 0.45
UK 0.97 0.80 0.80 0.80 0.80 0.85
10y swaps Jan 23 Q1 2017 Q2 2017 Q3 2017 End 2017 End 2018
Sweden 1.17 1.05 1.00 1.05 1.15 1.30
US 2.27 2.10 2.10 2.20 2.30 2.30
Eurozone (Germany) 0.74 0.60 0.60 0.60 0.60 0.75
Norway 1.97 1.80 1.80 1.80 1.90 2.00
Denmark 1.02 0.90 0.90 0.90 1.00 1.10
UK 1.37 1.20 1.20 1.20 1.20 1.30
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