30% chance of new global recession, says Swedbank
Swedish bank Swedbank has cut its forecast rate for global economic growth to 3.8% from 4.1% this year and says it will remain just below 4% in 2012-13, according to its latest economic outlook.
The bank adds that because of ongoing uncertainty over growth in the US and the eurozone it believes there is a 30% chance of a new global recession, which would push the global GDP growth rate below 2%.
Markets around the world are struggling with poor expectations of the future, and this has manifested itself in a sharp downturn in global markets since the last economic outlook report in April, the bank says.
Panic has gripped the markets and “if this continues together with the underlying negative fundamentals, there is a risk of a downward spiral, which could lead to a new global recession”.
“For [global] growth to return to a rate of 5% requires increased faith in politics,” it added.
Therefore, it rates the likelihood of any future improvement at just 10%.
The bank’s report is otherwise heavily focused on its key home market of Sweden, but also the Baltic States, given its exposure there.
Sweden is likely to suffer from a slowdown in export markets, while downgraded expecations mean households are cutting spending and companies are applying the brakes to investments.
The bank has cut its forecast 2012 GDP growth rate to 2.2% and expects no more than 2.3% in 2013. This sharp drop against the full 2011 expectation of 4.3% and the 2010 rate of 5.4% in real terms means policymakers in Sweden face tough decisions.
The bank expects the Swedish central bank to be more cautious in its approach to interest rate hikes, and it says the government should consider temporary measures to ensure unemployment continues to decline.
Estonia, in contrast to Sweden, is looking strong, the bank said.
Economic growth in the first half of 2011 hit 8%, after exports soared 54% in the period. Government consumption turned positive after two years of decline. Therfore the forecast growth rate for all of 2011 has been upped by Swedbank to 6.7% from 4.5%.
The main threat to the benign picture going forward is likely to be wage growth, as there are sectors such as ICT, construction and healthcare affected by a lack of qualified workers.
Latvia’s strong second quarter growth will likewise be buffeted by inflation threats and uncertainty of the impact of any ongoing global growth contraction.
The growth seen has caused Swedbank to raise its full year 2011 forecast to 4.2% from 4% growth, with expectations the rate will be 3.5% instead of 3.9% in 2012.
One particular issue is the introduction of the euro. This is not expected until 2014, which could dampen growth in 2013.
Lithuania’s growth rate has surprised the bank. Annualised GDP grew by 6.5% in the first half of 2011. Household consumption and investments grew strongly.
Inflation is once again an issue, with consumer prices increasing off the back of rising energy and food prices. Swedbank expects an overall rate of inflation of 4% by year’s end. Slowing exports could add to the downside risks, particularly to the Commonwealth of Independent Sates, including Russia, which has applied higher duties on imports of vehicles re-exported through Lathuania.
Adoption of the euro by 2014 looks likely for the country, but it still needs to prove it can meet the Maastricht requirements in terms of price stability, Swebank said.