New forecast: Global economy on shaky ground
“The economic cycle and geopolitics are interacting in an unfortunate way, leading to the global economy increasingly cooling, including the Swedish economy”, writes Handelsbanken in its new macroeconomic forecast. According to the bank’s forecast, the Riksbank will only manage to raise the repo rate once more in this cycle, during autumn, before leaner times arrive in earnest. “Interest rates will remain low for quite a while yet,” says Handelsbanken’s Chief Economist, Christina Nyman.
Growth in Sweden is faltering, but the good times are not over yet. Employment is rising and many indicators show that GDP rose again in the fourth quarter. However, lower housing construction will increasingly subdue GDP. Alongside a weaker international environment, Swedish growth will slow. We foresee rising unemployment next year. The underlying inflation rate will rise in the first half of 2019, allowing the Riksbank to make one more rate increase in this cycle, during the autumn. This means the repo rate will reach zero, but no higher. However, the prospect of even a solitary rate rise is hanging by a thread.
There will not be much in the way of interest rate hikes outside of Sweden, either. We do not believe the ECB will raise the refi rate in the next few years and expect the US Federal Reserve to cut the funds rate next year. Central banks’ balance sheets are now starting to shrink, the potential repercussions of which we discuss in a themed article, Phasing out asset purchases will be a challenge.
Another themed article, Krona undervalued and dollar overvalued, lays out our view of the krona’s equilibrium path.
Growth has been hindered globally by the trade war, Brexit and a downturn in the industrial business cycle. Growth in China and Europe has already started to decline, while the US looks set to follow later this year. Together with longer-term issues, such as climate change, automation and an ageing population, we conclude that significant challenges lie ahead.
“It is time for the world’s political class to step up. A great deal of responsibility lies on their shoulders. Geopolitical challenges need to be resolved, otherwise there is a greater risk that faith in the political establishment could be eroded, leading to increases in social instability, populism and protectionism in the long run.”
For further information, please contact:
Christina Nyman, Chief Economist, +46 8 701 51 58, +46 70 778 77 65
Johan Wallqvist, Head of Global Media Relations, +46 8 701 80 47, +46 72 206 34 50
For more information about Handelsbanken, see: www.handelsbanken.com
For the full report in Swedish, see Konjunkturprognos
For the full report in English, see Global Macro Forecast
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