New forecast: Mature business cycle changes the risk profile

In Handelsbanken’s first macro forecast of the year, we outline that 2018 inflation could surprises to the upside and interest rates rise by more than expected. That could put pressure on share prices and, in the long run, make it difficult for central banks to strike the right balance. We also look closely at the housing markets in Sweden and Norway, comparing them with other countries. Our view is that the falls in Swedish and Norwegian house prices will not have significant spillover effects. We raise our Swedish GDP forecast for 2018 due to strong exports.

  • Strong start to 2018, but a weaker ending
  • Asset price tailwinds subsiding
  • Upside risks to inflation and interest rates

While global growth accelerated in 2017, inflation remained subdued, a combination that favoured the stock market in particular. We expect the global business cycle to continue to strengthen in 2018, although the pace of growth is likely to be slower toward the end of the year. Central banks will therefore continue to shift their monetary policy. As a consequence, we anticipate bond yields rising and asset prices coming under pressure. We stick to our view that global growth will slow in 2019 as capacity constraints become increasingly apparent and as the US heads for recession.

After a strong start to 2018, we expect a growing number of economies to be booming during the year. As a result, the output gap and the unemployment gap will be positive, and economic relationships will be tested. In our view, the relationship between unemployment and inflation still holds true. We expect inflation to gradually increase, but, as we discuss in our themed article, upward pressure on underlying prices could be stronger than most currently anticipate. Central banks would initially welcome an uptick in inflation; however, they would be forced to reverse monetary policy more quickly if inflation became persistent.

The Swedish economy is benefiting from a strong global performance. While housing market trends call the Swedish economy’s future trajectory into question, households and companies continue to be optimistic. We expect the housing market to stabilise ahead and see no significant spillover effects. In our view, the moderate declines in housing investment and construction activity will be more than offset by growing exports and increases in other investments. All in all, we expect a continuation of the cyclical boom to set the scene for inflation closing in on the two percent target and some cautious rate rises by the Riksbank.

For further information, please contact:
Ann Öberg, Chief Economist, +46 8–701 2837, +46 76–135 5815

Christina Nyman,
Head of Forecasting, +46 8–701 5158, +46 70–778 7765
  

For more information about Handelsbanken, see www.handelsbanken.com
A summary in Swedish is available at Makroprognos

For the full report in English, see
Global Macro Forecast

GDP Forecasts 2016  2017f (Previous
forecast 2017)
2018f (Previous
forecast 2018)
2019f (Previous
forecast 2019)
Sweden* 3,0 2,7 2,9 2,,7 2,4 1,7 1,8
Norway 1,1 1,9 1,5 0,9 1,1 1,3 1,3
Norway Mainland 1,0 1,9 2,0 2,3 2,1 2,0 1,9
Finland* 1,9 3,3 3,3 2,3 2,0 1,4 1,1
Denmark 2,0 1,9 2,2 1,7 1,6 1,1 0,8
Eurozone 1,8 2,3 2,0 2,0 1,5 1,4 1,2
USA* 1,5 2,3 2,1 2,5 2,0 0,6 0,5
UK 1,9 1,5 1,6 1,3 1,3 1,3 1,5
Netherlands 2,1 3,3 3,1 2,8 2,2 1,5 0,9
China 6,7 6,7 6,7 6,3 6,3 5,8 5,8

Note: *Calendar adjusted
Source: Handelsbanken Capital Markets

    

Policy rates Jan 16  Q1 2018 Q2 2018 Q3 2018 End 2018 End 2019
Sweden -0,5 -0,50 -0,50 -0,25 -0,25 0,25
US (range midpoint) 1,375 1,625 1,875 2,125 2,125 1,375
Eurozone -0,4 -0,4 -0,4 -0,4 -0,4 0,00
Norway 0,50 0,50 0,50 0,50 0,50 0,50
Denmark -0,65 -0,65 -0,65 -0,65 -0,55 0,00
UK 0,50 0,50 0,50 0,50 0,50 0,50

Source: Handelsbanken Capital Markets
   

FX Forecasts  Jan 16  Q1 2018 Q2 2018 Q3 2018 End 2018 End 2019
EUR/SEK 9,83 9,70 9,60 9,30 9,20 9,30
USD/SEK 8,03 8,43 8,35 8,09 7,67 7,44
GBP/SEK 11,07 10,54 10,21 9,79 9,68 9,79
NOK/SEK 1,02 1,02 1,02 1,00 1,00 1,02
DKK/SEK 1,32 1,30 1,29 1,25 1,23 1,25
CHF/SEK 8,35 8,29 8,21 7,88 7,67 7,88
JPY/SEK 7,26 7,67 7,95 8,01 7,90 7,67
CNY/SEK 1,25 1,28 1,26 1,23 1,18 1,18
EUR/USD 1,22 1,15 1,15 1,15 1,20 1,25
EUR/GBP 0,89 0,92 0,94 0,95 0,95 0,95
USD/CNY 6,44 6,60 6,65 6,60 6,50 6,30

Source: Handelsbanken Capital Markets

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