Economic Outlook Turning points Global Chief Economist Helge J. Pedersen Baltic M&A and Private...
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Transcript of Economic Outlook Turning points Global Chief Economist Helge J. Pedersen Baltic M&A and Private...
Economic Outlook
Turning points
Global Chief Economist Helge J. PedersenBaltic M&A and Private Equity Forum Riga 24 October 2013
Our baseline scenario – turning points
• Growth picture changes - the old world wakes up while the new one has problems
• Less expansionary monetary policy, but interest rates will be low for much longer
• The euro remains strong - can it last?
Global
Helge J. Pedersen
Game changer - OMT works without being used
Euro area
Source: Nordea Markets and Reuters Ecowin
Jan
12
Mar May Jul Sep Nov Jan
13
Mar May Jul Sep
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
%%
Ireland
Spain
Portugal
Germany
Italy
OMT
Believe me
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
Hist. avg. since 1982
EUR introduction
+ std.dev.
- std. dev.
EUR/USD
EUR/USD
TtThe
Helge J. Pedersen
Growth around the corner – but at lower levels than before the crisis
Source: Nordea Markets and Reuters Ecowin
05 06 07 08 09 10 11 12 13
-8
-6
-4
-2
0
2
4
6
8
35
40
45
50
55
60
% q/q (ar)
GDP, rhs
WorldIndex
Composite PMI
Global
Helge J. Pedersen
Low inflation and high rate of unemployment pave the way for continued low interest rates
• The ECB has announced a new forward guidance strategy:
• The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.
Global
Source: Nordea Markets and Reuters Ecowin
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
%%
Japan
Easing
Easing
Euro area
USA
Tightening
Tightening
UK
Helge J. Pedersen
Country Spot 3M 30Jun14 31Dec14 31Dec15
United States 0.25 0.25 0.25 0.25 1.25
Euroland 0.50 0.50 0.50 0.50 1.00
United Kingdom 0.50 0.50 0.50 0.50 1.25
Denmark 0.20 0.20 0.35 0.50 1.25
Norw ay 1.50 1.50 1.50 1.50 1.75
Sw eden 1.00 1.00 1.25 1.50 2.00
Reason to worry about MP-plus: new bubbles and inflation
Source: Nordea Markets and Reuters Ecowin
07 08 09 10 11 12 13 146
8
10
12
14
16
18
20
22
2000
3000
4000
5000
6000
7000
8000
% of GDP
*) Notes and coins in circulation plus reserve balances held by banks at the central bank. Note: For the US, the Euro area, the UK and Japan
Forecast
USDbn
Measured in nominal USD
Measured as % of GDP, rhs
Base money*- the narrow money supply
Global
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ... Milton Friedmann, The Counter-Revolution in Monetary Theory (1970)
Helge J. Pedersen
Different growth pattern …
Nordics&Baltics
Denmark Finland Norway Sweden
Source: Nordea Markets and Reuters Ecowin
00 01 02 03 04 05 06 07 08 09 10 11 12 1395
100
105
110
115
120
125
130
135
140
95
100
105
110
115
120
125
130
135
140
GDP (2000=100)
Estonia Latvia Lithuania
Source: Nordea Markets and Reuters Ecowin
00 01 02 03 04 05 06 07 08 09 10 11 12 1390
100
110
120
130
140
150
160
170
180
190
90
100
110
120
130
140
150
160
170
180
190
GDP (2000=100)
Helge J. Pedersen
…not least when it comes to manufacturing production
Nordics&Baltics
Estonia Latvia Lithuania
Source: Nordea Markets and Reuters Ecowin
05 06 07 08 09 10 11 12 1375
80
85
90
95
100
105
110
115
120
125
130
75
80
85
90
95
100
105
110
115
120
125
130
Manufacturing production (2010=100)
Note: 3M moving average
Denmark Finland Norway Sweden
Source: Nordea Markets and Reuters Ecowin
05 06 07 08 09 10 11 12 1380
85
90
95
100
105
110
115
120
80
85
90
95
100
105
110
115
120
Manufacturing production (2005=100)
Helge J. Pedersen
Sentiment indicators look promising for the short-term outlook: PMIs
Helge J. Pedersen
Nordics&Baltics
Denmark Finland Norway Sweden
Source: Nordea Markets and Reuters Ecowin
08 09 10 11 12 1310
20
30
40
50
60
70
10
20
30
40
50
60
70
Manufacturing PMI
BalanceBalance
Note: The Finnish series represents the 'Manufacturing confidence indicator'
Estonia Latvia Lithuania
Source: Nordea Markets and Reuters Ecowin
08 09 10 11 12 13-50
-40
-30
-20
-10
0
10
20
30
40
-50
-40
-30
-20
-10
0
10
20
30
40
Manufacturing Confidence
BalanceBalance
Sentiment indicators look promising for the short-term outlook: consumer confidence
Helge J. Pedersen
Nordics&Baltics
Denmark Finland Norway Sweden
Source: Nordea Markets and Reuters Ecowin
08 09 10 11 12 13-30
-20
-10
0
10
20
30
40
-30
-20
-10
0
10
20
30
40
Consumer confidence
BalanceBalance
Estonia Latvia Lithuania
Source: Nordea Markets and Reuters Ecowin
08 09 10 11 12 13-60
-50
-40
-30
-20
-10
0
10
-60
-50
-40
-30
-20
-10
0
10
Consumer confidence
BalanceBalance
Our growth forecasts in numbers
Global
Helge J. Pedersen
Growth, %2011 2012 2013E 2014E 2015E
World1) 4.0 3.4 3.1 3.8 4.0
USA 1.8 2.8 1.7 2.9 3.2Euro area 1.8 -0.3 -0.5 1.0 1.5China 9.3 7.8 7.5 7.3 7.0Japan -0.5 2.0 1.6 1.3 1.0
Denmark 1.1 -0.4 0.3 1.3 1.7Norw ay 2.5 3.4 2.0 2.3 2.4Sw eden 3.7 0.7 0.8 2.5 2.5Finland 2.7 -0.8 -0.5 1.5 2.3Estonia 8.3 3.2 1.9 3.6 3.7
Poland 4.5 1.9 1.4 2.5 3.5Russia 4.4 3.4 2.4 2.7 2.8Latvia 5.5 5.6 3.9 4.4 3.2Lithuania 5.9 3.6 4.0 3.8 4.0
Long-term growth potential depends on the productivity development
Nordics&Baltics
Source: OECD
Output gapReal GDP growth
2012 2001-2007 2012-2017 2018-2030 2031-2050 2001-2007 2012-2017 2018-2030 2031-2050 2001-2007 2012-2017 2018-2030 2031-2050 2012-2017
Denmark -3.3 1.5 0.9 1.7 2.2 1 0.7 1.5 1.9 0.5 0.2 0.2 0.3 1.4
Estonia -3 5 3 2.8 2.2 4.2 2.7 3 2.4 0.8 0.3 -0.2 -0.1 3.5
Finland -1.1 2.6 2.1 2.3 1.7 1.8 2 2.1 1.4 0.8 0.1 0.1 0.1 2.2
Germany -0.8 1.3 1.6 1.2 1 0.9 1.4 1.8 1.5 0.3 0.2 -0.6 -0.4 1.7
Norway -1.8 2.9 3.1 2.8 2 1.8 1.8 2 1.4 1.1 1.2 0.7 0.6 3.6
Slovakia -0.9 4.7 3.5 2.8 1.6 3.7 3.3 2.7 1.8 0.9 0.3 0.2 -0.3 3.5
Spain -8.7 3.4 1.5 2.2 1.5 0.3 0.7 1.6 1.7 3.1 0.8 0.6 -0.2 2.3
Sweden -2.2 2.6 2.7 2.4 1.9 1.9 1.9 2 1.4 0.7 0.8 0.4 0.4 2.7
USA -3.6 2.5 2.1 2.4 2.1 1.5 1.3 1.5 1.3 1 0.8 0.9 0.8 2.7
China -0.8 10.2 8.9 5.5 2.8 9.2 8.4 5.9 3.6 0.9 0.5 -0.3 -0.8 8.8
Euro area -3.6 1.8 1.4 1.7 1.4 0.7 1 1.7 1.5 1.1 0.4 0 -0.2 1.7
Total OECD -2.8 2.1 2 2.2 1.9 1.2 1.2 1.7 1.6 1 0.8 0.5 0.3 2.3
World 2.7 3.4 3.3 2.4 1.5 2.4 2.7 2.3 1.2 0.9 0.6 0.1 3.6
Potential real GDP growthPotential labour productivity growth
(output per employee) Potential employment growth
Helge J. Pedersen
Reason to worry for the longer term: underinvestments
Helge J. Pedersen
Nordics&Baltics
Estonia Latvia Lithuania
Source: Nordea Markets and Reuters Ecowin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
50
100
150
200
250
300
350
50
100
150
200
250
300
350
Gross fixed capital formation (2000=100)
Denmark Finland Norway Sweden
Source: Nordea Markets and Reuters Ecowin
00 01 02 03 04 05 06 07 08 09 10 11 12 1390
100
110
120
130
140
150
160
170
90
100
110
120
130
140
150
160
170
Investment (2000=100)
Despite the fact that the Nordics and Baltics are among the top 30 countries to do easy business in
Nordic&Baltics
Economy
Ease of Doing
Business Rank
Starting a Business
Dealing with Construction
Permits
Getting Electricity
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
Enforcing Contracts
Resolving Insolvency
Singapore 1 4 2 5 36 12 2 5 1 12 2
Hong Kong SAR, China 2 6 1 4 60 4 3 4 2 10 17
New Zealand 3 1 6 32 2 4 1 21 25 17 13
United States 4 13 17 19 25 4 6 69 22 6 16
Denmark 5 33 8 14 6 23 32 13 4 34 10
Norway 6 43 23 14 7 70 25 19 21 4 3
United Kingdom 7 19 20 62 73 1 10 16 14 21 8
Korea, Rep. 8 24 26 3 75 12 49 30 3 2 14
Georgia 9 7 3 50 1 4 19 33 38 30 81
Australia 10 2 11 36 37 4 70 48 44 15 18
Finland 11 49 34 21 24 40 70 23 6 9 5
Sweden 13 54 25 9 35 40 32 38 8 27 22
Iceland 14 45 40 1 9 40 49 41 82 3 11
Ireland 15 10 106 95 53 12 6 6 28 63 9
Germany 20 106 14 2 81 23 100 72 13 5 19
Estonia 21 47 35 52 14 40 70 50 7 31 72
Latvia 25 59 113 83 31 4 70 52 16 24 33
Lithuania 27 107 48 75 5 53 70 60 24 14 40
Switzerland 28 97 50 8 15 23 169 18 35 20 45
Austria 29 134 75 24 34 23 100 77 26 7 12
Helge J. Pedersen
New investment activity is a must for the Nordics to maintain their relatively good competitiveness and for the Baltics to improve theirs further
Nordics&Baltics
© 2013 World Economic Forum | www.weforum.org/gcr
GCI 2012-2013
Country/Economy Rank Score Rank Change
Switzerland 1 5.67 1 0
Singapore 2 5.61 2 0
Finland 3 5.54 3 0
Germany 4 5.51 6 2
United States 5 5.48 7 2
Sweden 6 5.48 4 -2
Hong Kong SAR 7 5.47 9 2
Netherlands 8 5.42 5 -3
Japan 9 5.40 10 1
United Kingdom 10 5.37 8 -2
Norway 11 5.33 15 4
Denmark 15 5.18 12 -3
China 29 4.84 29 0
Iceland 31 4.66 30 -1
Estonia 32 4.65 34 2
Spain 35 4.57 36 1
Poland 42 4.46 41 -1
Lithuania 48 4.41 45 -3
Italy 49 4.41 42 -7
Portugal 51 4.40 49 -2
Latvia 52 4.40 55 3
Russian Federation 64 4.25 67 3
GCI 2013-2014
The Global Competitiveness Index 2013-2014 rankings
Helge J. Pedersen
Conclusion
• The combination of low interest rates and a solid global economic recovery is good news for the general M&A activity in 2014
• New investment activity is a must for a bright future for the region
Global
Helge J. Pedersen
Only a few weaknesses in the Nordic and Baltic countries according to the early warning mechanism …
Nordics&Baltics
Year 2011
3 year average of Current Account Balance as % of
GDP
Net International Investment Position
as % of GDP
% change (3 years) of Real Effective
Exchange Rate with HICP deflators
% Change (5 years) in Export Market
Shares% Change (3 years)
in Nominal ULC
% y/y change in deflated House
PricesPrivate Sector Credit Flow as % of GDP
Privat Sector Debt as % of GDP
Public sector Debt as % of GDP
3 year average of Unemployment
Thresholds -4/+6% -35% +-5% & +-11% -6% +9% & +12% +6% 15% 160% 60% 10%
Sweden 6.6 -8.3 3.9 -11.6 1.2 1.0 6.3 232 38.4 8.1Finland 0.6 13.1 -1.3 -22.9 9.1 -0.3 4.6 179 49.0 8.1Denmark 5.0 24.5 -1.7 -16.9 4.7 -4.9 -2.2 238 46.4 7.0
Estonia 2.8 -57.8 0.8 11.1 -6.2 3.3 6.8 133 6.0 14.4Latvia 3.1 -73.3 -0.6 23.6 -15.0 4.9 -2.5 125 42.0 18.1Lithuania 0.0 -52.6 3.6 25.2 -8.4 2.4 -0.8 70 39.0 15.6*) Threshold indicates imbalances if variable is over the upper limit or under the lower limit
**) Former figure applies to EuroZone countries, while the latter applies to non-Euro countries
External imbalances and competitiveness Internal imbalances
Helge J. Pedersen
Thank you!
Helge J. PedersenGlobal Chief Economist
Economic Research+45 3333 3126
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Helge J. Pedersen