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Economic Outlook Turning points Global Chief Economist Helge J. Pedersen Baltic M&A and Private Equity Forum Riga 24 October 2013 • Global economic trends • Nordic and Baltic economies Global 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? Helge J. Pedersen Euro area Game changer - OMT works without being used Helge J. Pedersen Global Growth around the corner – but at lower levels than before the crisis Helge J. Pedersen Global The 2014 economic heat map … Helge J. Pedersen Global 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. 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 Helge J. Pedersen Global Reason to worry about MP-plus: new bubbles and inflation 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 • Global economic trends • Nordic & Baltic economies Nordics&Baltics Different growth pattern … Helge J. Pedersen Nordics&Baltics …not least when it comes to manufacturing production Helge J. Pedersen Nordics&Baltics Sentiment indicators look promising for the short-term outlook: PMIs Helge J. Pedersen Nordics&Baltics Sentiment indicators look promising for the short-term outlook: consumer confidence Helge J. Pedersen Global Our growth forecasts in numbers Growth, % 2011 4.0 2012 3.4 2013E 3.1 2014E 3.8 2015E 4.0 USA Euro area China Japan 1.8 1.8 9.3 -0.5 2.8 -0.3 7.8 2.0 1.7 -0.5 7.5 1.6 2.9 1.0 7.3 1.3 3.2 1.5 7.0 1.0 Denmark Norw ay Sw eden Finland Estonia 1.1 2.5 3.7 2.7 8.3 -0.4 3.4 0.7 -0.8 3.2 0.3 2.0 0.8 -0.5 1.9 1.3 2.3 2.5 1.5 3.6 1.7 2.4 2.5 2.3 3.7 Poland Russia Latvia Lithuania 4.5 4.4 5.5 5.9 1.9 3.4 5.6 3.6 1.4 2.4 3.9 4.0 2.5 2.7 4.4 3.8 3.5 2.8 3.2 4.0 World 1) Helge J. Pedersen Nordics&Baltics Long-term growth potential depends on the productivity development Denmark Estonia Finland Germany Norway Slovakia Spain Sweden USA China Euro area Total OECD World Potential labour productivity growth Real GDP Output gap Potential real GDP growth (output per employee) Potential employment growth 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 -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 -3 5 3 2.8 2.2 4.2 2.7 3 2.4 0.8 0.3 -0.2 -0.1 3.5 -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 -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 -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 -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 -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 -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 -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 -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 -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 -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 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 Source: OECD Helge J. Pedersen Nordics&Baltics Reason to worry for the longer term: underinvestments Helge J. Pedersen Nordic&Baltics Despite the fact that the Nordics and Baltics are among the top 30 countries to do easy business in Economy Singapore Hong Kong SAR, China New Zealand United States Denmark Norway United Kingdom Korea, Rep. Georgia Australia Finland Sweden Iceland Ireland Germany Estonia Latvia Lithuania Switzerland Austria Ease of Doing Business Rank Starting a Business Dealing with Getting Construction Electricity Permits Registering Property Getting Credit Protecting Investors Trading Across Borders Paying Taxes Enforcing Contracts Resolving Insolvency 1 4 2 5 36 12 2 5 1 12 2 2 6 1 4 60 4 3 4 2 10 17 3 1 6 32 2 4 1 21 25 17 13 4 13 17 19 25 4 6 69 22 6 16 5 33 8 14 6 23 32 13 4 34 10 6 43 23 14 7 70 25 19 21 4 3 7 19 20 62 73 1 10 16 14 21 8 8 24 26 3 75 12 49 30 3 2 14 9 7 3 50 1 4 19 33 38 30 81 10 2 11 36 37 4 70 48 44 15 18 11 49 34 21 24 40 70 23 6 9 5 13 54 25 9 35 40 32 38 8 27 22 14 45 40 1 9 40 49 41 82 3 11 15 10 106 95 53 12 6 6 28 63 9 20 106 14 2 81 23 100 72 13 5 19 21 47 35 52 14 40 70 50 7 31 72 25 59 113 83 31 4 70 52 16 24 33 27 107 48 75 5 53 70 60 24 14 40 28 97 50 8 15 23 169 18 35 20 45 29 134 75 24 34 23 100 77 26 7 12 Helge J. Pedersen Nordics&Baltics New investment activity is a must for the Nordics to maintain their relatively good competitiveness and for the Baltics to improve theirs further The Global Competitiveness Index 2013-2014 rankings © 2013 World Economic Forum | www.weforum.org/gcr GCI 2013-2014 Country/Econom y GCI 2012-2013 Rank Score Rank Change Switzerland 1 5.67 1 0 Singapore 2 5.61 2 0 Finland 3 5.54 3 0 2 Germany 4 5.51 6 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 4 Norway 11 5.33 15 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 -3 Lithuania 48 4.41 45 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 Helge J. Pedersen Global 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 Helge J. Pedersen Nordics&Baltics Only a few weaknesses in the Nordic and Baltic countries according to the early warning mechanism … Year 2011 External imbalances and competitiveness Internal imbalances Thresholds 3 year average of Current Account Balance as % of GDP -4/+6% % change (3 years) Net International of Real Effective % Change (5 years) Investment Position Exchange Rate with in Export Market % Change (3 years) as % of GDP HICP deflators Shares in Nominal ULC -35% +-5% & +-11% -6% +9% & +12% Sweden Finland Denmark 6.6 0.6 5.0 -8.3 13.1 24.5 3.9 -1.3 -1.7 -11.6 -22.9 -16.9 1.2 9.1 4.7 1.0 -0.3 -4.9 6.3 4.6 -2.2 232 179 238 38.4 49.0 46.4 8.1 8.1 7.0 Estonia Latvia Lithuania 2.8 3.1 0.0 -57.8 -73.3 -52.6 0.8 -0.6 3.6 11.1 23.6 25.2 -6.2 -15.0 -8.4 3.3 4.9 2.4 6.8 -2.5 -0.8 133 125 70 6.0 42.0 39.0 14.4 18.1 15.6 % y/y change in deflated House Prices +6% Private Sector Credit Privat Sector Debt Flow as % of GDP as % of GDP 15% 160% Public sector Debt as % of GDP 60% 3 year average of Unemployment 10% *) 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 Helge J. Pedersen Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results. Thank you! Helge J. Pedersen Global Chief Economist Economic Research +45 3333 3126 [email protected] Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets. Helge J. Pedersen