The US economy will accelerate, but its contagious effects on other parts of the world economy will be less than usual due to structural weaknesses in the euro zone and in several key emerging economies. Over the past year, the picture has been remarkably stable, both with regard to SEB’s forecasts and the consensus view of global growth. Various risks such as a deeper euro zone crisis, broader instability in emerging economies or the adverse effects of tighter US monetary policy have put the main scenario in question at different times but have then faded in importance.
Since SEB published Nordic Outlook in February, the forecast picture has come under challenge for a wide variety of reasons. For example, to what extent can weaker US sentiment indicators be explained by the adverse effects of weather? But above all, how will the Ukraine crisis and increasing tensions with Russia affect the global outlook?
“In recent weeks we have posted country reviews (see link). Although the geopolitical situation may change quickly, our current conclusion is that the global picture is still mainly unchanged and that downward adjustments in our GDP forecasts are relatively marginal. However, it is reasonable to tilt our risk scenario slightly in a negative direction,” says Håkan Frisén, head of economic forecasting at SEB.
In the February Nordic Outlook, the economists’ assessment was that risks compared to the main scenario were balanced, with a 20 per cent probability of both stronger and weaker performance. Events in Ukraine and Russia's response have undoubtedly added a further element of uncertainty.
Meanwhile discussions about whether the world economy is in a prolonged period of (secular) stagnation have become even more topical. For example, International Monetary Fund (IMF) economists have emphasised that the growing wealth gap in many countries poses a threat to consumption and investments. In this context, the IMF raised the question of whether carefully selected tax increases might be one step towards dealing with these problems.
“Overall, we believe that the risks of poorer economic performance than in our main scenario total 25 per cent. As earlier, we estimate the probability of a more favourable scenario - including clearer contagious effects from the US upturn - at 20 per cent,” Frisén says.