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Updated forecast: Slowing down but no full stop

The war in Ukraine has tangible economic effects. SEB’s economists adjust their GDP forecast for the global economy in 2022 down to 3.2 percent from the previous 4.1 percent. The downward adjustment for the euro area is significantly larger than for the USA and the Nordic countries.

Fiscal policy investments, not least in the defense and energy areas, mitigate the negative effects. The war strengthens the rise in inflation, and the economists expect more and earlier interest rate increases.

Economic conditions have changed radically due to the war in Ukraine. In addition to the direct consequences of the war, there will be spillover effects in the form of, among other things, sanctions, trade disruptions and refugee flows.  

“We revise down our forecasts for both the world economy and for most individual countries. The most important reasons are high energy prices and disruptions to supply, inflation and trade that the war and the sanctions entail. It is impossible to say how long the war will go on, but we expect that much of the sanctions and disruptions will remain even if the war were to end relatively soon,” says SEB's chief economist Jens Magnusson. 

Fiscal policy support, increased public consumption because of refugee flows and greater investment in defense capacity and energy conversion, will work in the opposite direction and support growth.  

“However, we believe that negative forces outweigh and therefore we reduce the growth forecast by one percentage point for the OECD area and almost as much for emerging markets countries. Due to the large dependence on Russian energy, the euro area is hit harder than the USA,” says SEB's head of economic forecasting, Håkan Frisén.  

The forecast for Europe's growth for 2022 is therefore reduced by two percentage points to 2.0 per cent, while the forecast for the United States is reduced by 0.6 percentage points to 2.9 per cent for 2022.  

The Nordic countries are less affected than continental Europe, but the effects are still noticeable. Growth forecasts for Sweden, Denmark, and Finland for 2022 are adjusted downwards by about one percentage point, while Norway is only marginally affected. That the Nordic region is affected less than e.g., the euro area is because those countries are less dependent on Russian natural gas in particular.  

A large downward adjustment is made to the growth of the Baltic countries, on average by just over three percentage points to 0.7 per cent. Although the countries have in recent years become less dependent on trade with Russia, it is still important and above all the countries are now affected by very high inflation which erodes household incomes and slows down consumption and investment.  

Overall, SEB’s economists note that the uncertainty for the world economy is still very high and even if there are opportunities for positive surprises, they believe that the forecast risks on the downside outweigh.   

“However, the downward revisions we are now reporting for growth, together with the downside risks now on the table, should not be large enough to deter central banks from implementing the planned reorientation of monetary policy in a tightening direction. We therefore expect a continued focus on combating inflation and have since our Nordic Outlook in January raised our policy rate forecast for both the Fed and for Norges Bank and the Riksbank by 50 basis points at the end of 2023,” says Håkan Frisén.