SEB Outlook Sees Sharp Interest Rate Cuts in Europe

Latest analysis from SEB predicts that the ongoing credit crisis will continue to dominate the global economy, as tighter credit conditions and falling home prices hamper growth. Next year, growth for countries in the Organisation for Economic Co-operation and Development (OECD) will be the lowest since the early 1990s. Looking ahead, emerging economies will also be affected to a greater degree by secondary effects from the slowdown in industrialised countries. Overall, the world economy will grow by 3% in 2009, which is close to a recession at the global level. Inflation will gradually turn downward and, combined with ever-weaker economic conditions, this will open the door for interest rate cuts in Europe on a broad front in 2009. The Swedish economy is now rapidly weakening. This year GDP growth will be 1.4% and next year 0.9%. Job growth will decelerate and unemployment will climb to 7.3% in 2010. The labour market slowdown, combined with declining inflation next year, will enable the Riksbank to begin cutting its key interest rate in February 2009. By the end of next year, the repo rate will stand at 3.5%. Sustained by strong finances, the government will implement fiscal stimulus measures of around SEK40bn in both 2009 and 2010. By 2010, public finances will have swung into a deficit of nearly 1.5% of GDP.


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