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SEB analysts: growth in Eurozone and rapidly growing economies will get stronger

Dainis Gašpuitis/SEB.
Eurozone’s growth this year turned out impressive. Its economic power and reduction of political risks also supports euro’s strength. Low inflation indexes remain below the goals set by central banks. Still, they continue recovering from the previously realized stimulating monetary policy, SEB Bank analysts comment on the latest Nordic Outlook.

«In spite of SEB Bank’s optimistic predictions for 2017, we have added corrections to our GDP outlook. Predictions are based on currently dominating factors. On one hand, powerful labour markets and output increase secure additional stimuli that contribute to private consumption and capital costs. On the other hand, considering low unemployment levels, focus should be put on matters associated with the weak spot – inflation dynamics and sustainable growth,» comments SEB Bank’s macroeconomic expert Dainis Gašpuitis.

He says geopolitical risks only create more concerns. «Lately a lot of attention is given to the growing tension on the Korean peninsula and the Middle East. At the same time, we see that households and businesses are sufficiently immune against political uncertainty.»

Following global trends, growth in Baltic States has also become faster. This has forced an increase of outlooks for Latvia and Estonia. Latvia’s GDP outlook if 4.5% for 2017, 3.7% for 2018, and 3.5% for 2019. Estonia’s economy is set to grow 4.1% this year, 3.3% next year and 3% the year after. Lithuania’s growth outlook is 3.7% for this year, 3.2% for next year and 3% for the year after, the economist continues.

SEB experts predict that economy in USA will slow down a bit in 2019. «Inflation continues bringing unpleasant surprises. Still, many central banks still have sufficient room for manoeuvring and searching for stimulating measures. Central banks now face a dilemma – how to balance risks: reduce formation of further imbalance or cut down unemployment to an even lower level. Inflation index often reacts to low unemployment levels with a delay. Nevertheless, global inflation forces continue becoming stronger. This makes it hard for central banks to find balance.»

Bank analysts say that economic growth in USA has recovered after a weak start this year. «Trump administration has had problems with getting Congress support for the realization of its policy. Next year, however, tax reductions may be performed to provide a stimulating effect of 0.25% on GDP. There is a known risk that Trump may leave NAFTA. It is likely, however, that the trade agreement with Canada and Mexico will be reviewed.»

SEB Predicts that growth in USA will be 2.3% in 2017 and 2.6% in 2018.

«Eurozone’s economy continues improving. GDP growth outlook for this and next year is 2.3%. Population growth in Eurozone significantly exceeds that of USA. This is why growth is so impressive per capita. The 2017 election cycle was not successful for anti-EU forces. This offers hope that new life will be put into EU integration process. Thanks to better economic conditions, those efforts may have good results,» say SEB experts.

Economists say that Britain’s economy is hampered by uncertainty about future relations with EU. Weak British pound sterling and stable international economic conditions force a review of UK’s GDP growth outlook for 2018. Trends provide for a drop from 1.5% this year to 1.1% in 2019. Tension in Britain’s political system continues increasing. Because of that, there is still a possibility of UK deciding to remain in EU, SEB Bank continues.

«Rapidly growing economic development rate has become stronger since 2015. China’s grown has been better than expected lately. Still, it is expected to slow down gradually. This autumn’s changes in the Communist party’s board have strengthened Xi Jinping’s reform authority. Society’s support increases for a slower short-term grown in exchange for reforms that reinforce long-term potential. The slow-down in India occurred sooner than expected. Still, economic growth in this country will start anew next year. Reform efforts will be postponed until 2019 elections. Brazil has also started recovering from a deep economic crisis,» SEB analysts say.


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