Tough policy dilemmas due to energy crisis

Because of accelerating inflation and rapid key interest rate hikes, the global economic outlook is deteriorating. SEB is adjusting its GDP forecasts sharply lower, especially for 2023, and expects GDP growth of only 0.9 percent in advanced economies (the 38 OECD countries) – down from 2.3 per cent in its May forecast. Swedish GDP growth will be 0.0 percent next year, yet the Riksbank will speed up its inflation-fighting pace and the repo rate will peak at 2.25 percent early in 2023. Swedish households are being squeezed by falling real incomes, rising prices, and doubled interest expenditures, and home prices will fall by 15-20 percent. 

“In Europe, the energy crisis is assuming more and more dramatic forms, and no end to the Ukraine war is in sight. A consumption-driven downturn is thus inevitable this autumn. In the United States, GDP growth will continue to slow this autumn as Federal Reserve rate hikes increasingly restrain the economy,” SEB's Chief Economist Jens Magnusson, said.

In a historical comparison, the recession is expected to be mild, and in 2024 the OECD economies will grow by more than 2 percent. Households still have post-pandemic savings buffers. Labor markets have shown great resilience so far, and we expect the upturn in unemployment to be relatively limited. Underlying imbalances are nowhere near as large as during the global financial crisis of 2008-2009. 

(WBJ)