Global Economic Outlook 20 August 2009

Global Economic Outlook
By Cecilia Hermansson 20 August 2009
Economic Research Department, Swedbank AB (publ), SE-105 34 Stockholm, tel +46 (0)8-5859 1028
e-mail: ek.sekr@swedbank.se Internet: www.swedbank.se Responsible publishers: Cecilia Hermansson +46 (0)8-5859 1588
Magnus Alvesson +46 (0)8-5859 3341, Jörgen Kennemar +46 (0)8-5859 1478 ISSN 1103-4897
Brighter outlook for the global economy – but the stimulus
measures need more time
In recent months conditions in the financial sector have improved, several economies
have reported growth, and confidence among households, businesses and the
financial market has risen. We believe the global economy has reached bottom and
that a recovery will begin in the second half of the year.
In the short term, the recovery could be fairly decent, but in the medium term there is
an increasing risk of a setback. The reasons for a slow, bumpy recovery are still there:
growth is being supported by stimulus measures, many consumers and businesses
are trimming their balance sheets, and there is little incentive to add capacity. When
this stimulus is unwound, there will be a risk of weaker growth. Global GDP will fall by
1 ¼% this year, but rise by 2 ½% in 2010 and 3% in 2011. Consequently, growth will
remain below its potential.
The stimulus has to be kept in place until the recovery is robust in the private sector.
Phasing it out too quickly increases the risk of a new recession and deflation. Central
bankers will begin to raise their key interest rates in 2010/2011. The risk of inflation is
not imminent considering the huge production gaps and rising unemployment. On the
other hand, we expect new bubbles in asset and emerging markets during the forecast
period.
We give our primary scenario with a slow recovery a 40% probability and our two
stronger growth scenarios (with and without inflation problems) a probability of 15%
and 20%. A stagflation scenario gets 10% and a deflation scenario 15%. The report
also discusses risks globally and by country.
Following the financial and economic crisis, potential growth has probably shrunk. This
is why reforms are needed in the financial sector, international trade and various
countries’ product and labour markets. The old growth engines and models don’t work
anymore. Finding new ones may take time. Countries with relatively good underlying
economic conditions, such as Sweden, can more aggressively reform and give
themselves an advantage when globalisation revs up.
Cecilia Hermansson
Contents Page
1. Recovery in the short to medium term 2
2. After the fire: Extinguishing the ashes and rebuilding 4
3. Pay attention to risks! 9
4. Five scenarios for the global economy 11
5. Primary scenario: A slow recovery 12
6. Forecast assumptions: Politics and the financial, commodity and real estate markets 13
7. Regions/countries – Asia is leading the recovery 22
8. Consequences for Sweden 35

2 Swedbank’s Global Economic Outlook • 20 August 2009
Global GDP forecast
Source: National statistical authorities and Swedbank.
Note: Countries representing around 70% of the global economy. The World Bank’s
weights from 2007 (purchasing power parity, PPP) have been used.
1. Recovery in the short to medium term
The global economy has reached bottom and a recovery could
begin during the second half of the year. China, India and other
emerging economies are already growing rapidly. Growth in
Japan, Germany and France has also turned positive.
During the last half year conditions in the financial sector have
improved. Stimulus programs by central banks and
governments have had a positive impact. Confidence has
increased and a risk appetite has returned. Equity and
commodity prices have risen, while interest rate spreads have
shrunk. Real estate markets are finding a bottom in countries
where bubbles have burst.
It’s certainly possible that growth could be fairly good initially,
rebounding after a historical downturn. The stimulus is also
contributing to the recovery. The more interesting question is
what will happen in the medium term.
In our primary scenario the recovery will be anything but
smooth, with a rebound followed by a setback, followed by a
rebound, etc., although the underlying trend is slowly upward.
Correcting balance sheets takes time. We also offer four
alternative scenarios: two with stronger growth and two with
weaker growth, with different inflation expectations for each
scenario. As in previous forecasts, we stress that many risks
are interwoven.
We can reasonably assume that potential global growth has
returned to a historical level of around 3 ½% after an
exaggerated rate of around 5% through 2007. Slower
globalisation, a chastened financial sector, a weaker labour
supply and a calmer investment tempo are all reducing growth.
The global economy
has hit bottom …
… but after a rebound
expect a setback
The crisis has reduced
growth potential – and
the global economy is
still growing below
trend
GDP-growth (%) 2007 2008 2009 2010 2011 2009 2010
USA 2.1 0.4 -2.3 1.3 1.8 -2.7 1.2
EMU-countries 2.7 0.7 -4.1 0.6 1.3 -4.5 0.1
of which: Germany 2.6 1.3 -5.5 0.8 1.3 -6.0 0.2
France 2.1 0.3 -2.7 1.1 1.4 -3.5 0.3
Italy 1.4 -1 -4.0 0.3 1.0 -4.2 0.2
Spain 3.7 1.2 -3.3 -0.1 1.3 -3.5 -0.3
United Kingdom 3.0 0.7 -4.0 0.5 1.3 -4.0 0.2
Japan 2.4 -0.7 -6.0 1.0 1.4 -6.5 0.4
China 13.0 9.0 7.5 8.0 7.5 6.5 7.5
India 9.3 7.5 4.8 6.0 6.5 5.0 6.0
Brazil 5.4 5.1 -1.0 2.5 4.0 -1.0 2.0
Russia 8.1 5.6 -7.0 1.5 3.0 -6.0 1.0
Global GDP 4.9 2.7 -1.3 2.5 3.0 -1.6 2.2
August Forecast June Forecast

Swedbank’s Global Economic Outlook • 20 August 2009 3
In our primary scenario GDP growth will not recover its potential
until 2012, i.e., after the forecast period. Following a global
decline of 1 ¼% this year, GDP will rise by 2 ½% in 2010 and
3% in 2011.
The production gaps that have developed in recent years as
growth failed to meet its potential will not be bridged until the
forecast period is over. In our primary scenario we therefore see
no imminent risk of rising inflation. At the same time we feel that
the stimulus has ensured that deflation – which now is the result
of previously high commodity prices and interest rates – won't
take hold. Japan could be an exception, with more prolonged
deflation.
We also feel that the stimulus should remain in place in the
global economy, through low interest rates and fiscal stimulus
measures, until the recovery is certain. The risk of winding it up
too soon is greater, we feel, than the risk that they will
contribute to new bubbles and inflation. Not until late 2010 will
the Federal Reserve begin to raise interest rates, with the ECB
and the Japanese central bank following in 2011. A
consolidation of government budgets will not begin until 2011.
It is important – not least for the confidence of the public and
financial market – that central bankers and governments
explicitly commit to winding up their stimulus programs in time
and efficiently. It is also important that the stimulus is combined
with regulatory and oversight reform in the financial system.
Global harmonisation and multilateral regulations are especially
needed.
In emerging economies such as China and India, where there
isn’t the same great need to trim balance sheets as in the US,
UK, Ireland and Spain, for example, growth will remain at
significantly higher levels than in the US, Japan and Europe.
The wealth gap between East and West is shrinking.
One way to prevent the loss of growth potential is to promote
new growth engines/models and implement structural reforms.
Economic development in emerging economies could help
global growth prospects. New trade agreements will be needed.
Another way is to stimulate the labour supply, especially those
over age 55, women and young adults. Expanded child care
and social services in countries where they are lacking could
also add growth potential. More investment in the educational
sector would boost productivity. Research and development can
produce technological advances. And we need new energy
solutions and investments in green technology.
The financial and economic crisis, the environmental crisis and
prospects of weaker potential global growth could accelerate
the pace of reform in many different areas. In countries where
the economic outlook is fairly good, more aggressive thinking
should offer an advantage. Though it may have slowed due to
reduced trade and a shrunken financial sector, globalisation
continues and will require more reforms that favour competition
and innovation.
In our primary scenario
neither deflation
nor inflation is a
problem
The stimulus is needed
until the recovery feels
robust …
… but strategies to
wind it up should be
spelled out
The wealth gap
between East and
West is shrinking
Finding new growth
engines and models
takes time …
… and the need for
reform has increased
following the crisis

2. After the fire: Extinguishing the ashes and
rebuilding
The lead-up to – and development of – the financial and
economic crisis, along with crisis management and recovery,
can be compared to a building fire. First there are warning
signs. Then the fire breaks out and it is extinguished, but the
house burns down. An investigation is conducted to determine
the cause of the fire. Then the house has to be rebuilt. Last but
not least a commission is appointed to create tools and rules to
minimise the risk of future fires.
In our case, the fire alerts have sounded, the fire has broken
out and the worst of the panic is behind us. Right now we are
probably about finished extinguishing the ashes and preparing
to rebuild. In the following sections we sum up what has worked
well and what hasn't and what is needed to manage the current
crisis and future crises better.
1. The signs were there
Economists have taken a lot of the blame for not predicting the
financial and economic crisis. We have plenty of reason for
soul-searching. Many economists, prognosticators and
multilateral institutions (IMF and BIS) had warned about
macroeconomic risks, like the unsustainably low household
savings in the US, escalating housing prices and excessive
credit growth in a number of countries, as well as savings
imbalances, especially between China and the US. But it was
harder to predict the impact of new financial instruments on the
crisis and the consequences for the real economy. Weak
oversight of regulatory and incentive systems and the financial
sector’s decision-making, including the use of models – various
types of micro factors – was not analysed properly from a
macro perspective. The crisis has forced us to understand the
connection between the financial and real economy and to take
a more holistic approach to macro- and microeconomic
development.
It’s too much to ask forecasters to figure out exactly when asset
prices collapse. Prices of financial assets reflect available
information. If there were a model that predicted prices a week
in advance, that information would cause prices to fall a week
earlier.1
Nor can anyone foresee exactly what decision-makers
will do (read to rescue or not to rescue Lehman Brothers). We
always have to look ahead to the future using different
scenarios. It is up to those who read forecasts to analyse the
risks and draw their own conclusions.
Of course, there were economists and others who warned us of
a financial and economic crisis (e.g., Shiller, Roubini and BIS
economists). What the financial market and politicians decided
is another thing. Trying to put a stop to successful, though
1
cf. Robert Lucas’ defence in the Economist on 8 August, “In defence of the dismal
science”, who commented on the Economist on 18 July, “Modern Economic Theory –
where it went wrong and how the crisis is changing it”.
Fire alerts, the fire
itself and fire fighting
are all behind us
Economists were more
worried about
imbalances than a
financial crisis

short-sighted, habits isn’t usually popular, especially since
forecasts are no more than that, just forecasts.
2. The fire has been successfully put out
Central banks in Europe and the US were relatively quick to try
to put out the fires and rescue the financial system. This is
especially true of the US when the crisis broke out in 2007, and
both the US and in Europe when it escalated in the fall of 2008.
Interest rate cuts were combined with other measures to
increase liquidity and calm the credit markets.
The actions by central bankers were a key reason why the
financial crisis didn’t become worse than it did, and why
confidence was restored and a total collapse avoided. It is
common to criticise current economic policies for being too
expansive and contributing to new crises, but in this case such
criticism shows a lack of understanding of the seriousness of
the situation faced by the financial sector and the
macroeconomic consequences of the financial panic of 2008.
The IMF has estimated that USD 4 trillion in value, equivalent to
a third of the US GDP, will have been lost by the financial sector
by the time crisis is over. A stimulus was needed, but it is
equally important to unwind it in time.
Governments also succeeded in having a positive impact. In
Europe, we saw some of the co-operation across borders that
was needed due to the global nature of financial markets. State
guarantees for investors and lending from financial institutions
were a key to creating confidence. There were also problems
doing the right things at the right times. In the US, the election
campaign was under way and it was hard to build a national
consensus what to do with the financial sector. Especially since
other industries, such as automakers, were being brought to
their knees for more structural reasons.
When the economic crisis worsened during the second half of
2008 and first quarter of 2009, new economic policies were
crucial. The emphasis shifted from monetary to fiscal policy.
The biggest risk was that the major drop in demand and
balance sheet adjustments that were needed following the
financial crisis would create deflation and depression. With the
help of infrastructure investments, tax cuts labour market
measures, etc., this risk was reduced.
The fire fighting work has largely been successful. Decades of
economic theory have been applied pragmatically (e.g., Keynes
and Friedman). The financial crisis has eased, even if balance
sheets still need trimming and will for some time to come.
Economies are no longer in a free fall, though we can expect a
weak job market even while the economy recovers. A few
months ago we had no idea that conditions would improve so
quickly. Although timing was a factor, it is reasonable to assume
that the measures that were taken were the most important
reason why we prevented an even more severe crisis.
Central bankers
handled the crisis
resolutely
Among governments
the results were more
mixed
The focus shifted from
monetary to fiscal
policy
The fire fighting has
largely been
successful

3. Extinguishing the ashes
While fighting fires, neither central bankers nor governments
were able to correctly decide which institutions were worth
rescuing with financial support and which should have been
allowed to fail. With the exception of Lehman Brothers – where
a more orderly bankruptcy would have been preferable – many
institutions presumably received access to capital to survive at
the same time that they had solvency problems that required
new contributions of private or, in the worst case, public capital
under special conditions. Japan’s experience shows that it is
easy to give too much support and ask for too little in return
from financial institutions, which leads to slower growth (zombie
banks) and the risk of future bubbles (moral hazard). There is
plenty of room for improvement.
Experience from the 1930s and the Japanese real estate crisis
shows that a stimulus shouldn’t be phased out too quickly or it
will increase the risk of a new, even worse recession. That's
why we have to be sure to extinguish the ashes. Fiscal stimulus
will still be needed for a while, as will unconventional measures
from central banks and low interest rates. Since much of the
rebound is the product of the stimulus, growing confidence and
a bigger risk appetite, phasing it out too quickly could sidetrack
the recovery. Starting over with a new stimulus would be much
more difficult under those conditions, since confidence wouldn’t
rebound as quickly. It can also be costly, as evidenced by
Japan’s VAT hike in 1997/98, which hurt the country’s growth
and budgets.
We are at a stage now when lots of people are trying to figure
out the reasons for the crisis. No one is going to be helped by
simplistic conclusions. We have to realise that several factors
were working together in a complex fashion. The fact that they
are interwoven means we must analyse them together, not
individually. This is also something we learned from the crisis.
Overly expansive monetary policy following the IT crash
contributed to excessive lending and inflated asset prices. A
narrow-minded focus on official or unofficial inflation targets
based on consumer prices facilitated expansive monetary
policy. Financial oversight and effective regulation that could
adapt to changes in the marketplace were practically
nonexistent. China’s and India’s entry into the global market
and their economic policies contributed as well. Psychology and
values were also factors that have to be listed among the
causes (which we don’t claim to have covered in full).
Hopefully, economic theory will now be reassessed and we will
learn from crises related to inflated balance sheets. Economic
policies don’t work the same way when companies are focused
on maximising profit (the normal state of affairs) as opposed to
when they are interested in cutting debt. Credit demand has
remained low in Japan for years since the real estate crash.
Monetary policy isn’t as effective, but fiscal policy is needed if
the intention is to stimulate demand.2
Low interest rates and
2 cf. Richard Koo (2009) for a more detailed discussion.
More focus on
liquidity than
solvency problems
Unwinding the stimulus
too quickly could be
costly
No simple
explanations
for the crisis
Economic theory has
to focus more on
balance sheets

quantitative easing have mainly helped the banking system and
credit market, but will not have enough impact on demand in
countries where balance sheets are being drastically trimmed.
One conclusion we can draw from similar crises is that it takes
time to extinguish the ashes. And we should give it time. The
residual risk of deflation and depression is a good reason why
the state should compensate for the private sector’s increased
savings. When the recovery is robust again based on higher
private sector demand, the emphasis should shift back to
increasing state savings.
4. The recovery raises questions
It is not surprising that after 18 months of recession the US is
poised for recovery. Growth is now returning to several
countries, driven by public investment and consumption as well
as a stimulus for households and businesses. After a
substantial decline, growth could rebound and be higher than
expected. This turnaround could be at risk, however, particularly
if the stimulus is wound up too quickly and is followed by a
period of economic tightening.
The question isn’t whether we will see a recovery in the short
term, but what the next 3-5 years will look like. Rebuilding the
house requires a stable foundation, skilled workers and good
material.
Three questions are especially pertinent following the crisis:
1. Will global growth potential decrease after the crisis?
A country achieves its growth potential when its GDP
increases at a rate that produces an inflation-neutral balance
between labour and capital. Growth potential improves, for
example, through investments in human capital and
machinery, a growing labour supply and/or technological
advances.
Growth potential has gradually increased in recent decades
thanks to the financial sector’s innovations, globalisation,
new technology, new organizational structures, etc. Even
still, the global economy probably exceeded its growth
potential in recent years when it expanded by 5% (against
3 ½% over the last 20 years). This was unsustainable.
Among the factors that could now reduce growth potential
are a shrinking labour supply, slower globalisation, less
investment in new technology and a chastened financial
sector.
It will take time to
extinguish the ashes
Focus on the recovery
in the medium term
Several factors could
impact growth potential

2. Where will new growth engines come from when the old
ones lose steam?
One way to prevent the loss of growth potential is to promote
new growth engines. Economic development in emerging
economies such as China and other countries in Asia could
improve global growth prospects – perhaps even in the
poorest countries as a result of increased agricultural trade.
New trade agreements will be needed. Another way is to
stimulate the labour supply, especially those over age 55,
women and young adults. Expanded child care and social
services in countries where they are lacking could also add
growth potential. More investment in the educational sector
would boost productivity. Research and development can
produce technological advances. And we need new energy
solutions and investments in green technology, for example.
Nanotechnology, robotics and medical technology are also
important growth areas.
3. Will we really need new growth models or could we use
the same old ones?
The growth models we have been using in recent years have
been based on the assumption that US households will
borrow to maintain their standard of living (which has been
under pressure from weak wage growth) and therefore
artificially increase their consumption. A mountain of debt
and rising asset prices has been the driver of the US
economy, and many European economies as well. It’s a
growth model that won’t work any longer – economically or
environmentally – as painful as that may be for major
exporters such as Japan, China, Germany and Sweden to
realise.
New growth models will be based on a better savings
balance between countries. Boosting domestic spending in
China will require policies that reduce household savings,
including with the help of safety nets and an appreciating
currency. Globalisation, expanded industrial supply chains
and a rejuvenated financial sector are also important puzzle
pieces to improve the standard of living in every type of
country.
New growth models will also factor in the state’s role and the
welfare state differently than in recent decades. Deregulation
and liberalisation of markets have been and will remain
important to growth. In Europe this means liberalisation of
service markets. Demographic trends and environmental
threats will also increase the government’s importance. Add
to that the market interventions by governments during the
financial crisis. The question is what role states want to play
when the economy starts growing again?
5. How do we reduce the risk of future fires?
Naturally this is the area where the most work still remains.
Politicians have shown great interest in regulating bonus
We have to find new
growth engines when
the old ones lose
steam
Economic and
environmental crises
require new
growth models
The role of
governments has
grown since the crisis
The risk of future fires
hasn’t changed …

packages and hedge funds. In the US the focus has been on
which government agencies will oversee various financial
institutions. Europe could use more cross-border oversight, but
is taking only small steps forward to avoid infringing on national
sovereignty.
There is a risk that once the economy rebounds, a large part of
the necessary reforms will get sidetracked. Interest in more
global co-ordination to relieve global imbalances – with
multilateral institutions given a greater say – could wane. Even
without the Lehman Brothers collapse, the financial system was
in need of an “extreme makeover,” especially of oversight and
supervision, though certainly also in terms of regulation. There
is a risk, however, that regulations will be changed ad hoc
simply because of the financial crisis without actually improving
efficiencies, and thus create an incentive to build new structures
(new shadow banking systems). More needs to be done to
develop macro prudential rules for the financial market.
There are already a number of proposals to reduce the risk of
new financial fires in future, which can be summed up as
follows:
• Better, more modern supervision of financial institutions
• Better risk management and smarter use of models
• Higher capital adequacy requirements – but not procyclical
• Greater transparency requirements, especially in stock markets where
needed (e.g., certain types of securitisation)
• Greater focus on liquidity risks
• More effective accounting rules
• Limits on the interdependence of financial institutions in part by
excluding payment streams from balance sheets and by introducing
safer ways to clear OTC trades
• Introduce a safer way to liquidate banks (too big to fail)
• Cross-border banking must be regulated at a regional or international
level.
Tightening oversight and regulation is important. Then there is
monetary policy, which must combine the goals of price stability
with financial stability. Psychology, values and how decisions
are made at the board level are also important. On the other
hand, it is difficult to see how higher ethical standards and
better values would suffice. They are needed, but are not
enough to reduce the risk of new financial crises in future.
3. Pay attention to risks!
In following chapters we review a number of risks that could be
realised during the forecast period or possibly the slightly longer
term.
Though discussed individually, we know from the financial crisis
that in many cases it is the interplay between risks that has a
considerably greater, more damaging impact.
… and some of the
work could get
sidetracked
High ethical standards
are important – but the
right regulations and
incentives systems are
needed as well

The most important individual risks:
Global forecast risks
Time horizon
(short-med-long) Factors that impact/mitigate
1. Strength of the recovery
and possible setbacks
Short-medium Don't unwind stimulus plans too early, any new measures
2. Prolonged deflation Short-medium Further stimulus measures
3. Financial health – credit
crunch
Short-medium Free up problem loans, add new capital to the banking
system
4. Less spending among
indebted consumers
Short-medium Debt restructuring takes time; the stimulus is helping
5. Labour market (economic
and structural risks)
Short-medium-
long
Fiscal stimulus for municipalities/infrastructure, education,
retraining, sustainable growth policies
6. Housing markets –
bubbles
Short-medium-
long
Productive regulation in financial sector, appropriate taxes
and interest rates, construction
7. Rapid rise in commodity
prices
Short-medium-
long
Financial regulation, financial market developments
(dollar), China’s inventory cycle, psychology/sentiment
8. Stock markets Short-medium Health of the financial sector
Normalisation of interest rates
Psychology/sentiment
9. High inflation Medium-long Central banks’ confidence/exit strategy for adding liquidity
10. Financial health – new
imbalances
Medium-long Design of financial regulations
Global co-ordination/harmonisation
11. Public sector debt/fiscal
policy
Medium-long Announce exit strategy, framework that instils confidence
12. Central bankers’
confidence/monetary
policy
Short-medium Announce exit strategy
Imbalances China-the US
13. China – risk of new
bubbles and social
tension
Short-medium-
long
Balance growth, currency policies, reforms,
increased focus on households
14. Insufficient domestic
demand in EU/EMU
countries
Short-medium-
long
Reforms for labour market, pensions, service market,
taxes, etc.
15. New Japanese
government with new
policies
Short-medium Democratic Party’s attitude toward the US and financing of
the US deficit, protectionism, growth model to strengthen
households
16. Dollar collapse and lower
capital inflows to the US
Short-medium US relations with China, Japan-yuan, Fed policy,
psychology
17. Global long-term interest
rate shock
Medium-long Inflation, dollar, savings imbalances
18. Insufficient action to tackle
environmental threats
Short-medium-
long
Focus on economic crisis over environment
Political leadership and co-ordination
19. Protectionism Short-medium-
long
Political leadership for future trade negotiations
20. Pandemics Short-medium-
long
Global co-ordination/expertise/monitoring
21. Terrorism and war Short-medium-
long
Global co-operation, political leadership
22. The unknown factor Short-medium-
long
Open to the unknown, humility

4. Five scenarios for the global economy
Global economic uncertainty remains great. On the one hand,
households, businesses and financial players must
considerably slim their balance sheets. On the other are the
stimulus programs from central banks and governments, whose
effect on growth is hard to measure in terms of time and scope.
Uncertainty about price stability and the risk of new bubbles
have also increased. Following are five scenarios we have
sketched for the global economy:
Scenario 1 (primary scenario): Probability 40%
Slow, bumpy recovery – neither inflation nor deflation
Global economy grows below its potential in 2009-2011 – balance sheet
adjustments.
Stimulus measures counter deflation and are phased out in time to avoid
inflation.
Recurring bubbles in asset markets and emerging markets.
Gradual reconstruction of the financial sector – regulatory reform.
Scenario 2 (strong secondary scenario): Probability 20%
More rapid recovery– without inflation
The global economy reaches its potential (3 ½%) in 2011.
Deflation risks mainly due to base effects, economic policies maintain
confidence and stimulus measures are phased out in time to avoid
inflation.
Longer, more extensive bubbles form in asset and emerging markets.
Reconstruction of financial sector becomes sidetracked – reforms are put
on the back burner.
Scenario 3 (very strong secondary scenario): Probability 15%
More rapid recovery – with growing inflation problems
The global economy reaches its potential as early as 2010, begins to close
the production gap in 2011.
Stimulus plans are not wound up in time, asset and consumer prices rise
too quickly.
Lack of confidence in the Fed creates the risk of a dollar collapse, rising
inflation and long-term interest rates.
Scenario 4 (weak secondary scenario): Probability 10%
Further declines after a rebound – stagflation risk increases
Recession continues in 2010 – a recovery begins in 2011.
Further stimulus, confidence in central banks falls, inflation rises.
Period of high inflation and low growth, weak labour markets, but with
pricing pressure from commodity markets and financial sector.
Scenario 5 (very weak secondary scenario): Probability 15%
Further declines after a rebound – deflation risk increases
Recession continues in 2010 and 2011, not until 2012 does a prolonged
recovery begin.
Weak demand and sluggish labour markets with growing deflation that
isn't relieved by new, larger stimulus packages.

5. Primary scenario: A slow recovery
What is driving the recovery in the primary scenario? The
primary factor is the monetary and fiscal stimulus in a number of
countries. Public spending is growing due to infrastructure
investments. Low interest rates and taxes are gradually
encouraging households to consume more and are partly
offsetting the slowdown caused by higher unemployment and
debt restructurings. In addition, there will be a rebound in
industrial production after inventories are slashed and have to
be built up again. Slightly lower demand from Asia is generating
increased order bookings in industry and on commodity
markets. Another factor driving the recovery is improved
confidence, which has led to a bigger risk appetite and could
also mean new investment.
Why should we expect a slow recovery? Many companies had
built up tremendous capacity over a period of several years
prior to the financial and economic crisis. Capacity utilisation
has dropped substantially and demand, while increasing, will
remain relatively weak. In the US few interest rate-sensitive
sectors are reacting to the more expansive monetary policy.
Moreover, the financial sector is struggling with huge problems,
and the demand for and supply of credit is restricting lending.
We therefore see no clear driver for private investment.
Households in the US, the UK, Ireland and Spain will limit their
spending and instead save more and reduce their debt.
Eventually the public sector will have to begin a period of
budget consolidation, which could also have a negative effect
on growth.
Why do you anticipate a bumpy road to recovery? Once the
rebound is over, there is as risk of a backlash. Also, the
stimulus plans will eventually have to be phased out to avoid
inflation and new bubbles. So it is likely that the upswing we will
initially see after reaching bottom will not last. Experience from
similar recessions, shows that economies often fluctuate up and
down before normalising and reaching their full potential.
Why isn't deflation or inflation included in your primary
scenario? We believe that the stimulus has helped to avoid the
bad or ugly type of deflation. On the other hand, base effects,
i.e., a sharp decline in interest rates and commodity prices, are
having an impact, which is why inflation is currently negative.
Since our primary scenario includes gradually rising demand
and a more positive sentiment, we expect businesses to find
gradually improving opportunities to raise prices. Only in Japan
– which has long faced deflation problems – do we foresee
deflation in 2010, and possibly in 2011 as well.
With regard to inflation risks, we feel that since the global
economy will grow below its potential and not close the
production gap until late in or after the forecast period, the risk
of high inflation is relatively small. Though they will initially rise,
commodity prices may fall if the recovery struggles. It will take
time before higher interest rates have a major impact on the
No stimulus,
no recovery
Balance sheet
adjustments limit
growth
When the stimulus is
phased out, growth
risks will increase
Stimulus plans are
lowering the risk of
deflation – large
production gaps
reduce the risk of
inflation

CPI. By announcing their exit strategies, we expect that central
bankers are laying the foundation for a phase-out of their
stimulus packages. Confidence that the banks will act resolutely
to prevent high inflation will remain strong. Inflation targets and
the independence of central banks will also help to raise
confidence.
Since there is still a risk that the expansive fiscal policy,
quantitative easing and uncertainty about central banks’
balance sheets, could result in a loss of confidence in the
financial market, we have included loss of confidence/high
inflation in two of our alternative scenarios.
6. Our forecast assumptions for 2009-2011:
Politics and the financial, commodity and
real estate markets
Politics
New governments with new economic policies will impact their
countries’ growth prospects, though it is difficult to determine by
how much. An often neglected factor is consumer confidence,
which can be affected by a change of the political power. Below
we have listed the dates of major elections and made certain
attempts to assess their effects. The election in Ukraine is
included because of the risk of increased tension with Russia.
Year Type of election/country Growth effect (+,-,0,?)
Aug 09 General election in Japan Light+
Sep 09 Federal election in Germany Light+
Jan 17 Parliamentary election in Ukraine Turbulence
Jun 10 Latest date for UK parliamentary election Light+
Dec 11 Parliamentary election in Russia 0
Mar 12 Presidential election in Russia ?
Jun 12 Presidential election in France 0
Nov 12 Presidential election in the US ?
Sentiment
Surveys on future confidence and expectations among
households, businesses, and financial and purchasing
managers have taken on greater importance in the media’s
depiction of the state of the economy. George Katona from the
University of Chicago created an Index of Consumer Sentiment
(ICS) back in the late 1940s. A number of imitators have since
been developed in many countries.
These indexes don’t really provide a gauge of optimism or
pessimism, but rather which way sentiment is pointing. If
pessimism increases, household savings usually do, too. On
the other hand, when optimism grows, so does spending. These
Our alternative
scenarios contain
bigger problems with
deflation and inflation
Elections in Japan and
Germany will certainly
impact growth, but are
difficult to measure

indexes are especially important when trying to find turning
points in the economy, which of course is difficult to do.
The purchasing managers index isn’t really a sentiment
indicator at all. The purchasing managers are only asked about
their past month’s performance. As a result, it is really an early
economic indicator for industry and the economy as a whole.
When the index falls to 32-33 and then rises above 50, which is
usually described as the dividing line between a manufacturing
decline and growth, it is considered a major rebound after a
severe downturn. Since we have little experience from such
major recessions, these rebounds must be interpreted
cautiously. This also applies to confidence among households
and businesses. We can still use these indicators as evidence
of a turnaround, but they can’t tell us about its strength.
Fiscal policy
We do not expect any more discretionary stimulus packages in
G20 countries beyond those that have already been approved.
To date they represent about 2% of GDP in 2009 and 1.6% in
2010. In our primary scenario we will then see a continued
recovery closer to our growth potential. Fiscal policies will be
largely neutral in 2011 before tightening the reins on the
economy.
The budget deficit in G20 countries will grow by 5.5 percentage
points of GDP in 2009 and 2010, according to the IMF. Besides
the discretionary stimulus, automatic stabilisers will help to
flatten out economic swings, though they are add to budget
deficits.
About a quarter of the fiscal stimulus took the form of tax cuts
and was paid out relatively quickly. It is taking longer to
increase spending (infrastructure, etc.). In the US about 40% of
the stimulus has been utilised, although that number is now
growing. Multiplicator effects, i.e., the impact of the stimulus on
growth, vary between 0.7 and 2.7%. We can therefore expect a
positive impact on growth in 2009, 2010 and to some extent
2011 as well.
Since many of the major G20 countries already had relatively
large budget deficits before the crisis, they are now reaching
uncomfortable levels. The increase in public debt is the biggest
since World War II. The IMF expects it to be 40 percentage
points between 2007 and 2014. We don’t see an intense budget
consolidation until after the forecast period, i.e., in 2012. Based
on what we learned from Japan, cutting back too soon could
threaten the recovery. During the period, unemployment will
continue to rise, which could make tax hikes and/or spending
cuts simply too painful.
Having a plan in place to phase out the stimulus (the much-
discussed exit strategy) is important to the financial market’s
and public’s confidence in price stability. In Japan, long-term
interest rates did not rise after the crisis in the 1990s, but
It's not strange that
sentiment is improving
when it had been so
low
We do not expect any
major new stimulus
packages
The IMF expects
public debt to
increase by 40
percentage points
in G20 countries!

demand there for new loans was low and the economy
eventually entered a deflationary stage. Japan also had huge
domestic savings, which financed the growing public debt.
Germany, Japan and the UK have formulated strategies for a
medium-term budget consolidation. In some cases stabilisation
is expected in 2010/2011. Although the US has 10-year plans in
place, they are based on overly optimistic growth assumptions.
France has played down the issue.
We believe that every country – after being pressured by the
OECD and IMF – will begin to announce plans that include the
measures that will be required. On the other hand, we are more
sceptical how the plans will be implemented. This is an issue
that won’t arise until after the forecast period, however. Until
then announcements, if well-designed, will calm the financial
market.
Budget deficit and public debt as % of GDP 2010
Monetary policy
- Unconventional measures
We assume that central banks will maintain their special
arrangements to help credit markets for some time, while
stressing that they are ready to phase out the stimulus when
needed.
The Bank of England has announced that it is increasing the
volume of private and government bonds it will buy (quantitative
easing) to reduce friction in the credit market and at the same
time – though this is more difficult to assess – to strengthen
growth and reduce the risk of deflation. The IMF estimates that
UK government bond rates have fallen by 0.4-1.0 percentage
points due to the quantitative easing. The Federal Reserve’s
Developing strategies
is one thing,
implementing them
is another
Unconventional
monetary policies will
be retained for a while
0
2
4
6
8
10
12
14
China Russia Germany Italy France India USA Japan United
Kingdom
0
50
100
150
200
250
Budget deficit
General govt debt
Budget deficit General government debt

actions, which greatly expand its balance sheet, have mainly
been designed to help the credit market (credit easing).
While the Fed announced it would purchase assets valued at
14.7% of GDP, to date that figure has yet to exceed 6%. The
corresponding numbers in the UK are 8.6% and 7% of GDP.
The Bank of Japan has also increased and extended its
programme to buy private and public assets (bonds, equities,
etc.). Thus far these measures have reached 3% of GDP. The
European Central Bank has decided to buy covered bonds to
help the mortgage market.
Some of the measures by central bankers to increase liquidity in
the market will be phased out automatically when financial
institutions no longer want help. Other measures, such as
expanding its balance sheet with assets from mortgage giants
Fannie Mae and Freddie Mac and the insurance company AIG,
will be more difficult for the Fed to phase out and will remain a
risk on its balance sheet.
- Key interest rates
Since the start of the year central banks in Europe have
continued to cut their key interest rates (the ECB from 2.50% to
1.00%, the Bank of England from 2.00% to 0.50% and the
Swedish Riksbank from 2.00% to 0.25%). Even before the start
of the year the Bank of Japan had reached a low of 0.10% and
the Fed was in a range between 0% and 0.25%.
Key interest rates from central banks
S o u rc e : R e u te rs E c o W in
0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
Percent
0
1
2
3
4
5
6
7
S w e d e n
U S A
E u ro la n d
U K
J a p a n
The most recent statement of the Federal Reserve’s FOMC
(Federal Open Market Committee) from 12 August: “The
Committee will maintain the target range for the federal funds
rate at 0 to ¼ percent and continues to anticipate that economic
conditions are likely to warrant exceptionally low levels of the
federal funds rate for an extended period.”
The UK has the
highest share of
quantitative easing in
terms of GDP
A portion of the easing
will be phased out
automatically, but
other aspects will
increase risks

Based on current economic conditions and demand pressures,
we expect central banks to maintain their low interest rates
during the forecast period without jeopardizing price stability.
Inflation is projected to be negative in Japan, the US and China
this year before gradually rising but not exceeding official or
unofficial inflation targets (Japan is expected to see deflation
again in 2010). On the other hand, low interest rates are likely
to mean that capital allocations won’t work as well and that the
risk of new bubbles in asset markets will grow. Central banks
may want to see interest rates gradually normalise during the
forecast period. We expect the Fed and the Bank of England to
take the lead and raise their rates for the first time during the
second half of 2010 (this also applies to the Swedish Riksbank).
Consumer price trend
-2
-1
0
1
2
3
4
5
6
7
USA Euroland Japan China India
2008
2009
2010
2011
Short-term interest rate assumptions 2009-2011
Aug 19 Dec 31 Jun 30 Dec 31 Avg.
2009 2009 2010 2010 2011
US Federal Reserve 0.25 0.25 0.25 1.00 1.5
Bank of Japan 0.10 0.10 0.10 0.10 0.5
ECB 1.00 1.00 1.00 1.00 1.7
Bank of England 0.50 0.50 0.50 1.00 1.7
Long-term interest rates
Despite central banks’ attempts to tame interest rates,
particularly long-term rates, the latter (10-year treasuries) have
risen in 2009. The biggest gain has been in the US. There are
several reasons for the higher market rates. A growing risk
appetite is pushing rates back to more normal levels. Prospects
for higher inflation and growth are also likely reasons why long-
term rates are rising.
Based on current
demand, low interest
rates are little threat to
price stability, although
new bubbles could
arise
Higher growth, the
inflation outlook and a
growing risk appetite
will push long-term
rates higher

Long-term interest rates in the US, the UK, Germany and Japan
S o u r c e : R e u t e r s E c o W in
0 4 0 5 0 6 0 7 0 8 0 9
Percent
1 . 0
1 . 5
2 . 0
2 . 5
3 . 0
3 . 5
4 . 0
4 . 5
5 . 0
5 . 5
6 . 0
U K
U S
J a p a n
G e r m a n y
Our assumption is that 10-year treasuries will rise from their
current level of around 3 ½% to 4 ½% on average in 2011. The
German equivalent won’t trend as high, mainly due to a weaker
growth outlook, while the Japanese rate will scarcely rise above
2%.
Credit markets
Interest rate spreads between interbank rates and treasury bills
have dropped to levels we haven't seen since before the
Lehman Brothers collapse. We assume that risk aversion will
continue to decline this fall as optimism about the economy and
stock market grows. Credit spreads will therefore shrink in a
number of areas as long as investors’ risk appetite remains at a
relatively high level. We can expect setbacks during the
forecast period, however. We have already seen that even the
slightest indication of slower growth or earnings can easily trip
up markets.
Since central bankers and governments are sticking with the
measures they have introduced to help the credit market, our
forecast assumptions do not include any new trouble spots.
Instead, these measures will be phased out automatically as
financial institutions stop asking for them.
Whether the credit crunch is and will remain a problem is
decisive to growth prospects. In certain countries credit demand
is low, since businesses and households are paring their debts
or have been hard hit by the recession and aren’t looking to
increase capacity (demand problems). In other countries credit
demand may be relatively high, but financial institutions are
repairing their balance sheets and therefore are cutting back on
their lending (supply problems). Usually it is a combination of
the two, which makes it hard to figure out where to look. We
have assumed that there are supply problems in the US and
parts of Europe (partly because of developments in Eastern and
Central Europe), while Japan’s banks are managing fairly well.
Demand problems are affecting every country, but as the
economy improves those countries where companies have
Interest rate spreads
may shrink a little more
Credit tightening
should be viewed
from both a supply
and demand side

relatively manageable problems with their balance sheets will
be in a better position to jumpstart lending, which will eventually
help their growth prospects.
Interest rate spread between 3 -month interbank rate and treasury bill
Source: Reuters EcoWin
jan
07
apr jul okt jan
08
apr jul okt jan
09
apr jul
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Percentage points
EMU
Japan
Sweden
US
UK
Currencies
The US dollar rose against the euro between January and
March of this year before trending lower to its current level of
around 1.41. The dollar has become a funding currency in carry
trades, where investors borrow at low interest rates and invest
the capital in countries with higher yields. US fiscal and
monetary policy will contribute to a further weakening this year.
A higher risk appetite will also hurt the dollar. We assume that
the dollar will then gradually rise in pace with interest rate hikes
and prospects for slightly higher growth in the US economy than
the euro zone.
Although a dollar collapse isn’t part of our primary scenario, if
confidence in monetary policy should wane there is such a risk,
which we include in one of our alternative growth scenarios.
The euro, yen and yuan against the dollar
(index 9 August 2007 = 100)
9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
7 0
8 0
9 0
1 0 0
1 1 0
1 2 0
1 3 0
1 4 0
1 5 0
1 6 0
1 7 0
Y e n a g a in s t t h e U S d o lla r
E u r o a g a in s t t h e U S d o lla r
Y u a n a g a in s t t h e U S d o lla r
The dollar has become
a carry trade currency

Exchange rate assumptions 2009-2011
Aug 19 Dec 31 Jun 30 Dec 31 Avg.
2009 2009 2010 2010 2011
EUR/USD 1.41 1.47 1.40 1.32 1.25
RMB/USD 6.83 6.83 6.83 6.83 6.50
USD/JPY 95 100 110 115 110
After appreciating by nearly 20% in 2005-2008, the Chinese
yuan began a period in which it was more or less pegged to the
dollar. Based on negative net exports, there was probably good
reason to let the yuan weaken, but instead, in no small part due
to its relationships with other Asian countries and the US, China
chose to stop the currency’s appreciation. To avoid an
appreciation of the yuan when the dollar again rises in value,
China is buying dollars and adding to its currency reserves.
We expect that US pressure on China to allow its currency to
further appreciate has eased, since there is a stronger need to
attract Chinese financing for the US budget deficit. Eventually
pressure to appreciate the yuan will return, and given that
China’s growth is considered more robust, the currency may
start appreciating again. This would certainly be in line with the
need to strengthen domestic demand and reduce the country’s
export dependence on the US.
The Japanese yen, which previously played the role of funding
currency in carry trades, has weakened slightly in 2009, but is
still considerably stronger than prior to the Lehman Brothers
collapse. A growing global risk appetite is reducing demand for
relatively “safe” yen investments. Japan’s weak public finances
are becoming a concern in the financial market. Short-term
interest rate spreads between the US and Japan will increase
during the period as well. The yen is again becoming something
of a funding currency. We anticipate a gradual depreciation
against the dollar in 2009 and 2010.
Equity markets
Stock prices tend to “overshoot” during both up- and
downswings in the market. Equities have risen substantially
since March, especially in emerging economies, but concerns
about the sustainability of these gains have led to lower prices
recently. As long as exports to the OECD remain stagnant,
these stock gains will rest on an unstable foundation. The rise in
commodity prices has also been of great importance, both for
raw material exporters such as Russia and countries that want
prices to stay low, such as India. For China, it is a question of
how much expansive policy the economy can handle. Raising
banks’ capital adequacy requirements is one way to reduce
lending to equity and housing markets, but probably won’t be
enough as long as market sentiment is strong. The risk of a
bubble is great, even after the Shanghai Stock Exchange has
begun to decline.
China is retaining its
peg to the dollar
Japan is again taking
on the role of funding
currency in carry
trades
Stock exchanges in
the emerging markets
have risen quickly
since March, but now
are facing doubts

Equity prices in the US, Japan, India, China and Russia
S ource: R euters EcoW in
jan
06
m aj sep jan
07
m aj sep jan
08
m aj sep jan
09
m aj
Index
50
100
150
200
250
300
350
400
R ussia
Japan
C hina
(S hanghai)
India (M um bai)
U S A (S & P 500)
Equity prices continue to rise in the OECD zone in pace with
signs of improving economic conditions and an imminent
recovery, which is raising optimism. The stimulus has been
crucial, and we can expect to see a continuing improvement as
long as it remains in place, though in the long term risks will
increase if these economies cannot stand on their own. For
equity markets in the OECD, the key will be housing, the
banking sector, Eastern Europe's development, commodity
prices and other factors that affect earnings and confidence.
Commodity markets
Swedbank’s commodity price index fell in July for the first time
since February. Commodity prices have risen significantly faster
this year than the economy would suggest. Contributing factors
include a weaker dollar, China’s growth and increasing
inventory of raw materials, a stronger risk appetite and less
severe economic conditions (or the first signs of a recovery).
Commodity price index in dollars, total, excluding energy and food prices
S o u rc e : R e u te rs E c o W in
0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
Index
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
4 5 0
F o o d p ric e in d e x
C o m m o d ity p ric e in d e x - e x c lu d in g e n e rg y
C o m m o d ity p ric e in d e x - to ta l
Commodity prices are
trending higher, but
still fluctuating

We expect oil prices to reach an average of 60 dollars a barrel
this year before rising to 70 dollars in 2010 and 80 dollars in
2011. A gradually improving economy certainly suggests higher
oil prices, but the trend is likely to be a bumpy one, especially
since the economic recovery and consumer confidence are
likely to stumble along the way. Metal prices are also rising from
relatively depressed levels, and food prices continue to trend
higher long-term.
Real estate markets
Thus far housing prices have fallen the most in Ireland, the US
and the UK, while Spain – despite problems with over-
investment in housing in recent years – has not yet seen a
major price decline. It could be due to data problems, but even
so the trend is still downward. We expect further corrections in
2010 and 2011. The US is nearing a bottom, though the data is
still clouded by a temporary stop to foreclosure sales that
otherwise would have reduced prices.
Housing price trend in various countries
(Index 2000 = 100)
9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8
5 0
7 5
1 0 0
1 2 5
1 5 0
1 7 5
2 0 0
2 2 5
2 5 0
S
D K
S P
U S A
U K
I R L N
S F
For countries that have largely avoided major price declines,
risks will rise when interest rates return to levels that put
pressure on households with small margins. Alternatively, a
major increase in joblessness could push housing prices lower
than they have gone so far. This is true in the Nordic countries,
the Netherlands and France. Germany and Japan offer
examples of housing markets with no risk of a bubble.
7. Regions/countries – Asia is leading the
recovery
The recovery will initially begin in China and other parts of Asia.
Japan’s growth also turned positive during the second quarter,
although that seems to have been mainly because imports
dropped more than exports. Germany and France reported
growth in the second quarter as well, while the euro zone as a
whole shrunk. In the US the slowdown has levelled off and a
recovery is imminent. We anticipate that Asia will continue to
Higher interest rates
and unemployment
may hold housing
prices in check in the
long term
Emerging Asian
economies are
expected to grow
faster than OECD
zone

lead the recovery, with the US and Europe following at a slower
pace.
The US – Is about to recover from the recession
Highlights from our previous forecasts in 2009:
The US was expecting a severe, protracted recession driven by households
and the financial and real estate sectors. In the second half of 2009 a cautious
recovery was expected, driven by public and private investment. The
economic stimulus presumably would ease the downturn. GDP growth for
2009 was written down from -1 ½% (Jan) to -2 ¾% (June) and would remain
relatively unchanged at around 1-1 ¼% for 2010.
Highlights from our new August forecast:
The US recession will end in Q3, but the recovery that begins will be sluggish.
Balance sheet adjustments by households and the financial sector are likely to
take several years. Nor are private investments expected to drive the
economy, since capacity is already too high and financing opportunities are
limited. Unemployment will continue to rise and make it difficult for consumers
to slash their debt. GDP growth of -2 ¼%, 1 ¼% and 1 ¾% for 2009, 2010
and 2011 will fall below potential. Economic policies are gradually, and
cautiously, becoming less stimulative.
Important forecast risks:
Global growth, housing market, financial sector and credit crunch, household
savings, labour market, political consensus, dollar and confidence in the
Federal Reserve, oil prices.
The US recession officially began in December 2007. The real
economy took a blow in the fall of 2008 when Lehman Brothers
filed for bankruptcy and the financial markets fell into a state of
shock. The downturn in the last year is reflected in the
purchasing managers index, which fell from 49.3 in August last
year to 32.9 in January this year, before recovering and
reaching 48.9 in July.
The labour market was in free fall until January of this year. In
that month 741,000 people lost their jobs. Since then job losses
have gradually slowed, and in July the figure fell by an
unexpectedly low 247,000. During last year the number of
working Americans decreased by 5,740,000. At the same time
unemployment has risen from 6.2% in August last year to 9.4%
in July.

Purchasing managers index and change in number of working Americans
Based on leading indicators, the US appears to have hit an
economic bottom, but has not yet started on the road to
recovery. The recession has now lasted 18 months and will be
the longest since the Great Depression of the 1930s. The
purchasing managers’ index has to climb above 50 before a
recovery is in place. Ensuring a robust recovery is an even
greater challenge.
GDP fell during Q2 relative to the preceding quarter, but not as
much as in the two previous quarters. Compared with the first
quarter the slowdown in private investment has levelled off. On
the other hand, consumer spending has slowed as households
save a larger share of the huge stimulus (the savings ratio rose
to 5.2% of disposable income, equivalent to the entire stimulus
packages).
Efforts to reduce the debt ratio have just begun. The debt
service ratio (interest and principal as a percentage of
disposable income) has fallen thus far from 14.25% to 13.50%,
but it previously had drop to 10-11% for consumers to increase
their spending. We expect higher savings before the balance
sheet adjustments are done.
The US has reached
bottom, but we have
yet to see clear signs
of a recovery
Debt restructuring
continues
S o u r c e : R e u te r s E c o W in
8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8
Index
2 5
3 0
3 5
4 0
4 5
5 0
5 5
6 0
6 5
7 0
Person(millions)
-0 .7 5
-0 .5 0
-0 .2 5
0 .0 0
0 .2 5
0 .5 0
0 .7 5
1 .0 0
1 .2 5
1 .5 0
P u rc h a s in g M a n a g e r s ' In d e x --
>
< -- - C h a n g e in
e m p lo y m e n t
Average
2008 2003-2007
Growth (%) Quarter 2 Quarter 1 Quarter 4
GDP -1.0 -6.4 -5.4 2.8
Private investment -20.4 -50.5 -24.2 3.6
Consumer spending -1.2 0.6 -3.1 3.0
Inventory contribution (p.e.) -0.83 -2.36 -0.64 0.02
Contribution net exports (p.e.) 1.38 2.64 0.45 -0.16
Annualised rate
2009

US household savings in relation to disposable income (savings ratio)
and debt in relation to disposable income (debt ratio)
Among the factors contributing to the recovery are the relatively
weak dollar, a turnaround in the inventory cycle, the fiscal and
monetary stimulus, slightly stronger growth in some emerging
economies (mainly China), declining pessimism and a slowly
improving financial sector. Still, the recovery is likely to be a
bumpy one due to the balance sheet adjustments needed by
households and the financial sector, which will limit
consumption and lending growth. Even if the housing market
soon reaches bottom, no major growth impulses can be
expected from this sector. Unemployment is likely to rise until
2010. Together with more bankruptcies, this will lead to higher
credit losses for a while longer.
Initially growth will mainly come from public sector spending and
investment, as well as a slightly brighter global outlook. Interest-
rate sensitive sectors won’t benefit from a monetary stimulus,
and in contrast to our January forecast we believe it will take
time for private investment to become a driving force. Capacity
is extensive and, if anything, needs to be reduced. Companies
have to continue to improve efficiencies, shed employees and
cut costs.
We expect GDP to shrink by 2 ¼% this year. Note that US
statistical authorities have revised 2008 GDP growth downward
from 1.1% to 0.4%. Next year GDP will rise by 1 ¼%, partly
thanks to the stimulus programs. In 2011 we are forecasting
that GDP growth, at 1 ¾%, will fall below its potential (or its
historical average, which we estimate at around 2-2 ½%). An
important reason why the financial sector has been able to
avoid a collapse and why the US economy – despite the huge
financial and real economic chock – can expect a recovery is
the fiscal and monetary stimulus.
President Barack Obama’s administration unveiled a stimulus
package corresponding to 5% of one year’s GDP for the period
2009-2011. The budget deficit is expected to rise to 13% this
year and remain high for several years to come. Public debt is
likely to increase from 44% this year to 87% of GDP in 2020. A
tax reform is probably needed. Criticism of President Obama is
Several factors favour
the recovery, but
previous growth
engines have lost
steam …
… and the public
sector has had to
take over
6 0 6 5 7 0 7 5 8 0 8 5 9 0 9 5 0 0 0 5
Debtasashareofdisposableincome
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
1 .1
1 .2
1 .3
1 .4Savingsasashareofdisposableincome
- 2 .5
0 .0
2 .5
5 .0
7 .5
1 0 .0
1 2 .5
1 5 .0
1 7 .5
2 0 .0
H is to r ic a v a g e s
< - - - - S a v in g s r a tio
D e b t r a tio - - - - >

growing3
, particularly with regard to the country's deficit and
health care reforms, which are dragging out. Demands for a
budget consolidation could put the recovery at risk, however.
Japan’s experience shows that unwinding emergency measures
too quickly can prolong a recession. The timing of the US’s exit
strategy is important.
The same is true of monetary policy. Cutting back too quickly
could threaten both the real and financial economy. Unwinding
the stimulus too slowly – by raising interest rates and shrinking
the Federal Reserve’s balance sheet – could hurt confidence in
the central bank and price stability target. Because of the
vulnerability of the US economy and low rate of inflation, the
Fed can take its time. The combination of large budget deficits
(partly financed by the Fed) and lots of liquidity is a concern,
however. To reduce the risk of losing the confidence of the rest
of the world, which would cause a precipitous drop in the dollar,
the Fed may want to raise interest rates during the second half
of 2010.
Japan – Continued dependence on the US
Highlights of our previous forecasts in 2009:
We stated in January that Japan's economy was characterised by recession
and deflation due to a strong yen and weaker foreign demand. We did not
expect the economic stimulus to have its intended effect and that the country’s
recovery would depend entirely on the rest of the world. GDP was expected to
fall by just over 2% this year, but after a major decline late in 2008 the
forecast was revised downward to -6 ½% in June. A slight upturn was
expected in late 2009, lasting into 2010 (GDP growth 0.4%).
The economy has reached the point of recovery, though this is still dependent
on global growth. Japan’s stimulus has contributed to GDP growth, however.
Eventually we can expect a period of tightening, since the savings ratio could
get too high given the country’s demographic challenges and lower domestic
savings. A new government faces several challenges, including a transition to
higher domestic demand and a new growth model. After GDP shrinks by 6%
this year, we can expect to see a weak recovery this fall, with GDP growth
reaching 1% in 2010 and 1.4% in 2011.
Weak global growth, deflation, political consensus, the possibility of a new
government with new policies, fiscal and monetary policies, corporate
earnings, rapidly rising commodity prices and the yen.
Japan is one of the countries that in real economic terms have
suffered the most from the global crisis, especially its industrial
sector and exports. Unemployment, on the other hand, has not
risen as quickly. Wages and bonuses have tumbled, however,
3
56% of Americans still support Barack Obama, compared with 44% for Bill Clinton at
the same point during his first term.
Economic policy has
become more risky

at the same time that Japan has again entered a period of
deflation.
GDP growth in Japan (%)
Positive signals from around the world would seem to indicate
that the worst is over, as a result of which Japan’s purchasing
managers index now exceeds 50. GDP grew in the second
quarter. A stronger Chinese economy has helped to stabilise
exports. Japan’s fiscal stimulus, worth about 5% of GDP, has
also had an impact. The risk of a setback remains great,
however. There is also the risk that the recovery could be weak.
Domestic demand is soft due to sceptical households and
businesses, which see no reason to invest given current
overcapacity. Unemployment will continue to rise, from 5 ½% at
present to levels of around 6-7%.
Not until the US economy is in better health will Japan’s growth
be sustainably higher. It’s true that China is growing quickly, but
its growth is based on a domestic stimulus that does not
generate as much Japanese exports as when the world
demands Chinese products. Moreover, Japanese companies
are hoping for a weaker yen now that the search for safer
investments has eased.
On 30 August the Japanese will go to the voting booths.
Despite that the Liberal Democratic Party (LDP) has held onto
power since 1955 (with the exception of 11 months in 1993-94),
the more left-leaning Democratic Party of Japan (DPJ) is
expected to win the election. A power shift could lead to
changes, e.g., an increased focus on households, less interest
in US securities, efforts to reduce bureaucracy and fewer
infrastructure investments.
Whether the LDP or DPJ wins the election, the challenges
facing the Japanese economy are great. The public debt ratio is
nearly 200% of GDP, demographics could complicate the
financing of the deficit and a budget consolidation will have to
begin eventually. Monetary policy is also in need of
normalisation (with higher interest rates and an end to
quantitative easing) after years of artificially low rates and
deflation problems.
Japan’s GDP rose in
the second quarter …
… but its dependence
on China and the US
still remains
A change in
government is
expected on 30
August
9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
- 1 5 . 0
- 1 2 . 5
- 1 0 . 0
- 7 . 5
- 5 . 0
- 2 . 5
0 . 0
2 . 5
5 . 0
7 . 5
1 0 . 0
J a p a n , G D P , a n n u a liz e d ( Q / Q * 4 )
J a p a n , G D P ( Y / Y )

Our forecast for Japan’s GDP was revised upward to -6% for
2009 after more positive growth figures in the second quarter. In
our latest analysis of Japan (6 August), we revised GDP growth
for 2010 upward to 1%. This hasn’t changed. In 2011 GDP
growth will rise marginally, reaching 1.4%. Deflation is expected
to remain an issue in 2010, which is longer than in many other
countries.
China – The stimulus generates growth, and bubbles
In January we saw that China's economy had entered a slowdown, but that
the huge stimulus package and interest rate cuts would help somewhat. Major
declines in exports and car sales were reported. Social tension in the
aftermath of slower growth remained a possibility. Uncertainty about the
effects of the stimulus was considered great. During the spring GDP forecasts
were unchanged at around 6 ½ -7 ½% for 2009 and 2010.
Domestic demand (read lower investments) is being aided by the huge
stimulus, not least increased bank lending. There is a risk that capacity is
expanding too much at the same time that asset prices are skyrocketing. New
bubbles could be the price the Chinese have to pay to compensate for lower
global demand. A new growth model will require structural reforms (currency
policy, credit market, agricultural reform, labour markets, welfare systems).
We are revising GDP growth upward to 7 ½% this year and 8% next year.
After that we foresee weaker growth rate (7 ½%) when investments contract
and consumer spending remains in check.
Impact of the stimulus, asset bubbles, excessive capacity, bad loans, global
growth, labour market, social tension, political decisions and deflation.
The Chinese economy is bifurcated. On the one hand, exports
are still falling substantially (-23% in July). On the other, auto
sales are growing tremendously (+63% in July). The global
recession is still being felt, and demand for Chinese consumer
goods remains low. Domestic demand, on the other hand, is
being driven higher by expansive economic policies: lower
interest rates (the People’s Bank of China cut its key interest
rate to 5.31% in January and has since kept it unchanged) as
well as lower reserve requirements in the banking system and a
fiscal package corresponding to 5% of one year’s GDP for
2009-2010.
The stimulus has
strengthened
investments, though
exports are still
developing weakly

China’s exports in USD and passenger car sales
(annual change and two-month moving median)
The fiscal stimulus is increasing investments in infrastructure,
particularly in the construction sector. The investment ratio
(investments as a share of GDP) in the economy has now
reached a historically high 45%. In addition, households have
received subsidies and tax cuts, which are fuelling spending
and the real estate and stock markets. Inland regions are now
growing faster than coastal regions, which are more dependent
on export demand. The high growth rate raises questions,
however, about the sustainability of the Chinese economy now
that foreign demand is slowing:
1. Can we trust the data?
A debate has arisen about the quality of China’s economic
statistics, especially since China is becoming increasingly
important to the global economy and is reporting substantial
growth (GDP grew by nearly 8% at an annual rate in the second
quarter). This debate isn’t new, though. China’s provinces are
almost always growing faster than the national average.
Statistics for some periods arrive practically before the periods
have ended. The Chinese aren’t especially confident in their
own numbers, either. In other words, the data have to be
interpreted cautiously, which is nothing new!
2. Are new bubbles forming?
The Shanghai Stock Exchange (Composite Index) has risen by
about 60% this year (90% on 3 August). Real estate prices are
skyrocketing. Chinese authorities are encouraging banks to
reduce their lending and lend more money for investments in
the real economy rather than equities or real estate. Yet the
stimulus through the banking system will keep fuelling the
economy, with the risk of an unsustainable rise in asset prices.
There is also a risk that the capacity expansion is going too far
and that it could require several years to clean up the banking
system’s bad loans. In that case, the growth rate will drop
considerably from where it is now.
China’s inland is now
growing faster than
coastal regions
9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
Percent
- 3 0
- 2 0
- 1 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
C a r s a le s
E x p o r t s

3. What is happening with China's currency?
Since abandoning the peg to the dollar in July 2005, the yuan
has appreciated by 28% in real trade-weighted terms. During
the last year the yuan again seemed to be pegged to the dollar.
Analysts offer various estimates of how undervalued the yuan
is. The exact number is impossible to know. The current
currency policy isn’t sustainable, however, if China is going to
change its growth model to encourage more consumption at
home. US pressure on China has diminished, since there is
concern about getting enough Chinese financing for the US
budget deficit. A liberalisation of currency policy will probably
have to wait.
4. And what about China’s current account balance?
For the first time in several years China’s current account
surplus is decreasing in both nominal and real terms. Imports
are rising due to higher domestic demand at the same time that
exports are falling. Net exports are now contributing negatively
to GDP growth. Compared with 2007-2008, when the surplus
was 10% of GDP, it will drop by half next year. Of course, China
still has a huge current account surplus and tremendous
currency reserves (USD 2,130 billion in Q2) that must be
invested.
5. What steps are being taken to create a new growth model?
China’s growth has been driven to date by investment, and
even though exports do not seem to be that important to GDP
growth, they do have an indirect connection to the country’s
investment growth. On the other hand, consumer spending
accounts for only about 35% of GDP (about half that of the US).
The risk is that China builds up too much capacity and that the
banking system will get stuck with lots of bad loans.
Households, on the other hand, have increased their savings at
least partly to compensate for an inadequate public welfare
system. It is unlikely that China will be able to create a new
growth model without deregulating and modernising its credit
markets so that companies can reduce their savings ratios.
Important reforms are also needed in the agricultural sector, as
well as in labour and currency markets.
Growth outlook: We are revising this year’s GDP growth upward
to 7 ½% in light of a stronger stimulus and bank lending. Next
year is also expected to see a faster growth rate (from 7 ½% to
8%). However, investments are likely to grow at a slower pace
in 2011, and since households need more time to increase their
spending, growth will decline to 7-7 ½%.
India – Weak monsoon rains are hurting growth
In January we forecast a slightly weaker Indian economy due to the impact of
lower capital inflows and declining demand for Indian products. We expected
Weaker investments
could slow growth

fiscal policy to have only a slight impact on the drop in demand. Instead the
country needed faster reforms. GDP was expected to grow by 5 ½% in 2009
and 6% in 2010, but in June the 2009 forecast was revised downward to 5%.
We don't expect India to be back on its previous growth track in 2009-2011.
We have revised our June forecast down from 5% to 4 ¾% and estimate that
GDP will grow by 6% in 2010 and 6 ½% in 2011. Below-normal monsoon
rains are threatening the agricultural sector, though there are also indications
of a recovery in the financial sector. An economic stimulus has had an impact,
but must be phased out in time to avoid inflation and excessive deficits.
Monsoon rains, economic policies and the impact of the stimulus, global
growth, inflation, credit market, access to foreign capital, state budget, political
climate.
Growth in India’s GDP, consumption and investments (%)
The slowdown in the Indian economy has levelled off. A growth
rate of 5.8% was reported in the first quarter, i.e., the same as
the fourth quarter last year. Exports are still developing weakly
and there is no longer the same push behind domestic demand
as during the expansive years of 2005-2007. Because it is not
dependent on exports, India nevertheless has managed the
global crisis better than many other countries. The Bombay
Stock Exchange has recovered since the start of the year and
risen by over 50%, although the index is still only two-thirds of
the way back to its peak in early 2008.
A number of challenges remain in both the real economy and
with regard to economic policies. Sub-par monsoon rains are
leading to poor harvests, which will hurt growth and push
consumer prices higher. A fiscal stimulus and the weaker
economy are swelling the total budget deficit to slightly over
11% of GDP (around 7% of state finances). With a debt ratio of
around 80% of GDP – and growth below its potential – the
government is facing increasing pressure from investors to
institute reforms, at the same time that the Congress appears to
be sceptical to further liberalisations and privatisations.
Optimism has
increased in the stock
market
Sub-par monsoon
rains are a new threat
to growth
0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8
Percent
- 5 .0
- 2 .5
0 .0
2 .5
5 .0
7 .5
1 0 .0
1 2 .5
1 5 .0
1 7 .5
2 0 .0
In v e s tm e n ts
G D P
P r iv a te c o n s u m p tio n

Since January the central bank has cut its key interest rate in
two stages, from 5 ½% to 4 ¾%, and then its top level by 4.25
percentage points. Monetary policy now has to take fiscal policy
and rising commodity prices into consideration and therefore
will be tightened fairly soon if inflation continues to rise. The
medium-term inflation target of around 3% will not be met.
Concerns about asset bubbles have grown due to the stimulus
and increasing risk appetite from abroad. India has also tried to
increase liquidity and help credit markets. Which means it also
needs an exit strategy.
Higher capital inflows have strengthened the rupee. If it rises
any more, there is a chance the authorities will again become
proactive to keep the currency from appreciating too much. We
are writing down our forecast to 4 ¾% for 2009 due to the
weaker agricultural production we expect in the wake of the
lacklustre rainfall. For 2010-2011 we are projecting GDP growth
of 6-6 ½%.
What would help India to return to its previous growth rates of 8-
9%? Reforms! Labour law must be modernised. Many state-
owned enterprises could be privatised. Measures to attract
foreign direct investment would help the economy and increase
competition. More needs to be done to phase out subsidies that
have proved ineffective. Last but not least, it is important that
the country refrain from protectionist measures.
EU countries – Following the US out of the recession
Export-dependent EU countries were expected to be strongly affected by
weaker global growth. Falling consumption and investments would result from
weaker trade. Additional economic rescue packages were expected. GDP
growth in the euro zone would reach -2% this year according to our January
forecast, but after a major decline in late 2008, 2009 was revised downward to
-4.5% in the June forecast. A more stable GDP was expected in 2010, i.e.,
zero growth. The UK was felt to be facing its largest economic decline in
decades, while the Nordic countries would manage better than the euro
countries.
Highlights of our new August forecast:
A recovery began in the euro zone in the second quarter, but will be sluggish
due to a weak turnaround in the rest of the world, continued problems in the
banking sector and insufficient domestic demand in many countries. Monetary
policy will remain expansive for some time, but interest rates will begin to
normalise no later than 2011. Fiscal policy will be even more expansive and a
budget consolidation will not begin until after the forecast period. GDP growth
will slightly exceed -4%, ½% and 1 ¼% for 2009-2011. In the UK the recovery
is affected by efforts to adjust balance sheets, while the Nordic countries have
an advantage in that a budget consolidation at a later point will have less
impact on growth.
India’s inflation
problems could be
exacerbated by the
poor rains
A faster pace of reform
would put India back
on its earlier growth
track

Global growth, credit market and banking system, Eastern and Central
Europe’s development, German federal election, labour market, the impact of
stimulus measures, housing market and household debt restructurings in
certain countries, commodity prices, consumer prices.
GDP growth in major EU/EMU countries (%)
Euro zone: The region has been hard hit by the global
economic slowdown and financial crisis. Several countries
(Spain, Ireland) have savings imbalances, while others
(Germany, France) have mainly been hurt by the decline in
exports. Austria, Greece and Italy have also been affected by
uncertainty about their banks’ operations in Eastern and Central
Europe.
When the turnaround does arrive, countries with small or no
imbalances (Germany) will have relatively good growth
opportunities. But Germany will still have to reassess its growth
model in light of weaker demand from many highly indebted and
previously important export markets. This will be a challenge for
the next government that takes over after the Bundestag
election on 27 September. The auto industry’s future is an
important risk factor. Reforms that increase flexibility in the
labour market and improve confidence among consumers could
boost household spending.
After the ECB cut its key interest rate and pumped liquidity into
the market – and countries to varying extents adopted fiscal
stimulus packages – demand has slowed. The financial markets
are working better, but it is still too early to say that the danger
is over. Banks have to continue to trim their balance sheets,
and there is a risk of a more serious credit crunch that
squeezes companies and the labour market. Real estate prices
are continuing to fall in many countries, which also could affect
European banks negatively.
The region is on its way to stabilising. Demand will soon start to
grow, both from abroad and within the region, driven by the
stimulus. Although the purchasing managers index (46.3 in
July) is nearing the growth zone, industrial production is still
falling at a monthly rate. Investments will remain low, since
there is sufficient capacity. Employment will continue to rise,
The new German
government faces
several challenges
S o u r c e : R e u t e r s E c o W i n
0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8
Percent
- 7 . 5
- 5 . 0
- 2 . 5
0 . 0
2 . 5
5 . 0
7 . 5
S p a i n
F r a n c e
I t a ly
G e r m a n y
E u r o a r e a
U n i t e d K i n g d o m

even after GDP starts to grow. We expect it to reach 12% in
2010 and then stabilise in 2011. We are projecting that GDP will
fall by slightly over 4% this year and grow marginally in 2010.
Not until 2011 will growth come close to 1 ¼%, and then we will
also see a greater willingness to invest and spend.
Inflation will remain negative in the months ahead, but turn
higher later in the year. Core inflation will instead fall next year
as available capacity increases. The European Central Bank
(ECB) is maintaining its key interest rate at 1%, not least since
its interest rate weapon has lost its effectiveness due to the
crisis. Instead it will maintain measures to ease the credit
market.
Furthermore, fiscal policy has become more expansive. On
average, budget deficits as a share of GDP will increase from
0.6% in 2007 to 7% in 2010. This shows that many countries
should have increased their public savings during earlier growth
years. Public debt will grow from 65% to 90% of GDP during the
same period. The differences between Germany’s and France’s
fiscal policies have widened. While Germany will set a ceiling
for its 2016 deficit, France does not feel it is a problem to
increase its deficit.
UK: The imbalances in the country’s financial and property
markets are worsening an already severe recession. A recovery
will soon begin, however. The purchasing managers’ index for
the industrial and service sectors indicated growth, and there is
good reason to assume that most of the inventory cutbacks are
done. There are still growth risks, since it will take time before
bank lending increases, at the same time that a phase-out of
the stimulus and a transition to budget consolidation will be
painful. The UK’s public debt could exceed 100% of GDP. This
will be even more painful when interest rates rise.
Cutting the budget deficit from 12% of GDP will be a challenge
when the new government takes over after the election (which
must be held by 3 June 2010). The Bank of England has
expanded its quantitative easing and sees an imminent risk that
inflation will fall below its target. The main challenge, however,
is that it will take time for households, businesses and the
financial sector to trim their balance sheets.
Nordic countries: Despite strong government finances and no
obvious economic imbalances, Sweden, Finland and Denmark
have been hard hit by the global recession. Norway can still
avoid recession, while Iceland’s problems mainly relate to the
financial sector’s collapse after questionable investments
outside the country’s borders.
Tighter fiscal policy
during the good years
would have helped
now
Fiscal policies will be
the new government’s
biggest challenge next
year

Though the much-discussed Nordic model makes it relatively
easy to hire/fire employees and offers an extensive social
welfare network for the jobless, there is still good reason for the
Nordic countries to work harder with structural reforms to
alleviate the crisis. On the plus side from a medium-term
perspective is the fact that a Nordic budget consolidation will
not affect growth prospects as much as in many larger EU
countries.
8. Consequences for the Swedish economy
Following is a summary of some of the areas where Sweden
could be affected by global developments:
• Swedish businesses and households can expect
considerably weaker development in 2009-2011 than during
the growth years of 2005-2007. Unemployment continues to
rise, wages are dropping and the number of bankruptcies will
push higher in the years ahead. For those with work, the
monetary and fiscal stimulus should make things better than
in previous years.
• Sweden’s financial situation is deteriorating, but the trend –
which is positive in a relative sense – still gives it a head
start in the medium term. Its budget consolidation will have
less impact on growth than in many other OECD countries.
As a result, Sweden has an opportunity to take advantage of
better economic conditions to aggressively tackle its reforms.
This could mean reforms in the labour and product markets,
tax and social insurance reforms, and investments in green
technology and energy.
• Globalisation has slowed but continues, and the pace will
again increase. It is important at this moment to make the
country even more competitive by investing in education,
professional training and research and development (R&D).
• No country is able to improve its citizens’ standard of living
by leveraging. The financial crisis nullified this growth model.
Consequently, any increase in the standard of living in the
years ahead will have to be tied to wage growth, which in
turn requires strong productivity improvements and
increased value-added in production. Once again R&D is a
key to the growth model.
• Sweden has a head start when it comes to expanded child
care and measures to strengthen the labour supply among
young adults. It is important therefore that it also reassess
other areas that are limiting job opportunities for young
people.
• Working with education, health and social care as growth
sectors is one way to stay ahead of the growth curve,
particularly considering that demographic trends point to an
increase in demand for social services.
Though it may offer
certain advantages,
the Nordic region has
been hurt by the global
crisis and also has to
increase its pace of
reform

• Developments in Eastern and Central Europe remain a risk
to the Swedish financial sector in the short and medium
term. Promoting more cross-border regulation and oversight
in the financial sector, as well as measures to bolster
financial integration at a regional level, would also be in
Sweden's interests in the medium and long term.
• Sweden is a small, open economy focussed on exports. The
export sector is and should remain important to the
economy. At the same time economic policies could give
more emphasis to domestic private demand (investment and
consumption). First and foremost, a higher share of
investment could provide a foundation for stronger growth
potential.
Cecilia Hermansson
Economic Research
Department
SE-105 34 Stockholm, Sweden
Telephone +46 8 5859 1031
ek.sek@swedbank.se
www.swedbank.se
Legally responsible publishers
Cecilia Hermansson, +46 8 5859 1588
Magnus Alvesson, +46-8-5859 3341
Jörgen Kennemar, +46 8 5859 1478
ISSN 1103-4897
The Swedbank Global Economic Outlook is published as a service to our
customers. We believe that we have used reliable sources and methods in
the preparation of the analyses reported in this publication. However, we
cannot guarantee the accuracy or completeness of the report and cannot be
held responsible for any error or omission in the underlying material or its
use. Readers are encouraged to base any (investment) decisions on other
material as well. Neither Swedbank nor its employees may be held
responsible for losses or damages, directly or indirectly, owing to any errors
or omissions in Swedbank’s Global Economic Outlook.

Global Economic Outlook 20 August 2009

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Global Economic Outlook 20 August 2009