New forecasts of global economic growth
Both the Organisation for Economic Cooperation and Development (OECD) and the World Bank have lowered their forecasts of global gross domestic product (GDP) growth. Meanwhile the Swedish government adjusted its national GDP forecast for 2020 upward to a decline of 6% instead of 7%. The worst is behind us, but there are wide variations between countries in the depth of the decline. When economies reopen, there are many questions about the extent to which consumption, capital spending and production have been temporarily or permanently damaged. SEB’s new global GDP growth forecast is a downward adjustment to -4.1% this year followed by a recovery in 2021, when we expect global GDP to grow by 5.6%. But in Sweden and the other Nordic countries, downturns appear likely to be milder than previously anticipated. This eases pressure on their labour and housing markets. American GDP is also expected to fall by less than our earlier forecast (now by only 6%), and the same is true of the euro area (-9%). The United Kingdom is the advanced economy that is expected to see the largest slide in GDP: more than 10%.
Swedish home prices recovered in May
According to Valueguard’s HOX Index, prices of tenant-owner flats in Sweden rose by 1% and houses by 3% during May. This is an all-time high for houses, while flats are 3.5% below their February price level. But sales volume in Stockholm, for example, is 25-30% below normal. Looking ahead, we still believe that the recession may have a large negative impact on Swedish home prices. This is because we are forecasting that unemployment will climb from the current 9% to about 12% by the end of 2020.
Reflections: The stock market and a new kind of investor
Those who have invested in the stock market over the past six months have probably gained some new grey hairs. Optimism was followed by fast-plunging share prices, then a period of sharp rebounds. How should we view the stock market during the rest of 2020? What are the signs that the rally can continue?
Read more in Reflections
Our market view
Valuations of both equities and corporate bonds are relatively high. These valuations do not factor in broad new lockdowns of economies, since investors are looking ahead and viewing positive signals as indications of a more lasting trend. Together with low interest rates and bond yields, this may justify historically high valuations and the sharp upturns of recent months.
The prospect of continued stimulus – such as central bank bond purchases and ongoing discussions in the US Congress and elsewhere on new fiscal packages – will help to sustain risk appetite. The weaker economies become, the higher the probability that central banks will provide even more support. If downturns are milder, corporate earnings will recover faster and share prices can then climb without central bank support. Assuming isolated virus outbreaks rather than large-scale setbacks, macro statistics also suggest that the economic downturn may prove shallower than feared and the recovery may be faster than many people expect. Overall, there are good reasons to hope for a good stock market this autumn, despite the pandemic and historically high valuations.
We have a cautiously optimistic view of risk assets such as equities and high yield corporate bonds, and we are maintaining our hypothesis that stock market downturns can be regarded as buying opportunities.
The agenda ahead
- June 26 − Sweden: May retail sales. Our forecast is unchanged sales. According to the Swedish Trade Federation, increased “staycations” may rescue the Swedish retail sector this summer.
- July 1 – United States: Federal Reserve policy meeting. Sweden: Riksbank monetary policy announcement; we expect bond purchases to be extended.
Please contact your private banker if you have any questions or concerns.