The world economy's big headache is the shortage of optimism. Economic policy instruments are becoming fewer and fewer, as well as less effective, but the toolkit is not yet empty. Global growth in 2015-2016 will enjoy support from continued monetary expansion and an increasingly solid recovery in the United States. Sweden's economic growth is being lifted by households and construction, but will be impeded by heightened political uncertainty.
The recovery will be sluggish. Lower energy prices – with Brent crude oil expected to cost about USD 85 per barrel during 2015 – have the potential to stimulate household purchasing power and business investment appetite, thereby boosting the overall GDP level in the 34 mainly affluent countries of the Organisation for Economic Cooperation and Development (OECD) by 0.5 percentage points over a few years. But the world economy is being both stressed and squeezed by continued balance sheet weaknesses, difficult rebalancing processes in emerging economies, low investment appetite, wide wealth gaps and heightened geopolitical uncertainty. GDP growth in the OECD countries will reach 1.9 per cent this year, up from 1.4 per cent in 2013. Next year, GDP growth will climb to 2.4 per cent, with the same growth rate again in 2016. Taken together, these factors represents a significant risk of an extended period of weak demand and lingering deflation risks.
"In many ways, this situation is completely unique," says Robert Bergqvist, Chief Economist at SEB. "Six years after the Lehman Brothers collapse, and despite exceptional monetary policies, the world is still characterised by a lack of stability. This is manifested in an unclear economic pattern," Bergqvist continues. "Countries show divergent growth, putting a strain on international cooperation. This is forcing re-assessments of economic policies and testing their limits. While lower energy prices have a positive impact in most countries, they also represent major challenges for oil producers in a new geopolitical energy landscape," Bergqvist maintains.
The Norwegian economy is characterised by forces that are pulling in different directions. Negative factors include a capital spending slowdown in the oil and gas sector and weak residential investments. But the labour market has stabilised, along with the housing market, and good real income increases will help sustain consumption. We expect Norway's mainland GDP to decelerate from 2.6 per cent this year to 2.1 per cent in 2015 and reach 2.4 per cent in 2016, which is somewhat below trend growth. We believe that the underlying strength in the economy is sufficent to enable Norges Bank to abstain from key interest rate cuts in the near future, but the first rate hike will not come until the second quarter of 2016. In this environment, the Norwegian krone will strengthen cautiously, and we expect the EUR/NOK exchange rate to be somewhat below 8.00 at the end of our forecast period.