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Wednesday 18.07.2018 | Name days: Rozālija, Roze

SEB: Eurozone is a child under the care of the global economy

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«The largest headache for the world’s economies is the ruling cautiousness. The wide range of economic policies and different economic measures is becoming thin. The efficiency of the current ones is in decline as well. However, it is not too late,» – says SEB Bank economist Dainis Gašpuitis.

The global economy, on the other hand, continues to receive support from monetary expansion and convincing recovery of USA. All signs point to weak economic growth. Lower energy resource prices will prove useful for households and investments. Member states of the Organisation for Economic Co-operation and Development will be able to increase their GDP by 0.5 percentage points. However, economies of the world remain under pressure from debts and slow growth of revenue, complications within rapidly growing economies, low investment appetite, welfare inequality and geopolitical tension. These factors create a risk of slow and demand and deflation.

Inflation has demonstrated new surprises, and many countries have slipped down to dangerous levels. In the next couple of years inflation will remain low. It will grow very slowly and carefully. Structural changes in the labour market will only add to its effect. Well-educated labour reserves from Asia and Africa will become more involved in global economies. In the West, however, new jobs will be created primarily in the low-wage sectors. This will slow down wage growth. A decline is also expected in many raw material product markets.

According to the bank’s expert, the zero interest rate environments raise the matter regarding responsibility of economic policies. The risk of stagnation and deflation means there should be a pragmatic fiscal expansion. Japan has put off the next step to increase consumption tax. Countries like Italy and France have added discounts under budget deficit conditions. Pressure is growing on Germany to realize an expansive fiscal policy, because its economy and exports benefit from euro’s weakening and low interest rates.

USA is currently viewed as an example of a success: it is expected that this country’s economy will grow 2.3% this year, 3.4% in 2015 and 3.1% in 2016. Because of the reduction of debts of households, the efficiency of the monetary policy increases. Notably lower energy prices, growing welfare of households and declining unemployment will help USA overcome this complicated global situation and strengthen dollar’s positions, says Gašpuitis.

BRICS countries all demonstrate different perspectives. China’s main economic engine is slowing its speed, which is affected by the growing uncertainty in the real estate sector and loan market. The government is aware of these problems, as well as the financial means to resolve them, which will allow China continue its growth. India’s economic growth will become slightly faster thanks to its recently implemented reforms. Russia’s economic perspectives seem rather poor. Its main problems are mostly related to the geopolitical situation in the world and declining production volumes, which is caused by insufficient investments over the course of many years and the ageing of the population. The sudden decline of the Russian rouble only further proves Russia’s economic and financial instability, which also increases geopolitical risks. It is likely that Russia’s economy may face a cycle of stagnation.

Eurozone, however, is a child under the care of world economies. Recovery is going slow, the rising decline of member states in regard to independence of their economic policies and intentions to steer away from common game rules maintains uncertainty in regard to the developments of Europe’s political processes. Economic growth became slightly more stable after the European Central Bank performed an assessment of the banking system. Lower prices on energy resources, weaker euro and less strict fiscal policy will surely assist it. Economic processes in Italy and France have turned the wrong way. Economic growth in Spain, on the other hand, has been restored. Eurzone’s GDP is expected to be 0.9% in 2015 and 1.3% in 2016. Germany’s readiness to begin a more expansive fiscal policy will be the deciding factor that will improve Eurozone’s growth perspectives and overall stability of the euro.

«Economic perspectives of Baltic States have become slightly more grounded. A more equalized growth is expected to come in 2016. Consumption will remain the main economic engine even though wage growth of households will become slower. Unemployment will continue to decline, but slower than it did in previous years. Exports and capital expenses will recover slowly. The crisis in Ukraine, stagnation in Russia and geopolitical tension will continue to cast a shadow over economic development. 2015 is expected to bring a slight speed-up of economic growth, especially in Estonia’s case, which has experienced a more apparent slowing of economic development. Lithuania and Latvia will recover their places among the most rapidly growing economies in Europe. However, their actual growth will be slower than their potential,» – predicts Gašpuitis.

Sweden’s economy demonstrates a strong domestic demand, which is directed by household consumption and rising construction of apartments. Weak accomplishments are noted in exports. Public sector’s debt will remain below 40% of GDP. The situation in the labour market gradually improves, but because labour force offer continues to grow, unemployment decline will remain slow.

Finland’s economy currently deals with structural problems in forestry and ICT sectors, influence from Russia’s and the country’s own austerity policies, which slow down economic growth. A weaker euro will only benefit Finland’s exports.

Denmark’s economy demonstrates a dual situation, as there are positive and negative factors for future development. Geopolitical developments will play a big role in the near future. The country’s fiscal policy will become more stimulating after the expected elections of 2015.

Norway’s economy demonstrates different directions. Negative factors include the increase of capital expenses in the oil and gas industry and low investments in housing construction. The country’s labour market, on the other hand, has stabilized. This and growth of actual income will help maintain consumption rates.


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