OREANDA-NEWS. December 06, 2011. The new prognosis of SEB Bank on the outlook of global economic growth is more pessimistic than three months ago, shows SEB’s quarterly economic overview Nordic Outlook, issued in Stockholm. The forecasted growth rate of the world economy for next year was lowered from 3.5% to 3.2%, reported the press-centre of SEB.

The greatest problems continue to be uncertainty and distrust. Supervisory authorities have implemented more rigorous capital requirements than before, making banks sell shares or reduce their loan portfolios. However, reducing the granting of loans restrains economic growth and degrades the market value of banks’ assets.

The debt crisis of the euro zone is progressively affecting the world economy. The main problem continues to be the incompatibility of the common monetary system with political divisibility and weakness of the institutions guarding the common interests of the euro zone. National austerity policies of the peripheries pulled into the crisis have not raised any trust towards their governments because creditors doubt in their ability to remain on the chosen course. The political elite in Germany are not willing to secure the debts of the peripheries’ governments before the latter have reliably tied themselves with the current austerity measures and reforms for a longer period.

The European Central Bank sees its most important task as ensuring price stability and stands wilfully against the attempts to involve it in the financing of governments fighting high loan costs. For the time being it is also improbable that the authorities responsible for financial stability would loosen the capital conformity requirements for commercial banks, which could lead to a dangerous credit distress in the near future, especially in the periphery which is already in poor condition.

Outlook for Estonia depends on export partners
While compiling an economic forecast for Estonia, we should first look at the perspective of the larger economies in Europe and our export partners. SEB reduced next year’s growth forecast for Germany down to 0.4% (it was still 1.3% in August) and sees economic depression in the euro zone (growth forecast of the euro zone decreased from 1.0% in August to negative 0.4%). The worsening of the international economic climate is in turn affecting the export dependent economy of Sweden; the growth forecast for the Swedish economy has already dropped to 0.7% (1.4% in August and 2.6% in May).

The relatively good financial standing of the Swedish government will allow it to slightly soften the setback with a stimulating budget policy, but in reality the growth rate could regrettably decrease even more. Particularly in case the prospective decrease in real estate prices affects the rest of the economy even more widely than initially expected. According to official statistics, the growth of real estate prices has now stopped and the main scenario of SEB sees an average decrease of prices in the range of 10-15%. Unfortunately, the experience in other countries indicates that once the prices of houses and apartments start to fall, they tend to fall more than 15%.

The estimated growth rate for the Baltic States, for next year, dropped from 3.7% in August to 2.5%. This time, the export boom has ended, but as the cycle-sensitive sectors have not yet recovered from the last recession, the danger of a new large-scale setback in these sectors is not that high and therefore all three Baltic States should manage to avoid the economic depression in 2012. As for the Estonian economy, the growth forecast for next year decreased to 2% (3.5% in August), but the inflation rate increased to 4% (3.5% in May).