Danske - Nordic Outlook Dec 2012 by riteshbhansali


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									Investment Research

                                                                    December 2012
Nordic Outlook
Economic and financial trends

• Denmark: Headed for moderate growth
  - but a fully fledged recovery is a long way off

• Sweden: The Swedish economy is set for lower growth
  - unemployment to increase due to weakness in exports

• Norway: Growing at a strong rate but the non-oil industry is under pressure
  - housing market beginning to give cause for concern

• Finland: On the verge of recession
  - growth not likely to pick up much in the near future

Nordic Outlook

                                      Markets Research
 Editorial deadline 19 December2012                                                               Investment Research

 Steen Bocian                           Chief Economist                + 45 45 12 85 31          stbo@danskebank.dk

 Macro economics:
 Jens Nærvig Pedersen (on leave)        Denmark                        +45 45 12 80 61           jenpe@danskebank.dk
 Las Olsen                              Denmark                        +45 45 12 85 36           laso@danskebank.dk
 Roger Josefsson                        Sweden                         +46 (0)8-568 805 58       rjos@danskebank.dk
 Frank Jullum                           Norway                         +47 85 40 65 40           fju@danskebank.no
 Pasi Petteri Kuoppamäki                Finland                        +358(0)105467715          paku@danskebank.dk

 Sales contacts:
 Thomas Thøgersen Grønkjær              Head of Markets Research       +45 45 12 85 02           thgr@danskebank.dk
 Rolf Kofoed                            Head of Sales Copenhagen       +45 45 12 69 92           roko@danskebank.dk
 Henrik Voetmann Mikkelsen              Global Head of Equities        +45 45 14 73 05           hvm@danskebank.dk
 Anders Damgaard                        Derivatives Sales and          +45 45 12 85 50           andd@danskebank.dk
 Jesper Ronald Petersen                 FX Sales and Structuring       +44 (0)20 7410 8149       jrp@danskebank.dk
 Bo Wetterstein                         Debt Capital Markets           +45 45 14 72 83           bwe@danskebank.dk
 Lars Worsøe Andersen                   Fixed Income                   +45 45 14 69 97           lawa@danskebank.dk
 Torben Frederiksen                     Head of Sales and Sales        +1 212 293 0340           tfr@danskemarkets.com
                                        Trading, US

 This publication can be viewed at www.danskebank.com/danskeresearch
 Statistical sources: Datastream, Ecowin, OECD, IMF, National Institute of Social and Economic Research, Statistics
 Denmark and other national statistical institutes as well as proprietary calculations.

 Important disclosures and certifications are contained from page 39 of this report.

2|   December 2012
Nordic Outlook


Denmark                   Crisis slowly receding                                                        4

                          Forecast at a glance                                                        10

Sweden                    The paradox: forecast weakness due to fundamental strengths of the          11

                          Forecast at a glance                                                        20

Norway                    Still growing at a strong rate                                              21

                          Forecast at a glance                                                        25

Finland                   Finland clings to the Aaa status                                            26

                          Forecast at a glance                                                        32

Global overview           The tide is turning                                                         33

                          Economic forecast                                                           37

                          Financial forecast                                                          38

The Nordic Outlook is a quarterly publication that presents Danske Bank’s view on the economic outlook for
the Nordic countries. The quarterly publication the Global Scenarios sets out our global economic outlook.

  Updated economic forecasts for the following countries and regions are available at

                                  Central and Eastern Europe

3|   December 2012
Nordic Outlook

Crisis slowly receding
    The Danish economy has been balanced on the cusp of recession for
     more than two years but, looking ahead, we expect the crisis to                 Summary forecast
     recede slowly. Nevertheless, even though we are optimistic about the
     Danish economy, we emphasise that we expect only a very gradual
                                                                                                                            Current forecast      Previous forecast
     improvement.                                                                                                         2012            2013     2011     2012
                                                                                      GDP                                 -0.5    0.7      1.6      0.1      1.2
    We look for growth of 0,7% in 2013, rising to 1.6% in 2014, which                Private consumption                 1.1     1.3      1.2      0.9      1.1
                                                                                      Public consumption                  0.0     0.6      0.8      0.0      0.7
     represents a marked improvement compared with 2012, when GDP
                                                                                      Gross fixed investment              1.8     2.1      -1.5     1.5      1.2
     fell by 0.5%.                                                                    Exports                             1.8     1.6      3.6      1.9      2.5
                                                                                      Imports                             3.2     2.9      2.0      2.7      2.6
    Private consumption, in particular, seems to be on the mend. The
     Danes’ propensity to spend is already increasing and given the                   Gross unemployment (thousands)      164     170      171     163.0    166.8
                                                                                      Inflation                           2.4     1.5      1.7      2.5      2.0
     prospect of increased disposable income in 2013 – for the first time             Government balance, % of GDP        -4.0    0.3      -1.8     -3.8     0.3
     since 2010 – there is reason to expect a degree of consumption                   Current account, % of GDP           5.9     4.8      4.9      6.0      5.7
     growth.                                                                         Source: Danske Bank, Statistics Denmark

    The government’s so-called kick-start has not been a success and
     should not be followed up with similar attempts to smooth out the
     economic cycle. The Danish economy needs to find its own feet after
     the pronounced overheating seen prior to the crisis. Expansive fiscal
     policies only risk obstructing a necessary adjustment.
                                                                                     Headed for slow growth
The Danish economy has been balanced on the cusp of recession since mid-
                                                                                    415                                                                     415
2010. Growth quarters have been negated and surpassed by quarters of                410
                                                                                        DKK bn                     DKK bn                                   410
contraction, with GDP in Q3 this year almost 1% lower than two years ago.           405                                                                     405
Looking forward, however, we are optimistic about the outlook for the               400                                                                     400
                                                                                    395                                                                     395
Danish economy and expect to see growth over the next two years. That said,         390                                                                     390
we do not expect a particularly impressive performance, as believe the              385                                                                     385
economic crisis will be slow to recede. We expect growth of less than 1% in         380                                                                     380
                                                                                    375       GDP, constant prices                                          375
2013, with growth not approaching more normal levels until 2014.                    370                                                                     370
                                                                                        04 05 06 07 08 09 10 11 12 13 14
Hence, the current crisis should last roughly as long as the crisis following the
‘potato diet’ austerity measures of the 1980s. Back then – as now – there were a     Source: Reuters EcoWin and Danske Bank
number of reasons why the crisis was so drawn out. The years prior to the crisis
had seen both the housing and the labour markets overheat – and while this had
more pronounced consequences in the mid-1980s, in the form of a worryingly
large current account deficit, there are many similarities with respect to what
                                                                                     Tougher than downturn in the wake of mid-1980s
happened both prior to the crisis erupting and when it first took hold. There are    austerity measures
also differences, however. The current crisis has been much more severe than        108                                          108
                                                                                        GDP (2007=100)             GDP(1986=100)
the crisis in 1987-93, though with not quite the same human cost. GDP has           106                                          106
                                                                                    104                                          104
fallen by around 4.5% over the current crisis, while GDP rose by 5.5% between
                                                                                    102                                          102
1987 and 1993. On the other hand, unemployment is much lower today than in          100                  Crisis (1986 - 1993)>>  100
the early 1990s and the number of Danes having their homes repossessed every         98                                          98
                                                                                     96                                          96
month is around a quarter of what it was in 1992-93.                                 94                                          94
                                                                                             <<The great recession
                                                                                     92                                          92
The level of growth in 2013 will probably not be high enough to stabilise the            86 87 88 89 90 91 92 93
labour market, which is why we expect employment to fall. Thus, we expect                     07    08         09    10     11     12      13
the labour market to deteriorate compared with the situation of recent years,        Source: Reuters EcoWin and Danske Bank
when private sector employment has been largely stable. On the other hand,

4|   December 2012
Nordic Outlook

we expect public sector employment to stabilise, meaning the overall number
of job losses will not be that great.                                                 Savings rate falling

Our forecast of a pickup in the Danish economy is based on the assumption             14,0 % of disposable income
that the crisis in Europe will ease slightly in coming quarters. If this does not     12,0
happen, it will take even longer for the crisis to loosen its grip on us all.         10,0
Given the latest economic data, we have revised down our growth expectations           8,0
compared with our previous forecast – especially for 2012. We have also                6,0
become more pessimistic on growth in 2013. Danish exports appear to be under           4,0
greater pressure from the European crisis than previously assumed and, in our          2,0
view, this will also have consequences for growth next year. On the other hand,        0,0
private consumption is doing surprisingly well and there is a chance that it will             91 93 95 97 99 01 03 05 07 09 11 13
take over exports’ role as the locomotive of growth.                                  Source: Reuters EcoWin and Danske Bank

Consumption better than rumoured
In the debate on the Danish economy, private consumption is often cast as the
villain that carries particular responsibility for keeping the crisis going. Nor is
there any doubt that there has been a sharp fall in consumption overall and
just a very modest recovery subsequently compared with many other                     Consumption growing – but no spending spree
countries. This is closely tied to developments in the Danish housing market,                                                           % y/y
                                                                                              % y/y
                                                                                      10.0                        Private consumption           10.0
where dramatic price increases up to 2007 produced major wealth gains that
were channelled into strong consumption growth and where we have                       5.0                                                       5.0
subsequently seen major declines in wealth and thus also in consumption.               0.0                                                       0.0

However, in a shorter term perspective, it must be said that private                   -5.0                                                      -5.0
                                                                                              Consumer confidence
consumption is actually doing rather well. Revised numbers now show that              -10.0                                                     -10.0
consumption rose throughout H1 this year. Despite a small fall in Q3, private         -15.0                                                     -15.0
consumption was up all of 1.8% on the same time last year, with half of this                  05      06    07    08     09   10    11    12
stemming from increased car sales. This is quite impressive considering that
                                                                                      Source: Reuters EcoWin and Danske Bank
real, post-tax incomes have fallen by about 1% over the same period. That
consumption nevertheless grew has to be seen in connection with the paying
back of early retirement pension contributions, which although they have not
made households wealthier, have improved liquidity considerably.

These developments suggest that consumers are worrying a little less and
therefore spending a greater share of their income. However, this is not
apparent in the consumer confidence indicator, which still shows a majority
                                                                                      Wealth has not recovered to previous levels
of consumers holding a negative view on the economy. It is also a little
difficult to pinpoint just what could have made consumers more optimistic             4000      DKK bn
now compared with a year ago, for example. There have been no real                    3500
changes in either the housing or the labour market.                                   3000
Nor is there any real prospect of change in 2013. We estimate that
consumption will increase, pulled up by rising real disposable incomes on the         1500                             Net wealth, incl. housing
back of tax cuts. Not until 2014 do we expect house prices or employment to           1000                             excl. pensions
rise, which in turn may prompt a more tangible shift in consumer sentiment.            500
However, we do not count on this triggering a major upswing in                           0
consumption. Household wealth including homes but excluding pensions has                      00       02        04     06     08       10      12
not grown in real terms since 2009, despite the large increase in the savings         Source: Reuters EcoWin and Danske Bank
rate, so there is no huge pool of wealth that is waiting to be channelled into

5|   December 2012
Nordic Outlook

Negligible wage growth and falling inflation
Private sector wage growth has hovered around 1.5% in 2012 – the lowest for
at least 45 years. There was only room for minimal pay increases at local-             Real wages declining
level wage negotiations – and with the prospect of further falls in
                                                                                      5 .5                                                                            5 .5
                                                                                             % y/y                            W a g e g ro w th              % y/y
employment in 2013 and only a modest turnaround in 2014, we do not                    5 .0                                                                            5 .0
                                                                                      4 .5                                                                            4 .5
believe wage earners can look forward to getting significantly higher wage
                                                                                      4 .0                                                                            4 .0
hikes in the coming years. Nevertheless, developments in real incomes will            3 .5                                                                            3 .5
                                                                                      3 .0                                                                            3 .0
be in marked contrast to both 2011 and 2012, when real incomes fell.
                                                                                      2 .5                                                                            2 .5
                                                                                      2 .0                                                                            2 .0
Inflation has once again been relatively high in 2012 for an economy marked           1 .5                                                                            1 .5
                                                                                                   In fla t io n
by spare capacity and low wage growth. The explanation is mostly higher               1 .0                                                                            1 .0
                                                                                      0 .5                                                                            0 .5
duties and energy prices, which rose sharply at the start of the year. In                     05         06         07        08      09         10     11      12
contrast, we expect energy prices to fall slightly in kroner terms in 2013.
Meanwhile, the politicians have decided to abolish the ‘fat tax’ from the start        Source: Reuters EcoWin and Danske Bank
of next year and to drop the additional duty on sugar that was planned to start
on 1 January. This means that inflation looks set to fall to around 1.8% as
early as January and a little further during the course of the year. Hence,
wage growth will almost keep up with price developments. On top of this
come tax cuts for those in work in 2013, as the employment allowance and
                                                                                       Stable housing market
the threshold for paying the top rate of tax will be raised On the other hand,
the basic rate of tax is to be raised slightly and the basic allowance will be        110
                                                                                               Index 2006=100
worth a little less. Together with the fall in interest rates, this means that real   100
disposable incomes will increase by 0.75%. The outlook for 2014 is for just a          90
small additional tax cut and thus just a minor increase in income.                     80
                                                                                       70                                          Housing prices
House prices treading water                                                            60
House prices have been slowly falling since mid-2011, while there have been            50
signs recently that apartment prices are rising. Our view is that the                  40
adjustment in house prices is almost over, though we have difficulty                         00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
pinpointing any factors that could prompt an actual upswing in house prices.           Source: Reuters EcoWin and Danske Bank

Nevertheless, by 2014 we expect house prices to be more or less able to keep
up with the general rate of inflation. However, given developments in recent
years, our expectation is clearly subject to considerable uncertainty.

Unlike the crisis in 1987-93, the sharp fall in house prices in recent years has       Private labour market stable
not been accompanied by a similarly sharp rise in home repossessions. This
                                                                                      2100                                                                           870
is due largely to the fall in global interest rates making it possible for                     Thousands                                       Thousands
                                                                                      2075                                                                           860
homeowners to adjust their finances to the crisis. Here the otherwise often           2050                                                                           850
                                                                                      2025                                                                           840
heavily criticised adjustable rate mortgage loans have played a positive role.
                                                                                      2000                                                                           830
Adjustable rate mortgages mainly pose a threat to financial stability if rates        1975                                                                           820
                                                                                      1950                                                                           810
develop significantly differently to what the overall economic trends in
                                                                                      1925             < < P r iv a t e       P u b lic                              800
Denmark would suggest. This has not been the case since 2009.                         1900             e m p lo y m e n t     e m p lo y m e n t > >                 790
                                                                                      1875                                                                           780

Private labour market in new crisis                                                            05        06        07    08   09     10     11     12   13    14

The economic crisis has left its mark on the Danish labour market, though the
                                                                                       Source: Reuters EcoWin and Danske Bank
adjustment mostly occurred at the beginning of the crisis – both private sector
and public sector employment have been surprisingly stable this year.

6|   December 2012
Nordic Outlook

Looking forward, we expect the low level of economic growth to mean
further job losses in coming years, though we do not expect any dramatic
deterioration in the Danish labour market. With a growth outlook of around
0.6% in 2013 after an outright decline in GDP in 2012, it is unfortunately
very likely that employment will fall further. We expect to see a further
15,000 job losses by mid-2013. This actually represents a modest fall in
employment given the rather lacklustre pace of economic growth. The reason
we do not forecast a greater decline in employment is that productivity
growth has been far from impressive in recent years and we believe this trend
will continue. Furthermore, we expect the decline in employment to be
confined to the private sector. Thus, we foresee significant deterioration in
the private labour market compared with recent years, when private sector
employment has generally been stable.

Exports under pressure
Exports have been one of the bright spots in the Danish economy in recent
years. Despite limited competitiveness and the crisis in the West, exports         Exports to Germany and Sweden set to slow down
enjoyed decent growth until Q2 this year, when they stood around 10%
                                                                                  8      % g ro w th G D P           D K K b n (2 0 0 5 p r ic e s )            890
higher than at the start of the crisis in 2009. Growth was split evenly between                                                                                 880
goods and services, which had essentially grown in parallel. However,             4                                                                             860
exports fell in Q3 this year and export numbers for October suggest that the      2                                                                             850
decline may very well have continued into Q4.                                     0                                                                             830
                                                                                  -2                                                                            820
The present headwinds faced by exports are not surprising given that the                 <<Sw eden                                                              810
fallout from the European crisis is being increasingly felt in northern Europe.          < < G erm an y                               T o ta l e xp o rts > >   800
                                                                                  -6                                                                            790
Both the German and the Swedish economies have slowed considerably in                   06      07          08          09         10          11        12
recent quarters and, naturally, this is affecting export potential, as Germany
and Sweden are Denmark’s two largest export markets.                               Source: Reuters EcoWin and Danske Bank

                                                                                   Note: 2012 is calculated as y/y growth in first three quarters
Looking ahead, exports will get a helping hand from the ongoing recovery in
Danish wage competitiveness. Wage growth is currently about 1.5 percentage
points below the levels prevailing in our main competitor countries. So, while
low wage growth is capping consumption, it is, on the other hand, benefiting
exporters. The wage adjustment is necessary if we are to have growth in the
Danish economy in the longer term. Danish competitiveness is also
benefiting from a significant weakening of the effective krone exchange rate
in recent years: again something that limits consumption – via higher import
prices – but which on the other hand benefits exports.                            Still large current account surplus

While Denmark’s competitiveness is improving, we unfortunately have to
                                                                                  130   DKK bn                                                      DKK bn      130
conclude that there has not been much improvement in the economies of our
                                                                                  110        C u rre n t a c c o u n t, 1 2 m th s . a c c .                    110
principal export markets in Europe. We therefore expect export growth in
                                                                                   90                                                                            90
coming years to be very slow. We do not expect a recession in Europe in
                                                                                   70                                                                            70
2013 but the continent will be balancing on the edge. With growth forecast at
                                                                                   50                                                                            50
1.1% in Germany and 1.2% in Sweden, our forecast for export growth of just
                                                                                   30                                                                            30
under 2% is not that pessimistic. However, we do fear that the main growth
                                                                                   10                                                                            10
locomotive of recent years will now be low on steam for a while.                        04     05      06       07       08      09       10     11      12

Despite the challenges faced by exports, we still expect to see a solid current
                                                                                  Source: Reuters EcoWin and Danske Bank
account surplus in the coming years, though the surplus may shrink a little
given the outlook for slightly more domestic growth.

7|   December 2012
Nordic Outlook

Public sector adjustment complete
Economic policy has been a much-used tool during the current crisis. At the
start of the crisis, economic policy was eased considerably. The easing was
mainly via increased government spending, though on top of this came
partially unfinanced tax cuts. Alternative measures have also been employed
in addition to traditional policy initiatives; first via the paying out of money
that Danes had saved up in the special pension and early retirement pension
schemes and since then via various forms of semi-public investment.

We assess economic policy to be slightly expansive in 2013. Parliament
passed a tax reform just before the summer recess that should have a
modestly expansive effect on activity and we expect this just about to offset
the fiscal tightening stemming from the so-called recovery package and the
expiration of the ‘housing jobs plan’.

The planned fiscal policy expansion has been undermined in both 2011 and
2012 by local authorities tightening their economic reins considerably – and
indeed significantly more than planned and agreed with the government. The
result has been a decline in public sector employment, which has fallen by          Public consumption flat
21,000 since mid-2010. However, this decline, which was unplanned, has to          3 .0                                                                      3 .0
                                                                                           % y/y                                                   % y/y
be seen against the much greater than planned growth in public sector jobs in      2 .5                                                                      2 .5
                                                                                   2 .0                                                                      2 .0
previous years. Hence, one could say that public sector employment has                                                    P u b lic c o n s u m p t io n ,
                                                                                   1 .5                                   c o n s t a n t p r ic e s         1 .5
returned to a slightly more normal – if high – level. For despite the shedding     1 .0                                                                      1 .0
of public sector jobs in the past two years, there are still around 10,000 more    0 .5                                                                      0 .5
                                                                                   0 .0                                                                      0 .0
workers on the state payroll than when the crisis began. Hence, the public
                                                                                   -0 .5                                                                     -0 .5
sector has not so much been hit by the crisis but rather by a lack of control.     -1 .0                                                                     -1 .0
                                                                                   -1 .5                                                                     -1 .5
Looking at more recent developments in public sector employment, it has                    04    05   06   07   08   09   10    11      12     13      14

been largely stable over the past year. This indicates that job shedding here is
close to completion. The same picture emerges from the number of public             Source: Reuters EcoWin and Danske Bank

sector job ads, which is rising quite steeply at the moment. While this does
not translate into increasing public sector employment, we do expect to see
employment levels maintained in the coming years.

The present government launched its so-called kick-start of the Danish
                                                                                    Government fails to meet investment aim
economy in its election campaign in September 2011. The purpose was to
stimulate the economy via accelerated public investment. Unfortunately, the        20,0
                                                                                            % y/y
programme has not had the intended effect, as the underlying economic              15,0
headwinds in practice made any thought of a kick-start illusionary. That said,
the impact of the kick-start can be seen in some areas of the Danish economy.
Public investment has indeed increased significantly during the crisis.              5,0

However, it has proved more difficult than the government envisaged to               0,0
                                                                                                       Actual figures
accelerate investment, with the result that the increase has been less than
                                                                                    -5,0               Government forecast, year before
planned. It must also be remembered that public investments often take time
                                                                                   -10,0               Outlook Danske Bank
to plan, plus EU tenders and other administrative hurdles can delay the                         2007 2008 2009 2010 2011 2012 2013
process significantly. However, this means that the drag from public
                                                                                    Source: Reuters EcoWin and Danske Bank
investment in the coming years should be lower than originally planned.

8|   December 2012
Nordic Outlook

Economic policy was eased in 2012 via the kick-start and the paying out of
early retirement pension contributions. Both contributed to a significant          Balanced budget by 2013
weakening of government finances – and the Danish deficit this year looks         6                                                                                          6
                                                                                       % of G D P                                                          % of G D P
set to be higher than the prescribed EU limit of 3% of GDP for the first time
                                                                                  4                                                                                          4
since the crisis started. That said, we expect the deficit to return to surplus                                               G o v . b a la n c e

next year. The reasons for this are that the temporary stimuli will cease and     2                                                                                          2

that we expect the bringing forward of the tax on capital pension schemes to      0                                                                                          0

contribute far more to government coffers than the government expects. The
                                                                                  -2                                                                                        -2
government expects a contribution of a little more than DKK5bn. However,
                                                                                  -4        E U c r it e r io n ( -3 % o f G D P )                                          -4
we expect a contribution of around DKK40bn. Note that this will be a
                                                                                       05       06       07       08         09     10       11      12    13       14
temporary income and that we expect to see a budget deficit again in 2014.
The government has pledged that unexpected income from the rescheduled             Source: Reuters EcoWin and Danske Bank
taxation of capital pension schemes will be used to reduce debt. However, we
are concerned that political reality may dent this promise, with some of the
additional income being channelled into increased government spending in           Gross public debt declining
connection with the 2014 budget – which would not be prudent.                                                                                                              60
                                                                                   9       % of GDP                                                       % of GDP
We expect gross government debt to remain safely below 50% in the coming                                                                                                   50
years. Net government debt looks considerably stronger but net debt will           7
increase substantially in 2012 as a result of the relatively large deficit.        5
                                                                                                                                               Gross debt>>
                                                                                   3                                                                                       20
Investment boost slow in coming
                                                                                   1                  <<Net debt                                                           10
The government has also sought to lift growth by granting an extraordinarily
                                                                                  -1                                                                                       0
large tax break on business investments made in H2 12 and in 2013.                         00      02          04            06      08         10        12        14
However, we do not expect business investment to begin to pick up before           Source: Reuters EcoWin and Danske Bank
late 2013, when the investment window closes. Companies still have ample
capacity and given the uncertain economic outlook, we do not expect
companies to increase investment activity significantly. That said, there is no    No major investment boost in sight
doubt that many companies will bring forward investments from 2014 to
2013 to benefit from the higher tax deductions. To the extent that the            9 0 .0    DKK bn                                                        DKK bn         9 0 .0

increased investment activity in 2013 is not just a rescheduling of already       8 5 .0    G r o s s fix e d c a p it a l                                               8 5 .0
planned investments from 2014, the investment window will of course                         fo r m a t io n ,
                                                                                  8 0 .0    c o n s t a n t p r ic e s                                                   8 0 .0
stimulate the long-term growth potential of the Danish economy. However,
                                                                                  7 5 .0                                                                                 7 5 .0
our view is that we will see a shift in the timing of investments that would
have been made anyway and thus there will be no major positive effects from       7 0 .0                                                                                 7 0 .0

the investment window on future growth. Furthermore, the short-term impact        6 5 .0                                                                                 6 5 .0
                                                                                       00          02           04            06         08          10        12
of the investment window on growth will also be limited, as, for example,
investments in machinery rely heavily on imports.
                                                                                   Source: Reuters EcoWin and Danske Bank

9|   December 2012
Nordic Outlook

Denmark: Forecast at a glance

        National account                                       2011                 2011        2012       2013     2014
                                                      DKK bn (current prices)

        Private consumption                                    874.5                  -0.5        1.1        1.3       1.2
        Government consumption                                 508.1                  -1.5        0.0        0.6       0.8
        Gross fixed investment                                 311.7                  2.8         1.8        2.1       -1.5
          - Business investment                                                       -1.8        6.7        5.4       -1.8
          - Housing investment                                                       14.6         -9.4       -2.3      1.2
          - Government investment                                                     4.2         2.3        -5.8      -5.3
        Growth contribution from inventories                     3.6                  0.5         -0.6       0.0       0.0
        Exports                                                956.8                  6.5         1.8        1.6       3.6
          - Goods exports                                      593.4                  5.9         0.3        1.4       3.5
          - Service exports                                    363.4                  7.6         4.2        1.8       3.8
        Imports                                                863.3                  5.6         3.2        2.9       2.0
          - Goods imports                                      552.7                  5.4         3.4        3.3       1.5
          - Service imports                                    310.6                  5.9         2.7        2.2       2.7
        Growth contribution from net exports                    93.5                  0.8         -0.6       -0.6      1.0

        Gross domestic product                                1791.5                  1.1         -0.5       0.7       1.6

        Economic indicators                                                         2011        2012       2013     2014
        Current account, DKK bn                                                     101.2       107.0       90.0      95.0
          - % of GDP                                                                  5.6         5.9        4.8       4.9
        General government balance, DKK bn                                           -32.0       -72.0       5.0      -35.0
          - % of GDP                                                                  -1.8        -4.0       0.3       -1.8
        General government debt, DKK bn                                             835.0       763.0      768.0     733.0
          - % of GDP                                                                 46.6        41.9       41.2      38.1
        Employment, ex. leave (thousands)                                          2767.0      2753.3     2738.3    2737.0
        Gross unemployment (thousands)                                              162.1       163.5      170.1     170.8
          - % of total work force (DST definition)                                    6.2         6.2        6.5       6.5
        Oil price - USD/barrel                                                      111.0       111.0      103.0      98.0
        House prices, % y/y                                                           -2.8        -3.9       -0.3      1.2
        Hourly earnings in industry, % y/y                                            1.8         1.5        1.5       1.7
        Consumer prices, % y/y                                                        2.8         2.4        1.5       1.7

        Financial figures                                                        19/12/12     +3 mths    +6 mths +12 mths
        Repo rate, % p.a.                                                            0.20        0.20       0.40      0.40
        2-yr swap yield, % p.a.                                                      0.56        0.45       0.60      0.65
        10-yr swap yield, % p.a.                                                     1.77        1.85       2.10      2.30
        EUR/DKK                                                                     746.0         746       746       746
        USD/DKK                                                                     563.9         557       553       565
Source: Statistics Denmark, Danmarks Nationalbank, Reuters EcoWin, Danske Bank

10 |   December 2012
Nordic Outlook

The paradox: forecast weakness due to fundamental
strengths of the economy
       We fear that the Swedish economy is set for lower growth. And
       perhaps, somewhat peculiarly, the forecast weakness is mainly due to          ‘Zest-less’ external demand
       the fundamental strengths of the Swedish economy.
                                                                                      20                                                                          8
                                                                                             % y/y                                                      % y/y
       High external surpluses, relatively small government deficits and a            15                                                                          7
                                                                                                < < W o r ld In v e s t m e n t s (P P P -w e ig h t e d )
                                                                                      10                                                                          6
       low government debt ratio have made Swedish assets interesting, / y% y
                                                                                       5                                                                          5
       especially at times when investors shift focus from return on money to          0                                                                          4
       return of money. This is what has led some commentators to proclaim             -5                                                                         3
                                                                                     -1 0                                                                         2
       the Swedish economy a safe haven, which we feel is a little
                                                                                     -1 5                                                                         1
       exaggerated.                                                                  -2 0                                                                         0
                                                                                             W o r ld G D P (P P P -w e ig h t e d ) > >
                                                                                     -2 5                                                                         -1
       We too see the strengths of the Swedish economy but for Sweden to             -3 0                                                                         -2
       become Switzerland, there is one vital element missing: liquidity. The           98      00      02      04       06       08       10      12        14
       SEK might be one of the ten most utilised currencies in the world
       economy, but with less than 2% of daily turnover, there is always a           Sources: SCB, NIESR and NIER. Danske Bank Markets calculations
       risk of liquidity grinding to a halt in times of, exempli gratia, financial
       stress, with large price shifts and losses as potential consequences.
       Thus, the SEK might deserve a stronger exchange rate towards many
       major currencies, but volatility will be high in this ‘new normal’
       environment where risks are legio.
       In conjunction with historically weak external demand, the stronger
       SEK will thus pose a challenge to the pivotal Swedish export industry
       producing considerably more than half of Swedish GDP.
       Hence, investments are also expected to remain low, especially since the
       housing market, after decades of price rises far above income growth, is
       the most obvious risk to the domestic economy. Public investments
       should, nonetheless, provide some relief for investment demand.
       The weak investment outlook will hamper the labour market and we
       expect a more pronounced upturn in the unemployment rate, peaking
       at 8.7% in summer 2013.
       Households are set to respond by clutching their wallets even tighter,
       prompting consumption to develop sub-par in the forecast horizon,
       taking another big chunk out of aggregate demand.
       All-in-all, GDP-growth is expected to stay below even our low
       estimate (1.5% y/y) of potential growth in the short term. It is only in
       2014 that we calculate a shrinking output gap and when inflationary
       pressures might again rise, albeit from extremely low levels.
       The Riksbank should stay put for a while after the December cut to
       1% but unless recent weakness proves to be very temporary we
       would regard another cut to 0.75% in April as probable. Should the
       economy pick up steam in line with our estimates in 2014, the
       Riksbank is ready to move away from the ultra-expansionary
       monetary policy towards a less expansionary stance.

11 |    December 2012
Nordic Outlook

A world constantly balancing on a cliff
Ever since the advent of the great recession, the world seems to always be
balancing on a cliff, fiscal or otherwise, constantly finding a new source of    Swedish industry losing market share
petrifying uncertainty. This time around we have to masticate the risks of the               % y/y                                            % y/y
                                                                                   1 2 ,5                                                                  1 2 ,5
so called “fiscal cliff” in the US, the three-way chicken race between Spanish     1 0 ,0
                                                                                             % y / yS w e d is h W o r ld m a r k e t s , v o l. % y / y
                                                                                                                                                           1 0 ,0
authorities, the “troika” (EU/ECB/IMF) and financial markets and, also,             7 ,5                                                                     7 ,5
                                                                                    5 ,0                                                                     5 ,0
Sisyphean efforts by the Greeks not to be forced out of the EMU. These              2 ,5                                                                     2 ,5
rather digital risks are not easily assimilated into any numerical forecast,        0 ,0                                                                     0 ,0
                                                                                    -2 ,5                                                                    -2 ,5
which is why we have chosen to use a modal forecast instead of the standard,        -5 ,0          S w e d is h e x p o r t s , v o l.                       -5 ,0
unbiased forecasts. This, in turn, implies that the information content of our      -7 ,5                                                                    -7 ,5
                                                                                  -1 0 ,0                                                                  -1 0 ,0
forecasts is dramatically reduced since there are considerable downside risks     -1 2 ,5                                                                  -1 2 ,5
left out of our considerations. Many forecasters explicitly (Riksbank,                  98      00      02      04       06       08     10   12      14

National Institute of Economic Research, for example), or implicitly have
used the same approach. The paraphrase “muddle through” is often a sure          Sources: SCB, NIESR and NIER. Danske Bank Markets calculations

sign of a forecaster using a modal forecast approach.

We also expect the world economy to “muddle-through”, meaning that our
forecast of average global growth just below 4% y/y for the remainder of the
forecast horizon comes with serious caveats. Nonetheless, should this so far
successful methodology prevail, global demand for investments can be
expected to pick up some speed, which is paramount for the investment-
laden Swedish exports industry. However, when we hone in on import
demand on Swedish export markets (id est, Swedish world market growth), it
becomes more apparent that times-they-are-a-changing. The recovery after
the great recession has proved to be much less pronounced than at any of the
previous cyclical upswings, barely recuperating the level of demand seen
before the crisis hit. And looking ahead, we can clearly see that Swedish
world market growth continues to be feeble, growing by 3-4% y/y.
Unfortunately, from a Swedish perspective, the composition of future
demand is also biased towards consumption goods, which makes it even
harder for Swedish industry to sustain its market shares. Add to this a
structural strengthening of the Swedish krona and the export outlook appears
anything but rosy. Adding up the various elements above, our estimates of
Swedish export growth reach no higher than 0.8% y/y for 2012, 1.9% y/y for
2013 and, despite doubling, is calculated to come in around a still weak 3.8%
y/y in 2014.

Economic and financial conditions to remain benign
Policy outlook
When performing a forecast for a small open economy such as Sweden,
external developments are of course key to the domestic outlook. However,
other, increasingly important, factors include the more inter-dependent stance
of economic policy, financial conditions and asset markets. But it is not
enough to weigh only monetary policy rates or the fiscal position, other
elements that have bearing on the access and price of capital – such as the
exchange rate, asset prices, regulatory fiscal measures, etc – should also be

12 |   December 2012
Nordic Outlook

The Riksbank has just lowered the repo rate to 1% and is likely to stay on
hold for a while to see if the recent signs of weakness prove temporary as in      Still strong, but deteriorating, fiscal balances
the fourth quarter of 2011. If not, we would regard another cut to 0.75% in
April as probable. At the same time, the majority board is worried about                 % of GDP       Public Sector Savings >>% of GDP
                                                                                   75                                                            3,5
keeping rates too low for too long and would not hesitate to reduce monetary
                                                                                   65                                                            2,5
stimulus if the economy picks up steam again in 2014.
                                                                                   55                                                            1,5
After the very strong fiscal bill presented a couple of months ago, Finance                                          << Maastricht Debt
                                                                                   45                                                            0,5
Minister Anders Borg has been forced to revise the economic underpinnings
to his budget in a more negative direction and has even opened up to some          35                                                            -0,5
alterations going forward. We suspect any alterations will be very limited,        25                                                            -1,5
since 2014 is – after all – an election year. Under any circumstances the fiscal     98       00      02    04   06     08   10   12      14
expansion in the coming years will be noticeable and seems to target sectors
that have been hit hard in the recent weakening of the Swedish economy, thus       Sources: SCB and NIER. Danske Bank Markets calculations

lending support to the economy. We estimate the total contribution to GDP
from fiscal policy to amount to around half a percentage point (pp), mainly
visible via private investments and consumption due to the thrust of the
measures being channelled to private sectors. This is why, despite the
expansionary fiscal stance, we forecast decreasing public consumption
growth over the next few years. Overall public consumption growth should
gradually fall back from 0.8% in 2012 and 2013 to 0.5% y/y in 2014.

The announced measures are not aggressive enough to seriously threaten
public finances but attaining the surplus target will be near impossible as the
government is still expecting far more benign economic developments than
we and most other analysts have forecast. This is especially pronounced
when using our own estimates of long-term developments in Sweden – an
exercise that negates any additional stimuli over what has already been
enacted. In short, we expect government finances to deteriorate below the
level the surplus target implies and – if we prove to be right in our views on
longer term developments – to necessitate fiscal retrenchment in the medium
term, beyond our forecast horizon. Over the forecast horizon, however, we
expect negative public sector savings of around 1% of GDP, which would
push up the debt ratio by less than .5% of GDP.

Asset price developments
Another important prerequisite when judging the economic and financial
                                                                                   Some type of correction in house prices is
conditions that underlie our forecast is asset price developments. Starting off
with the domestic stock market, which has demonstrated a strong
                                                                                    12,5                                                       12,5
performance over the past couple of years, we now expect a more sideways                      % y/y                                    % y/y
                                                                                    10,0                                                       10,0
development over the coming few quarters. Henceforth, we expect the
                                                                                        7,5                                                     7,5
fundamental link between nominal GDP growth and residual incomes (return                              House prices
                                                                                        5,0                                                     5,0
on equity) to regain its hold.                                                          2,5                                                     2,5
An area that will undoubtedly, in our view, continue to attract a large amount          0,0                                                     0,0

of interest is the Swedish housing market. Not only is it an important               -2,5                                                      -2,5

determinant of consumption via a so-called wealth effect but developments in         -5,0                                                      -5,0
                                                                                         98     00     02   04   06     08   10   12    14
the housing market are essential for the domestic banking industry, directly
and indirectly laden with assets in the form of mortgages. Over the past few       Sources: SCB, NIESR and NIER. Danske Bank Markets calculations
years, house prices have increased by around 7.5% y/y on average,
accompanied by a rise in household indebtedness from below 100% of

13 |   December 2012
Nordic Outlook

disposable income to c180% of disposable income currently. This is
relatively high from both an historical and international perspective and          Economic and Financial Conditions lending a hand
remains the main argument behind our long-held belief that Swedish house
                                                                                     1 0 4 ,0                                                                         1 0 4 ,0
prices have overshot the fundamental level by some 20-30%. However, this                        In d e x (1 9 9 7 = 1 0 0 )                      F C I II

does not necessarily mean that a collapse in house prices is imminent. We            1 0 3 ,0                                                                         1 0 3 ,0

have repeatedly stated that there is a distinct possibility of nominally small       1 0 2 ,0     [> 1 0 0 ] E x p a n s io n a r y                                   1 0 2 ,0

changes in house prices combined with continued strong developments in               1 0 1 ,0
                                                                                                                                 M CI
                                                                                                                                                                      1 0 1 ,0
household incomes. Such developments are made even more plausible when               1 0 0 ,0
                                                                                                                         FCI I
                                                                                                                                                                      1 0 0 ,0
considering the structurally low supply of housing in the most dynamic parts                                                          ECI
                                                                                       9 9 ,0                                                                          9 9 ,0
of Sweden.                                                                                        [< 1 0 0 ] C o n t r a c t io n a r y
                                                                                       9 8 ,0                                                                          9 8 ,0
Nonetheless, in our main scenario, we expect partly a nominal and partly a                       98      00      02      04      06        08     10        12

real adjustment of the housing market. This means income growth exceeding
growth in house prices for a longer period of time, taking care of some of the     Note: MCI is FX and interest rates. FCI I is MCI plus the stock
                                                                                   market. FCI II is FCI I plus house prices. ECI is MCI plus the cyclically
balancing but, also, house price declines of around 5% y/y over the forecast       adjusted government balance. A number above 100 implies that
horizon, tending to the remainder of the necessary fundamental adjustments.        financial conditions and/or economic policy are supportive to
                                                                                   growth, whereas a number below 100 indicates that financial
                                                                                   conditions and/or economic policy is contractionary. All measures
                                                                                   are adjusted for inflation and are quoted in volume terms.
Overall stance of economic and financial conditions                                Sources: SCB, NIESR and NIER. Danske Bank Markets calculations
One way – albeit disputed – to sum up the overall stance of economic policy
and financial conditions dissected above is through a financial/economic
conditions index (FCI/ECI). Even though such an aggregated measure cannot
fully capture the true overall financial stance or take into account the
interaction of different financial markets and economic policy, we feel it is a
neat way to visualise the direction and basic stance of financial variables.
Furthermore, as we also like to measure the real impact of financial
conditions, we mostly try to control for the effect of inflation.

Predominantly due to low interest rates, increased fiscal stimuli and a still
undervalued currency, financial and economic conditions appear expansive,
underpinning real growth for the near term. Nonetheless, further out in time,
as inflation recedes, the SEK strengthens further and wealth effects become
negative, real financial conditions should move in a less expansionary
direction, gradually removing some of the support to growth.

Investments developing in a non-normal fashion
High international and domestic demand in the wake of the financial crisis
                                                                                  Balancing risks to the investments outlook,
rapidly absorbed a large share of the unused and still productive capital.
                                                                                  produces a “non-normal” forecast
Together with credit readily available and reasonably priced, rising demand
                                                                                             % y/y                                                    % o f p o t.
has produced a continued rise in gross fixed capital formation (investments)         7 ,5        < < G r o s s f ix e d c a p it a l f o r m a t io n                    4

ever since summer 2009. Despite this, the level of investments has not yet           2 ,5                                                                                2
reached pre-crisis levels and capacity utilisation has simultaneously risen
                                                                                     -2 ,5                                                                               0
virtually unabated, indicating negative net investments.
                                                                                     -7 ,5                                                                               -2
                                                                                                   P r o d u c t iv it y g a p > >
A continued need to replenish worn-out production capacity and replace
                                                                                   -1 2 ,5                                                                               -4
obsolete production capacity, hence making room for a restructuring of the
Swedish economy, implies that the outlook for investments should be benign         -1 7 ,5                                                                               -6
                                                                                         98       00      02       04       06        08        10     12        14
indeed. Take into account a structural deficit in housing and the forecast for
investment growth should become brighter still.
                                                                                  Sources: SCB and NIER. Danske Bank Markets calculations

But then again, in the face of the large downside risks to demand stemming
from the political and economic situation in many of Sweden’s most

14 |   December 2012
Nordic Outlook

important export markets, companies express a high level of uncertainty,
which raises the bar for any investment project undertaken. Also, a very high
leverage in the household sector complicates the outlook for housing
investments, despite generous fiscal incentives to remodel and refurbish the
housing stock.

Nonetheless, we expect public investments to remain at a high level
throughout the forecast period, with large investments in infrastructure and
other high-profile public investments. In spite of this, in terms of contribution
to growth, the zest of public investments has probably been lost when
looking deeper into 2013.

All in all, we expect investment growth – historically a source of large
swings in overall GDP growth – to chalk up a decent 3.6% y/y in 2012, after
an even better showing of 6.7% y/y in 2011. In 2013 and 2014, continued
international woes affect the investment outlook more profoundly, but –
somewhat out of the normal – we estimate gross fixed capital formation to
remain stable, growing by 0.4% y/y and 0.8% y/y, respectively.

Reeling labour markets
Ever since the onset of the ‘great recession’, Swedish labour market
                                                                                    Employment holding up well but the unemployment
behaviour has been enigmatic. To put it bluntly, employment has been
                                                                                    rate rises
stronger than it should be given the steep fall in the level of demand. To some
                                                                                      4700                                                                           9 ,5
extent, the claims from some commentators that this is a testimony to the                       1 0 0 0 's                                                  %
                                                                                      4600                           < < E m p lo y m e n t                          9 ,0
flexible reaction from both trade unions and employers might ring true: a                                                                                            8 ,5
larger reduction in hours worked in exchange for a not-as-large cut in                                                                                               8 ,0
payrolls and wages kept know-how intact and unemployment in check.                                                                                                   7 ,5
                                                                                                                                                                     7 ,0
However, most economists, including ourselves, judge this as traditional              4200
                                                                                                                                                                     6 ,5
labour-hoarding behaviour, which by definition would cause lower                      4100                        U n e m p lo y m e n t r a t e > >                 6 ,0
productivity. Given the rigidity of (hourly) wages, this would in turn lessen         4000                                                                           5 ,5

profits and eventually lead to further reductions in the workforce. So far, this           98      00        02      04      06      08      10        12       14

gambling on the part of employers has seemed to pay off, as demand returned
                                                                                    Sources: SCB and NIER. Danske Bank Markets calculations
just a few quarters after the acute crisis. Furthermore, productivity growth
has remained abnormally low for a recovery phase, which is why
employment has managed to creep back to, even slightly above, the levels
seen before the crisis. The unemployment rate has also receded – although
still historically high – from the peak levels of 2009.

Resurgent anxiety surrounding public finances in a number of developed
countries and a more displeasing development in large growth economies
over past quarters implies a more pronounced slowdown in Swedish
production and hours worked – something that is now visible in quite a few
important labour market indicators, such as notices of lay-offs, employment
plans and to some extent also in statistics on hours worked. Core data –
employment and the unemployment rate – has still not showed any major
deterioration. Under any circumstances, assuming cyclical patterns are
somewhat intact, employment should at least not increase over the coming
quarters – effectively producing somewhat higher unemployment rates given
a structural influx of labour. However, the projected increase in the
unemployment rate is rather subdued. In the summer next year we believe it
will peak at 8.7%, approximately 1pp higher than current levels. As growth

15 |   December 2012
Nordic Outlook

picks up again in H2 13 and over the course of 2014, this should be reflected
in a slowly decreasing unemployment rate.

Nevertheless, the labour market developments depicted above underline
structural challenges facing the Swedish economy, especially in the context
of longevity of unemployment that infests certain segments of the population.
This – inter alia – has eventually provoked a plethora of medium- to long-
term revisions to estimates of potential growth rates and/or long-term
unemployment rates from a number of forecasters. This tallies with our long-
held view of a structural shift taking place in conjunction with the financial
crisis. Notably, according to recent minutes and comments and speeches by
members on the Riksbank executive board, this issue has not passed

Disposable income growth stalling
Albeit not falling outright, the weak growth in hours worked and employment
                                                                                   Incomes and consumption not as bad as could be
over the forecast horizon is likely to produce a large shift in households’ real
disposable income growth, despite reasonably strong developments in hourlyy / y
                                                                                     6                                                                                   6
wages. After impressive growth over the past two years (average growth in                   % y/y
                                                                                                          D is p o s a b le in c o m e , v o l.
                                                                                                                                                               % y/y
                                                                                     5                                                                                   5
excess of 3% y/y) real disposable income growth is expected to be a more
                                                                                     4                                                                                   4
subdued 2% y/y this year. In 2013, we expect disposable income growth to
                                                                                     3                                                                                   3
remain stable, only to pick up slightly to 2.5% y/y in 2014. Furthermore,
                                                                                     2                                                                                   2
wealth effects are also net negative (we expect house prices to fall and equity
                                                                                     1                                                                                   1
prices to grow no more than nominal GDP growth suggests), further                    0                                                                                   0
                                                                                                               C o n s u m p t io n , v o l.
cementing rather weak preconditions for household consumption growth.               -1                                                                                  -1
                                                                                      98       00         02        04        06        08        10      12     14
In addition, we have chosen to assume a continued high savings rate due to
the increased uncertainties stifling the outlook, which constitutes an upside
                                                                                   Sources: SCB and NIER. Danske Bank Markets calculations
risk, should prospects firm in the near term. Despite all the above caveats, the
outlook for household consumption remains healthy. Overall, we expect
consumption growth to fall from the strong growth recorded in 2010 and
2011 to a range between 1.5% y/y to 2% y/y for the forecast horizon, growth
rates which must be labelled strong given the uncertainties that mar the

The inventories-imports dynamics
Ever since the height of the financial crisis in winter 2008/09 and the
concurrent significant global destocking, there has been strong demand             What’s a small open economy to do?
growth, in particular unconventionally strong domestic demand growth,
                                                                                    2 ,5                                                                               15
                                                                                            p .p .                                                             % y/y
which has lifted import demand in a seldom-seen fashion. This has served to                                                        Im p o r t s (v o l.) > >
                                                                                    2 ,0                                                                               10
keep net exports at depressed levels for a protracted period, whereas
                                                                                    1 ,5
inventories have contributed strongly to growth throughout the recovery
                                                                                    1 ,0
phase. However, external demand has trended stronger over the past years,                                                                                                0
                                                                                    0 ,5
which in conjunction with stabilising domestic demand has produced a                0 ,0
                                                                                                 < < N e t e x p o r t s (v o l.)
stronger net export contribution to GDP growth along the way. Preliminary           -0 ,5                                                                              -1 0
(still) national accounts data suggests a net export contribution to GDP for        -1 ,0                                                                              -1 5
FY 11 of 0.8pp y/y. Given a renewed weakening of global growth and a                     98          00    02        04       06        08        10     12      14

continued strong SEK in 2012, we expect net export contributions to GDP
growth over the forecast horizon to become less pronounced throughout              Sources: SCB and NIER. Danske Bank Markets calculations

2013. In due time, mainly in 2014, consecutive growth contributions are
again expected to pick up. With inventory levels again balancing a weaker

16 |   December 2012
Nordic Outlook

demand situation, we expect a relatively large negative inventory
contribution to GDP growth in 2012 and a more growth-neutral impact in
2013 and 2014 when things start to improve again.

Adding up to GDP
Above, we have dissected some of the main elements of the Swedish
business cycle. 2011 produced a handsome 3.9% y/y GDP-growth, in spite of         Productivity growth all too slow to sustain wages
a very weak close to the year. The low starting point to this year was
                                                                                    7                                                                                        7
nonetheless balanced by a strong start to 2012, which together with a larger                 % y/y                                                            % y/y
                                                                                    5                                      G D P , v o l.                                    5
than expected contribution from public expenditures serves as our main
argument for keeping our forecast for GDP-growth in 2012 more or less               3                                                                                        3

intact. When summing up the GDP components for the forecast years it                1                                                                                        1

becomes apparent that this year will be characterised not only by a low                      P r o d u c t iv it y
                                                                                    -1                                                                                      -1
                                                                                                            H ou rs w orked
starting point but also by weaker export growth and an inventory cycle that         -3                                                                                      -3
revolves fully. Our calculations point to 1.2% y/y GDP growth in 2012,              -5                                                                                      -5
which constitutes a minute downward revision to previous forecasts. Looking             98       00         02        04        06          08    10    12          14

further ahead, into 2013, the small open economy of Sweden will have to
fend off a stronger currency and continued fiscal belt tightening across export   Sources: SCB and NIER. Danske Bank Markets calculations

markets, which will undoubtedly hold back export growth. In short, despite
some alleviation from domestic economic policy, we expect Swedish GDP
growth to remain weak at 1.2% y/y in 2013 also. It is only in 2014, when
world market growth is finally expected to pick up more steam, that actual
GDP growth is expected to again outpace potential GDP growth by
increasing 2% y/y.

As touched upon previously, productivity (output per hours worked) has been
surprisingly weak since 2007 and we have continually been too optimistic on
this measure. This has also been the main reason for our simultaneous
overestimation of the unemployment rate in the aftermath of the financial
crisis. We finally saw the first signs of improvement in productivity in late
2010, which continued into 2011. Unfortunately, the latest round of national
                                                                                  Inflation outlook warrants further stimuli
accounts data revealed stark negative revisions to already weak productivity
developments in the aftermath of the financial crisis, clouding the positive       4                                                                                     4 ,0
                                                                                         % o f p o t e n t ia l       < < O u tp u t g a p                  % y/y
image of the productive Swedish business sector further. This nonetheless          2                                                                                     3 ,0
tallies well with our less optimistic view on potential growth rates, where we
                                                                                   0                                                                                     2 ,0
have assumed that there is still obsolete capital that has to be worked off.
                                                                                   -2                                                                                    1 ,0
Looking ahead, this capital overhang together with weak, at times even                                 In f la t io n (C P IF ) > >
                                                                                   -4                                                                                    0 ,0
negative, demand growth serves as an explanation for a startlingly low
productivity forecast. Swedish productivity nonetheless grew 1.5% y/y in           -6                                                                                    -1 ,0

2011 but we expect it to fall 0.8% y/y in 2012 and post another feeble 1.0%        -8                                                                                    -2 ,0
                                                                                    98         00        02          04      06       08         10    12     14
y/y in 2013. In 2014, productivity growth is expected to increase by a more
decent 1.5% y/y. But even with this improvement this is, from all aspects, far
                                                                                  Sources: SCB and NIER. Danske Bank Markets calculations
below the norm for the Swedish economy.

Taken together with recent indications on hourly wage increases, these
developments will keep cost pressures all too high and might even hinder an
even stronger monetary policy reaction to the deteriorating outlook. The
reason is that we expect labour costs, mainly wage driven, to top productivity
growth by some margin. We expect unit labour costs (ULC), which adjust for
the wage earners’ share of productivity gains, to rise by an uncompetitive
2.5% y/y next year. Thankfully, and as mentioned above, weak external and

17 |   December 2012
Nordic Outlook

domestic demand, i.e. low resource utilisation, is likely to restrain the
inflationary impact of high average ULC and these factors should prevail,
containing ULC pressure in both 2014 and in a medium- and longer-term

But again, and more worrisome, high ULC near term might become a
hindrance to a more swift and decisive reaction from the Riksbank, which is
particularly worrying as the results of standard monetary policy rules and
many econometric models clearly necessitate negative real interest rates.

Stabilisation policy inflation
Given the weakening global outlook, it would be easy to conclude that
inflation worries should be put firmly to rest. However, inflation might still
take off due, inter alia, to the tremendous economic-political stimuli that has
been and continues to be implemented. Some even speak of hyperinflation, as
some central banks are seen as monetising government debt and credibility
for fiscal policy is imperative for a modern fiat-currency. Yet, downside risks
materialising are most likely to produce a situation that can easily be
described as a depression – a deflationary spiral combined with a
dysfunctional financial sector unable to transfer any economic policy stimuli.

However, in our main scenario, the above risks remain contained and the
credibility of economic policy remains high. Growth as well as inflation will
eventually return – in a controlled fashion. Prices on internationally traded
goods and Swedish import prices will normalise. Domestic inflation and so-
called ‘core inflation’ (CPI excluding food, energy and interest rates) are both
principally derivatives of wage developments and, given our view on future
wage developments, we believe that domestically generated price indices are
set to normalise as well.

Thanks to our below consensus estimate of the long-run potential of the
Swedish economy, where long-term potential GDP growth is approximated
to be 1.5% y/y, the weak GDP developments envisaged above push resource
utilisation only marginally lower in 2012 and 2013. Mainly in 2014, when
actual growth supersedes potential, inflation rates should eventually start to
inch up, as the higher consecutive growth rates start to eat away at the vast
surplus resources in the Swedish economy and inflationary pressures start to
build. However, this would not be enough to push inflation (in terms of CPIF,
which excludes the mortgage rate interest component) anywhere near the
Riksbank’s inflation target (2% y/y).

Short term, we believe that inflation will not only undershoot the inflation
target of 2% but even approach deflationary levels, even measured in terms
of headline (CPI) inflation. This is set to happen as previously high price
rises fall out of the CPI calculations and the general deterioration of the
outlook feeds into prices. For 2012, we expect CPI inflation to fall back and
average 1% y/y. In 2013, we expect CPI inflation to move more in tandem
with CPIF inflation but remain low and again average a low 1.0% y/y. It is
only in 2014 that we expect inflation to set its sights on the Riksbank’s 2%

18 |   December 2012
Nordic Outlook

Despite the recent cut(s) in the repo rate, the Riksbank majority seems to be
                                                                                    Low rates for a long time is the current market
advocating a relatively high repo rate, striving from ultra low, in real terms
even negative, interest rates. Any qualms surrounding potential estimates and
                                                                                    5.0   %                                                    5.0
the concept of neutral rates aside, given current uncertainties on the economic                                                           %
                                                                                    4.5                                                        4.5
and monetary policy outlook, the Riksbank must nevertheless tread                   4.0                                                        4.0
                                                                                    3.5                                                        3.5
cautiously. Inflation forecasts unambiguously point to lower inflation, which       3.0                              Repo rate                 3.0
serves to tighten economic policy, all the while interest rate rules of all kinds   2.5                                                        2.5
                                                                                    2.0                                                        2.0
suggest the economy is in dire straits and in need of more stimuli. Given that      1.5                                                        1.5
rates are close to the nominal interest rate floor, additional stimuli is hard to   1.0                                                        1.0
                                                                                    0.5                                                        0.5
come by, which is also why we believe there are solid arguments for the             0.0                                                        0.0
Riksbank to continue lowering rates.                                                      05   06     07     08    09     10     11       12

A ‘normalisation’ of (real) interest rates, would mean the Riksbank will raise      Sources: Riksbank. Danske Bank Markets calculations
the cost of capital and the rate of what economists call creative destruction,
perhaps to an extent that is excessive given a weak demand situation in our
surrounding world. Understandably, and maybe looking beyond our forecast
horizon, the Riksbank will for many years to come be forced to strike a fine
balance between the need to support the economy in the face of apparent
downside risks and the need to support productive reallocation of capital and
other resources to the most viable parts of the economy. This process of
‘price discovery’ is currently being corrupted by ultra low (re-)financing rates
and extreme excess liquidity.

The lopsided risks when close to the nominal interest rate floor nonetheless
warrant a proactive reaction from the central bank. We therefore expect the
Riksbank to continue lowering the repo rate in 2013 and reach 0.75% shortly.
Of course, escalated financial and economic turmoil could warrant an even
more rapid and stronger reaction from the Riksbank and, likewise, a more
pronounced return of confidence, and growth, in Swedish export markets
could very well make further cuts seem unnecessary.

In applying strong focus on the attractive economic fundamentals of Sweden
vis-à-vis most other developed countries, w expect the SEK to strengthen
over the coming period. On a 12-month horizon, we believe that EUR will
cost about 8.40 and the USD should also become cheaper and trade around
6.46. Furthermore, we have a hard time conjuring up any fundamental reason
why it should underperform either the euro or the dollar from an even longer

Any investor would be wise to bear in mind though that the SEK has
historically had a hard time performing in periods of elevated financial stress,
such as after the financial collapse of 2008/09, which is why the trend
towards even stronger levels might very well be accompanied by high
volatility. In short, the SEK is no safe haven and you have to be of a
particularly stout-hearted character to endure the swings that might lie ahead.

19 |   December 2012
Nordic Outlook

Sweden: Forecast at a glance
                 National accounts                  2011        2011     2012       2013         2014
                                                   SEK bn               Vol growth in %
                 Private consumption                1672.9        2.1       1.4           1.8       1.5
                 Government consumption              926.0        1.1       0.4           0.7       0.5
                 Fixed gross cap formation           646.0        6.4       3.1           0.4       0.8
                 Stocks*                              40.5        0.5      -0.8           0.1      -0.1
                 Domestic demand                    3245.0        3.2       3.3           3.3       1.1
                 Exports                            1748.8        7.1       0.4           1.9       3.8
                 Aggregate demand                   3285.2        4.5       0.5           1.5       2.1
                 Imports                            1531.5        6.3      -0.4           2.4       1.8
                 Net exports*                        217.0        0.7       0.4           0.0       1.2
                 GDP                                3502.5        3.7       0.9           1.2       2.0
                    - GDP, Calendar adjusted                      3.8       1.2           1.2       2.0
                 * contribution to GDP growth

                 Economic indicators                            2011     2012       2013         2014
                 Trade balance, SEK bn                           91.1    107.7      121.2        121.1
                 in % of GDP                                      2.6      3.0        3.4          3.3
                 Current Account, SEK bn                        227.9    248.5      267.2        265.5
                 in % of GDP                                      6.5      7.0        7.5          7.1

                 Public sector savings, SEK bn                   -3.5     -17.7      -39.3       -37.3
                 in % of GDP                                     -0.1      -0.5       -1.1        -1.0
                 Public debt ratio, % of GDP*                    38.4      37.7       37.9        38.1

                 Unemployment, % of labour force                  7.5       7.7            8.5      8.0
                 Hourly wages, % y/y                              3.2       2.6            3.7      4.0
                 Consumer prices, % y/y                           3.0       0.9            0.4      2.5
                 House prices, % y/y                              0.7      -3.0           -5.0     -5.0
                 * Maastricht definition
                 Financial figures                           19.12.12 + 3 mths + 6 mths + 12 mths
                 Repo-rate                                       1.00     1.00      0.75     0.75
                 SEK/EUR                                          876      850      840       840
                 SEK/USD                                          666      634      622       636

Source: Danske Bank

20 |   December 2012
Nordic Outlook

Still growing at a strong rate
      The Norwegian economy continues to grow close to trend, fuelled by
       high oil investment and real wage growth. However, a continued               Growth above trend
       increase in the saving ratio has dampened consumption growth in H2.
      Low real interest rates and high levels of consumer confidence are
       still supporting the housing market. Housing prices have risen a bit
       faster than anticipated at the beginning of the year, mainly due to
       unchanged interest rates. However, residential building is now
       picking up and will hopefully stabilise the housing market in 2013.
      Weaker global growth is undoubtedly hurting the export industry,
       but the negative effect must be considered more muted than
      The labour market is still tight, with low unemployment.                     Source: Reuters EcoWin, Danske Bank Markets

       Employment growth remains high, and the slowdown witnessed over
       the summer has been reversed.
      Low global price impulses, a strong currency and lack of pricing
       power in the retail sector are holding inflation down.
                                                                                    Savings high and rising
      Norges Bank has once again postponed the first rate hike to ‘next
       summer’. The main reason is the appreciation of the exchange rate.
       Favourable fundamentals will support the NOK in 2013, hence
       supporting a low rate regime. Nevertheless, we expect rates to be
       hiked twice in 2013.

Oil sector keeps the wheels turning
The Norwegian economy has come through the European debt crisis
relatively unscathed. Oil investment is rising fast and making a big
contribution to growth in the Norwegian economy – both directly through
                                                                                    Source: Reuters EcoWin, Danske Bank Markets
increased activity and indirectly through strong income growth. The demand
for labour in oil-related industries is counteracting the negative effects of the
decline in traditional industries. Healthy profitability and low unemployment
will probably ensure further solid real wage growth for Norwegian
                                                                                    Strong housing market activity
households in 2013, resulting in consumption growth well above 3%. We
believe strong house price inflation and rapid population growth will also
ensure high housing investment in 2013, making a solid contribution to
growth in mainland GDP. The labour market remains tight, with low
unemployment and high employment growth. The European debt crisis has
also led to falling mortgage rates. However, strong growth in house prices
and high levels of debt in the household sector leave the Norwegian economy
more vulnerable to negative shocks such as a fall in oil prices.

Saving puts brakes on consumption growth
                                                                                    Source: Reuters EcoWin, Danske Bank Markets
Norwegian households remain upbeat. Although we have seen a slowdown in
consumption growth over the past couple of months, this comes on the back

21 |    December 2012
Nordic Outlook

of very strong figures earlier this year. We expect real household disposable
income to rise by 4.5-5.0% both this year and next. Despite low
unemployment, low interest rates, high house prices and expansionary fiscal
policy, the savings rate is rising. There is a slight chance that a more upbeat
global economy will reverse this trend and bring stronger consumption
growth next year.

Households’ strong finances are also affecting the housing market. Prices are
still climbing, the average time to sell is falling and the stock-to-sales ratio is
continuing to come down. All in all, house prices look set to rise by around
7.5% in 2012 and could climb further in 2013. Based on anecdotal
information on rents, it seems that the housing market in the largest cities is
now priced at a P/E of 22-25x. Given a background of negative real mortgage
rates, this is beginning to give real cause for concern.

Although growth in household income has been the most important driver                Good and stable growth outlook
behind the rise in house prices in Norway in recent years, real prices are
almost back to the all-time high posted in 2007. This illustrates that there will
soon be a real need for the housing market to cool off. The political
authorities are currently discussing countercyclical capital buffer
requirements and higher risk weights for mortgages in a bid to rein in the
property market. This could ease the pressure on Norges Bank and reduce the
need for higher interest rates.

High property prices are also fuelling strong growth in housing investment,
which we believe will probably rise by close to 10% this year, and housing
                                                                                      Source: Norges Bank
starts suggest that it could climb as far in 2013 too. Indeed, the number of
starts now suggests that homebuilding this year will exceed the 30,000 units
generally considered the annual requirement.

After a decade of continual increases in house prices and debt levels,
households’ financial position has to be seen as a risk factor in our view.
Norway is one of few Western countries where households are more heavily
indebted (measured as the ratio of debt to disposable income) than they were
before the financial crisis in 2007-08. Nominal house prices have also risen
considerably and are now 22% above their previous peak in 2007.

As mentioned above, it appears that the rapid rise in house prices is due
principally to strong growth in real disposable income and extremely low real
interest rates. There is no empirical evidence that Norway is experiencing a
housing bubble in the classic sense of price rises being fuelled chiefly by
expectations. On the other hand, household debt levels are getting very high
and this, as the financial crisis showed, can present a threat to both the
financial system and the real economy.

22 |   December 2012
Nordic Outlook

Normal capacity utilisation
Strong impulses from the oil sector have helped shield the Norwegian             Strong growth in oil investment
economy from a period of weaker global activity. Activity levels are more or
less normal and growth has been above trend, translating into an increase in
capacity utilisation. Leading indicators are signalling continued optimism,
albeit still with some variation between sectors. Activity in oil-related
industries, retailing, services and construction is approaching boom levels.
Traditional exporters are also doing better than feared and the value of
traditional exports looks likely to be somewhat higher in Q4 than in Q3.

For the Norwegian economy as a whole, therefore, it appears the risk of a
serious downturn is still limited. Mainland growth was up at 0.9% q/q in Q3
                                                                                 Source: Statistics Norway, Danske Bank Markets
and Norges Bank’s regional network survey points to only marginally weaker
growth in Q4.

As mentioned above, oil investment is set to make another big contribution to
growth in 2013. According to Statistics Norway’s investment survey, oil
investment will rise by around 15% in current prices in 2013, which probably
translates into a contribution to growth in the mainland economy of around
0.7-0.8 percentage points. Although some of the investment demand from oil
companies in the Norwegian sector will be met by imports, investment levels
are also high in oilfields beyond the North Sea. This spells high levels of
activity for the Norwegian supply sector.

Domestic inflation low too
Despite high capacity utilisation, low unemployment and high wage growth,        Moderate inflationary pressures
there are no signs of inflation picking up. Core inflation has been largely as
expected in recent months. The strong krone probably spells further negative
inflationary pressure from imported goods in 2013 but more surprising is that
domestic inflationary pressure is also so modest when activity levels are so
high. This could be down to a number of things, such as high price levels in
Norway leading to considerable retail leakage through border trade, online
purchases and foreign travel.

Low unemployment and strong demand for labour in industries with high
profitability have kept wage growth up. As the overall outlook for the
                                                                                 Source: Reuters EcoWin, Danske Bank Markets
Norwegian economy is largely unchanged in 2013, there is reason to expect
wage growth to hold above 4% next year, even though it is only an
intermediate year for big pay deals, thanks to local wage drift and higher
wage growth due to job changes.

23 |   December 2012
Nordic Outlook

Strong krone in any case
In its latest monetary policy report in October, Norges Bank indicated that
the first increase in interest rates would come sometime between May and         Krone to remain strong
September 2013 if things panned out more or less as expected. Since then,
there has been growing speculation about negative interest rates in Europe,
which has pulled down interest rate expectations in Norway. A stronger
krone is pulling in the same direction. However, the fixed income market is
discounting unchanged rates well into 2014, which we consider unlikely. At
the very least, this would require the krone to continue to appreciate.

Norway’s strong government finances, coupled with much higher capacity
utilisation than in other Western economies, probably mean that the krone
will remain relatively strong until the problems in Europe ease significantly.
                                                                                 Source: Reuters EcoWin
On the other hand, some of the capital that has flowed into Norway over the
past year could quickly move into other markets if the global outlook
brightens. This could give Norges Bank scope to normalise interest rates
somewhat more quickly than the market is currently expecting.

24 |   December 2012
Nordic Outlook

Norway: Forecast at a glance

 National accounts                          2011(2011-prices)         2011     2012       2013     2014
                                                 NOK bn                        Vol growth in %
 Private consumption                                  1091.4             2.4      3.1        3.5     3.5
 Public consumption                                    548.2             1.5      1.9        2.1     2.0
 Gross fixed investment                                520.0             6.4      6.3        5.0     6.0
  Petroleum activities                                 138.7           13.4     15.3         7.3     5.0
  Mainland Norway                                      367.7             8.0      2.7        3.9     6.2
  Dwellings                                            113.8           22.0       8.3        6.6     6.0
  Enterprises                                          172.3             2.6      3.7        4.2     4.8
  General government                                    81.7             3.0     -1.0        2.9     4.0
 Mainland demand                                      2007.3             3.2      2.7        3.1     3.5
 Growth contribution from stockbuilding                 66.7             0.3      0.1        0.1     0.0
 Exports                                               932.0            -1.4      2.0        0.6     1.5
  Crude oil and natural gas                            371.6            -6.2      3.0       -1.6     0.5
  Traditional goods                                    283.0            -0.4      2.0        1.7     2.7
 Total demand                                         3158.2             2.0
 Imports                                               751.3             3.5      2.1        4.6     5.0
  Traditional goods                                    454.1             5.3      2.6        4.0     4.5
 Growth contribution from net exports                  180.7            -1.0      0.2       -1.1
                                      0.0                0.0             0.0      3.1        3.5     3.5
 GDP                                                  2406.9             1.4      3.0        2.8     2.9
  GDP Mainland Norway                                 1956.9             2.4      3.3        3.1     3.4

 Other posts                                                          2011     2012       2013     2014
 Employment, % y/y                                                      1.4      2.2        1.6      1.5
 Labour force, % y/y                                                    1.0      2.0        1.5      1.5
 Unemployment (LFS), %                                                  3.3      3.0        3.5      3.5
 Annual wages, % y/y                                                    4.2      3.1        4.2      4.5
 Consumer prices, % y/y                                                 1.2      0.7        1.8      2.2
 Core inflation                                                         0.0      1.4        1.3      2.0

                                                                                +3          +6     + 12
 Financial figures                                              19-12-2012     mths        mths    mths
 Deposit rate                                                          1.50    1.50        1.75    1.75
 2y swap rate. %                                                       2.07    2.15        2.30    2.45
 10y swap rate, %                                                      3.14    3.15        3.20    3.30
 EUR/NOK                                                               7.40    7.20        7.15    7.10
 USD/NOK                                                               5.60    5.37        6.06    6.12

Source: Danske Bank

25 |   December 2012
Nordic Outlook

Finland clings to the Aaa status
       GDP contracted both during Q2 and Q3, according to the first
       estimate, putting Finland into a recession as expected. Working-day        Changes relative to previous forecast
       adjusted GDP was down 1.2% y/y on Q3. Domestic demand slipped,
       especially construction, and exports suffered from the euro crisis.                                                       Current forecast            Previous forecast
                                                                                                                             2012         2013    2014        2012     2013
       We have revised down our outlook for Finland in 2013 to take into          GDP, %                                      0.0         0.5       2.2        0.0      1.0
                                                                                  Unemployment rate, %                        7.7         8.2       7.9        7.7      7.9
       account the very weak consumer and business surveys. GDP is now
                                                                                  Inflation, %                                2.8         2.5       2.0        2.9      2.6
       forecast to grow 0.5% in 2013.                                             Earnings, %                                 3.4         2.7       2.5        3.4      2.7
                                                                                  Housing prices, %                           2.0         1.5       2.5        1.2      1.0
       Finnish exports have underperformed the growth in export markets,          Current account,                            -1.5        -1.0      -0.5       -1.2     -0.7
       due to high weight in investment goods, poor competitiveness and           % of GDP
                                                                                  Public debt,                                 53         55        55         52.5    54.0
       Nokia downscaling. Recent figures are stable, however, and demand          % of GDP
       in emerging markets offers growth.                                         Source: Danske Bank

       The new normal in private consumption means modest growth
       figures in the future. Real wages are increasing only slightly and the
       relatively low savings ratio does not give much additional room for

       With relatively low debt and well capitalised banks, domestic sectors
       in Finland have until lately been protected from the negative impact
       from the euro crisis. Stable domestic factors provide a buffer to
       employment and to the cost of public debt against external shocks.

       We expect investments to decline slightly in 2013. Construction
       companies are still cautious and manufacturing CAPEX is likely to
                                                                                                                                                             P a lv e lu e lin k e in o t
       be subdued as well.

Some kind of a recession
Gross domestic product fell by 0.1% in July-September compared to the
previous quarter, confirming a recession in Finland. Working-day adjusted         GDP contracted during second half of 2012
GDP was down by 1.2% y/y during the third quarter. Statistics Finland made
                                                                                   1 0 .0        % y/y                                                                   100
                                                                                                                                                       N e t b a l.
an unusual reservation, however, stating that a future revision could well lift      7 .5                                                                                  75

the Q3 figure and cancel out a technical recession. To a layman the situation        5 .0                                                                                  50
                                                                                     2 .5                                                                                  25
smells like a recession, in any case.                                                0 .0                                                                                      0
                                                                                    -2 .5                                                                                 -2 5
The fall was broad based, especially construction activity decreased. Private       -5 .0                     C o m p o s it e c o n fid e n c e > >                      -5 0
                                                                                                              (m a n u fa c t u r in g , c o n s u m e r ,
consumption regained some strength during Q3, although the numbers were             -7 .5
                                                                                                              c o n s t r u c t io n , s e r v ic e s )
                                                                                                                                                                          -7 5
                                                                                  -1 0 .0                                                                               -1 0 0
far weaker than during Q1, when private consumption was supported by              -1 2 .5
                                                                                                 < < G D P in d ic a t o r
                                                                                                                                                                        -1 2 5
wage increases and an anticipated motor vehicle tax hike. Exports remained                  96         98       00       02          04     06       08        10

stable despite headwinds from the euro area.

Manufacturing output was marginally up by 0.1% q/q but given earlier losses       Source: Reuters EcoWin
it still fell 0.3% short of previous year. According to monthly statistics,
industrial output was 0.4% up m/m in October. Adjusted for working days,
output was 0.7% lower in October 2012 than 12 months earlier. We do not

26 |    December 2012
Nordic Outlook

expect this to signal improvement in manufacturing. Over the January to
October period, industrial output decreased by 1.5% y/y.

The final quarter 2012 looks challenging, although an agreed salary increase
in November could boost Christmas sales. Recent business surveys show that       Confidence indicators remain at low levels
weak expectations continue to dominate in manufacturing and construction
                                                                                 50                                                                                      50
industries. The confidence indicator for manufacturing companies remained                    N e t B a l.                                                 N e t B a l.
                                                                                 40                                                              S e r v ic e s          40
well below normal in November. The value of new orders has stabilised            30                                                                                      30
                                                                                                                           C on su m ers
recently in many industries but metals still show weakness. The recession in     20                                                                                      20
                                                                                 10                                                                                      10
the euro area is still going to have a negative effect on the export-driven
                                                                                      0                                                                                    0
Finnish economy. Construction confidence has been weak for several               -1 0                                                                                    -1 0

months. Granted building permits and housing starts have continued to            -2 0                                                                                    -2 0
                                                                                                                                       M a n u fa c t u r in g
                                                                                 -3 0                                                                                    -3 0
decrease. Permits by cubic meter fell 26% y/y. We expect the weakness in         -4 0                                                                                    -4 0
production to last a few quarters. Recently also service confidence has                       06            07     08         09         10         11           12

weakened. After weak retail sales during the spring, sales volumes have been
modestly higher y/y during the summer and autumn. The most worrying              Source: Reuters EcoWin
leading indicator is household confidence in own finances 12 months ahead,
which continues to be nearly as weak as during the 2009 recession.

Continued tensions in the euro area affect Finland directly via the export
sector. Exports are likely to decrease early 2013, uncertainty causes CAPEX
to be postponed and a dent in employment forces private consumption to
level down from earlier fast growth figures. Given weak numbers YTD, GDP
has probably been flat y/y in 2012. We have revised our estimate for 2013
downward to GDP growth of 0.5% (previously 1.0% growth) as we see no
fast solutions being implemented to bring significant growth to the euro area.
Assuming that China and the US lead the global recovery, we expect Finland
to reach 2.2% growth in 2014. Obviously, a full-blown financial crisis in the
euro area started by a disorderly Greek exit from the eurozone or other major
political event would not leave the Finnish economy untouched.

New normal to hit private consumption
Private consumption grew substantially in 2010 and 2011 after the Great
Recession. Improving employment, rising real wages and low interest rates        Only slight growth expected in real wages
outweighed worries about the euro crisis. Now this development is about to       7                                                                                         7
                                                                                          % , 1 2 m o n th c h a n g e s             % , 1 2 m o n th c h a n g e s
end. Increase in purchasing power is expected to reverse, or at least halt, in   6                                                                                         6
                                                                                                                    W a g e s a n d s a la r ie s
                                                                                 5                                                                                         5
2013. In the forecasting period wage growth will be roughly in line with
                                                                                 4                                                                                         4
inflation at a time when tax increases are imminent. We also expect              3                                                                                         3
consumer confidence to remain at low levels as employment figures continue       2                                                                                         2
                                                                                 1                                                                                         1
to weaken in H1 13. Low interest rates and a reasonably steady (relatively
                                                                                 0                                                                                         0
                                                                                                                                C o n s u m e r p r ic e s
speaking) employment level will help sustain private activity but past growth    -1                                                                                       -1

figures are not realistic nor are they sustainable.                              -2                                                                                       -2
                                                                                          99 00 01 02 03 04 05 06 07 08 09 10 11

Consumer spending has swung back and forth this year. In Q1 one-off salary
payments and tax changes supported private consumption growth to 2.5%
                                                                                 Source: Reuters EcoWin
q/q. However, Q2 saw the biggest decline in private consumption in the
history of the quarterly statistics from 1975 with a dive of 2.3% q/q.
Consumer spending normalised in Q3 as private consumption rose 0.8% q/q.
The short-term outlook remains gloomy as consumer confidence remains at
historically low levels. The outlook for 2013 and 2014 is also restrained with
only modest wage growth and an already low savings rate with little

27 |   December 2012
Nordic Outlook

additional room to boost spending. Nominal wages increased by 3.5% y/y in
the third quarter 2012. Wage growth is expected to exceed inflation in 2012          Manufacturing industries invest cautiously
but fall in line with consumer price inflation in 2013 and 2014. We expect
                                                                                     13                                                                                         13
                                                                                                M a c h in e r y a n d e q u ip m e n t
private consumption to grow 1.7% y/y in 2012 before moderating to a growth           12         in v e s t m e n t p e r G D P , %                                              12

of 0.8% in 2013 and 1.3% in 2014.                                                    11                                                                                         11
                                                                                     10                                                                                         10

Inflationary pressures are likely to ease because of the recession. Inflation fell    9                                                                                          9
                                                                                      8                                                                                          8
to 2.6% in October. Consumer prices were pushed up most by risen cost of
                                                                                      7                                                                                          7
food and transport and increases in the retail prices of alcoholic beverages          6                                                                                          6

and tobacco. Almost one percentage point of current inflation is explained by         5                                                                                          5
                                                                                      4                                                                                          4
increases in various indirect taxes. Fall in interest rates, prices of                    76       80       84        88      92       96        00        04    08        12
entertainment electronics, mobile communication services and electricity
helped to keep inflation down. As of 1 January 2013 VAT tax will be
                                                                                     Source: EcoWin
increased by one percentage point (highest rate from 23% to 24%), which
will push prices up. We expect an annual average inflation of 2.8% in 2012
and 2.5% in 2013 before moderating to 2.0% in 2014.

Construction headed to well below normal
Investments fell 4.4% y/y during Q3, which was a major factor behind the
GDP contraction. Construction diminished by 1.4% q/q and by 4.6% y/y. The
volume of investments in machinery, equipment and transport equipment
reversed some of the earlier losses and increased by 2.5% q/q. Given the fall
in business confidence and low growth outlook in Finland, manufacturing
capex and business construction are not likely to rise before the outlook for
the whole euro area improves. Housing construction continues to look
lucrative, because the gap between selling price and construction costs is
wide, but construction companies have become cautious. The number of
granted building permits has fallen sharply. Construction companies do not
want overhang of supply, which would depress the price level. We forecast
investments to fall 2.5% y/y in 2012 and to keep falling 1.0% in 2013, before
bottoming out in 2014. Despite low new production, many construction
companies benefit from a significant amount of necessary renovation.

Exports without clear direction
The volume of exports rose by 2.4% q/q in the third quarter of 2012, but
given earlier losses, exports were 1.8% down y/y. Finnish exports have been          Exports to Russia has fallen behind the potential
lagging the growth in international trade, which could emanate from the low
                                                                                     350                                                                                        350
diversification in key export products as well as from the large share of metal                 2 0 0 5 :1 , t r a d e v a lu e in e u r o
                                                                                     300                                                                                        300
engineering, paper and other cyclical industries. Capex is still weak in several     250
                                                                                                                   R u s s ia n im p o r t s , t o t a l
export markets. Nokia has continued to cut down production in Finland,               200                                                                                        200
which has had a sizable impact on Finnish exports.                                   150                                                                                        150

                                                                                     100                                                                                        100
Despite the lagging performance especially in 2011 and euro area recession
                                                                                      50                                        F in n is h e x p o r t s t o R u s s ia         50
in 2012, Finnish exports have remained fairly stable into late 2012. Outlook
                                                                                          0                                                                                       0
for main Finnish export markets in Germany, Russia and Sweden has                          98         00         02        04          06         08        10        12
remained relatively stable as well. Exports to Russia have risen somewhat
less than expected, but during the autumn Russia seems to have retaken its
                                                                                     Source: EcoWin
position as the largest export destination. Finland cannot escape a European
recession. Finnish competitiveness may have eroded compared to Germany
or some other countries, but generally Finnish export industries should still
be able to compete at reasonable terms. The weaker euro, thanks to Greece,

28 |   December 2012
Nordic Outlook

has helped Finnish companies compared to Sweden. Given the large weight
of cyclical forest and metal industries and the poor manufacturing
confidence, we forecast exports to fall by -1.5% in 2012. Assuming a short
recession in the euro area and better global outlook next year, we expect
exports to recover by 1.5% in 2013 and rise further by 4.5% in 2014 .

Finland had a current account surplus from 1994 to 2010 but fell into a small
deficit in 2011. We expect a current account deficit also in 2012-2014, driven
by weak exports and stable imports. The deficit is forecast to be around 1%
per GDP, which does not pose a major threat in the near future. An
improvement in the global business cycle could reverse the deficit back into a
surplus fairly swiftly.

Stable housing market despite headwinds
The housing market has been fairly stable in 2012. The number of home sales
in January-September was 3.6% lower compared to the previous year. Prices        Housing construction cautious – no bubble in sight
of dwellings in old blocks of flats and terraced houses on the other hand
                                                                                 6 .0
increased by 2.4% y/y in October. The split between Helsinki Metropolitan        5 .5          H o u s in g p r ic e s p e r d is p o s a b le in c o m e > >
                                                                                               (1 9 9 1 = 1 0 0 )                                               135
Area and the rest of the country continues as prices in the capital rose by      5 .0
                                                                                 4 .5              < < H o u s in g s t a r t s , m illio n s q r m , m .a .
0.5% m/m and declined in the rest of the country by 0.7% m/m. Sales are                                                                                         115
                                                                                 4 .0
close to normal levels in smaller apartments, while larger houses take much      3 .5                                                                           105

longer to sell. Housing loan stock has continued to grow, implying that banks    3 .0                                                                            95

                                                                                 2 .5                                                                            85
are willing and able to extend credit. Two factors could slightly slow the
                                                                                 2 .0                                                                            75
lending growth in near future: 1) margins on the typical variable euribor rate   1 .5                                                                            65

loans have risen from below 100bp to above 100bp and 2) the Finnish FSA                 86 88 90 92 94 96 98 00 02 04 06 08 10

would like to bring loan-to-value ratios down. The government is also
expected to increase the real estate transfer tax in early 2013, which could     Source: Reuters EcoWin
lead to a lower number of housing sales, hold back housing loan stock growth
and affect housing prices marginally. Despite the rising debt to income ratio
Finnish households are able to amortise debt and the supervisor vigilance
should be seen as a precautionary measure.

Housing construction declined 8.2% y/y in September and has now been
declining since the fall of 2011. This limits the supply, which is expected to
continue as permits for new housing constructions went down 9.7% y/y in
Q3. Construction confidence indicators remain below normal levels and we
expect caution to weigh on housing construction well into 2013; construction
companies wish to avoid overhang of unsold apartments.

We forecast that the uncertainty regarding the general economic outlook and
rising unemployment will put a damper on the housing market this winter.
On the other hand, low interest rates and migration to growth centres keep
demand relatively stable. We expect nominal prices to rise slower than
earnings or inflation in 2012 and 2013, thus bringing down the real prices in
the housing market. Despite the past rise in prices we do not see a major risk
of a bubble, because prices have generally risen in line with earnings. Low
interest rates combined with household preference towards variable housing
loan rates keep the debt burden low. A major decline in housing prices could
be initiated only by much higher long-term unemployment or surging interest
rates, which both look unlikely.

29 |   December 2012
Nordic Outlook

Austerity continues but debt levels rising
The six party coalition government increased taxes on alcohol, tobacco,
gasoline and sugar in January and on motor vehicles in April, bringing the        Budget balance and current account negative
consumer price index nearly a full percentage point higher. Partly as a result
                                                                                  10                                                              10
tax income rose 3.1% y/y in January-October. Some savings were also                     % p e r G D P , m o v in g a n n u a l t o t a ls
                                                                                   8                                                               8
                                                                                                                           C u rren t accou n t
implemented, ranging from forestation subsidies to defence expenditure.            6                                                               6

Initially the new government aimed at EUR1.25bn in new tax annual revenue          4                                                               4
                                                                                   2                                                               2
largely from consumption taxes and a similar amount of annual savings. The
                                                                                   0                                                               0
coalition government also agreed in spring 2012 to additional net savings of      -2                                                              -2

EUR2.7bn between 2013-2015. Approximately half of this is achieved by             -4                                                              -4
                                                                                  -6    C e n t r a l g o v t r e v e n u e b a la n c e          -6
increasing the VAT and taxes on income. The other half comes from                 -8                                                              -8
spending cuts from all areas of the government. These measures will narrow             99 00 01 02 03 04 05 06 07 08 09 10 11

the budget deficit considerably and the main focus should now be the long-
term solutions, such as increasing the labour force participation rate via        Source: Reuters EcoWin
increased retirement age, that take into account future liability of the ageing
population. There is however, a possibility of added austerity in 2014-2015
as the government has committed to turn the national debt level down and to
keep Finland’s triple-A rating. These measures might be necessary if the
economic development surprises negatively and the coalition government
cannot agree on structural changes, especially on retirement age.

Finnish participation in the European bail-outs shows in the national debt.
This year the capital need for the ESM adds EUR1.44bn to the general
government debt as Finland has agreed to pay the whole amount in a lump
sum in exchange for the collateral agreements from Greece and Spain. The
general government debt is likely to exceed 52% per GDP by the end of 2012
and increase to 54.5% per GDP in 2013 as the government’s net lending is
expected to be over EUR7bn in 2013. After 2013 general government debt is
expected to remain fairly stable around 55% as percentage of GDP.

Public consumption decreased by 0.5% y/y in January-September. Tight
budgets are likely to keep growth in public spending in the coming years well
below 1%. Room for expansionary fiscal policy is tight, even if Finland is
one of the least indebted euro area countries. The remaining space for fiscal
expansion is reserved as a buffer against major shocks and future
demographic changes.

Within the euro area, Republic of Finland continues to enjoy one of the
lowest risk premiums compared to Germany. The triple-A rating might come
under review but effects from a possible downgrade are likely to be limited.
We expect the fairly low level of public debt, excellent track record and
policy decisions to continue to keep Finnish risk premium low and credit
ratings high.

30 |   December 2012
Nordic Outlook

Employment outlook bleak
Until now the labour market has remained surprisingly strong despite the
weak growth figures since the end of last year but a turn for the worse was      Unemployment rate to stabilise around 8%
seen in August. Layoffs have increased and according to surveys firms’
                                                                                 18                                                                  18
intentions of hiring new workers are low in almost all industries. In October           %                                                       %
                                                                                 16                                                                  16
the number of unemployed was 183,000, which was a decline of 2,000 from a        14                                                                  14
                                                                                 12                                        E u ro zon e              12
year earlier. The seasonally adjusted unemployment rate stayed at 7.9%.
                                                                                 10                                                                  10
Labour force participation rate was 68.7%, which was 0.4% higher than a
                                                                                  8                                                                   8
year ago. New vacancies at employment offices stood at 35,000 in October,         6                                                                   6
                                                                                  4                          F in la n d                              4
which is 2,000 positions less than a year ago. The ageing trend will limit the
                                                                                  2                                                                   2
supply of labour in the coming years.
                                                                                  0                                                                   0
                                                                                   90   92   94    96   98    00      02   04   06    08   10   12
We forecast the unemployment rate for full year 2012 to be 7.7% before
peaking at 8.2% in 2013. In 2014 the unemployment rate is expected to            Source: Reuters EcoWin
return below 8%. Number of employed persons is likely to fall slightly in late
2012, while the labour supply stops growing thus keeping the unemployment
rate under control. Lost manufacturing jobs are largely replaced by jobs in
services sectors. The natural rate of unemployment is likely to be around 6-
7% given that unemployment rates are stubbornly high in some rural areas.

31 |   December 2012
Nordic Outlook

Finland: Forecast at a glance

                 National accounts                             2010          2011     2012     2013     2014
                                                         Volume, y-o-y
                 GDP                                              3.3          2.7       0.0      0.5      2.2
                 Imports                                          6.9          5.7      -1.5      1.0      3.0
                 Exports                                          7.5          2.6      -1.5      1.5      4.5
                 Consumption                                      2.1          1.8       1.3      0.5      1.0
                 - Private                                        3.3          2.5       1.7      0.8      1.3
                 - Public                                         0.0          0.1      -0.5      0.0      0.5
                 Investments                                      2.6          4.6      -2.5     -1.0      2.5

                 Key Performance Indicators                    2010          2011     2012     2013     2014
                 Unemployment rate, %                             8.4           7.8      7.7      8.2      7.9
                 Earnings, %                                      2.6           2.7      3.4      2.7      2.5
                 Inflation, %                                     1.2           3.4      2.8      2.5      2.0
                 Current account, Bn, EUR                         2.7          -3.1     -3.0     -2.0     -1.0
                 Current account/GDP, %                           1.5          -1.6     -1.5     -1.0     -0.5
                 Public deficit/GDP, %                           -2.5          -0.6     -1.5     -0.7     -0.5
                 Public debt/GDP, %                             48.6          49.0     52.5     54.5     55.0

                                                                                                         + 12
                 Financial figures                                       17/12/12 + 3 mths + 6 mths      mths
                 Repo rate, %                                                 0.75    0.75     0.75      0.75
                 2 year swap rate                                             0.35    0.35     0.40      0.40
                 10 year swap rate                                            1.62    1.90     1.95      2.15
                 EUR/USD                                                     131.6    134      135       132
Source: Danske Bank * Forecasts: Sampo Bank/Economists

32 |   December 2012
Nordic Outlook

Global overview
The tide is turning
       We expect the global economy to recover in 2013 as policy
       uncertainty fades and global policy stimulus has become stronger.             Global GDP forecasts
       We forecast global GDP to rise 3.8% in 2013 after 3.3% in 2012.                                                  2013                                           2014
       Our forecasts for next year are slightly above consensus –                    % y/y
                                                                                                   D a ns k e
                                                                                                    B a nk
                                                                                                                  C o ns e ns
                                                                                                                      us        OEC D      IM F
                                                                                                                                                    D a ns k e
                                                                                                                                                     B a nk
                                                                                                                                                                  C o ns e ns u
                                                                                                                                                                       s          OEC D   IM F
       particularly in China. In 2014, we look for global growth to rise             USA              2.1             2.0        2.0         2.1       2.8            2.8          2.8    2.9
                                                                                     Euro area        0.3             0.1        -0.1        0.2       1.3            1.1          1.3    1.2
       further to 4.0%.                                                              Japan            0.7             0.8        0.7         1.2       1.2            1.1          0.8    1.1
                                                                                     China            8.6             8.1        8.5         8.2       8.3            7.9          8.9    8.5
       Emerging markets are expected to recover from a two-year                      Global           3.8             3.5                    3.6       4.0            3.8                 4.1
       slump, which will be an important impetus for global demand.                  Source: Danske Bank Markets, Bloomberg, OECD, IMF
       Fiscal policy, tight credit in the euro area and low wage growth in
       advanced economies should keep the global recovery moderate.
       The main uncertainty still relates to policy. A failure of US
       politicians to avoid a fiscal cliff or renewed escalation of the euro
       crisis are the primary risk factors.
                                                                                     Moderate recovery in global economy
Synchronous recovery to gain strength during 2013
                                                                                             % y/y                                                                                          4
Following a very weak global economy in 2012, we believe there is reason             15                                                      US GDP >>                            % y/y

                                                                                     13                                                                                                     2
for more optimism about 2013. Many headwinds in 2012 are easing and
policy stimulus is more forceful. We expect to see improvement in all regions         9

and this would be the first synchronous recovery in the world since 2009.             7                                                  < < C h in a G D P                                -2
                                                                                                                                        E u ro G D P > >                                   -4
In the short term, growth is likely to be a bit soft in the US due to                 3
nervousness over the fiscal cliff negotiations and some fiscal contraction in         1                                                                                                    -6

Q1. GDP data also suggests there was a build-up of inventories in Q3, which                   06         07           08        09         10      11            12      13        14

could provide some payback in Q4. In the euro area, GDP also looks set to
                                                                                     Source: Reuters Ecowin, Danske Bank Markets
decline in Q4 as orders are weak and there are anecdotal stories that some
companies will reduce production in December as they send employees on an
early Christmas holiday to clear inventories.

However, as we move into 2013, an increasing amount of tailwind factors are
expected to pave the way for a recovery across regions. Emerging markets
look set to be a driving force in the improvement.
                                                                                     Euro crisis easing – bond yields at new lows
Lower uncertainty to unleash pent-up demand                                          5 .5                                                                                                 5 .5
                                                                                              %                                                                                   %
                                                                                     5 .0                       E u r o w e ig h t e d                                                    5 .0
Three big uncertainties are likely to have dampened global growth in 2012 as                                    1 0 -y e a r g o v y ie ld
                                                                                     4 .5                                                                                                 4 .5
they hampered corporate and consumer spending. However, we believe the               4 .0                                                                                                 4 .0
                                                                                     3 .5                                                                                                 3 .5
uncertainties in all three areas will be lower in 2013.
                                                                                     3 .0                                                                                                 3 .0
                                                                                     2 .5                       E u r o w e ig h t e d                                                    2 .5
1. The euro crisis reached very high stress levels over the summer with
                                                                                     2 .0                       2 -y e a r g o v y ie ld                                                  2 .0
       fears of a euro break-up running quite high. However, following the ECB       1 .5                                                                                                 1 .5
                                                                                     1 .0                                                                                                 1 .0
       announcement of the OMT programme and improvement in the Greek                                                                        E C B r e fi r a t e
                                                                                     0 .5                                                                                                 0 .5
       situation, fears have come down again. Although more periods of stress               08         09                       10                   11                     12

       are still likely, we believe the OMT programme will make it easier to
       fight future escalations and that overall uncertainty will be lower than in   Source: Reuters EcoWin, Danske Bank Markets


33 |    December 2012
Nordic Outlook

2. Fears of a Chinese hard landing have also added to the overall
                                                                                      Uncertainty and weak demand led to cutbacks in
       uncertainty. Companies have been surprised by the extended slowdown in
                                                                                      investments over the summer
       Chinese activity and talk of a housing collapse in China has created
                                                                                      120        In d e x                                                         In d e x        120
       caution and put focus on cost cutting rather than investment. The recent                               G e r m a n d o m e s t ic c a p . g o o d s o r d e r s
                                                                                      110                                                                                         110
       signs of recovery in China and further improvement in coming quarters
                                                                                      100                                                                                         100
       should dampen fears of a long recession in China and improve sentiment
                                                                                         90                                                                                         90
       in countries with high exposure to China, not least Germany.
                                                                                         80                                                                                         80
3. Fears of the US fiscal cliff has come to the forefront recently. However,
                                                                                         70                                                                                         70
       this uncertainty is only expected to last through to year-end as we expect                     U S c o r e c a p it a l g o o d s o r d e r s
                                                                                         60                                                                                         60
       a solution that will result in a more muted tightening of fiscal policy than
                                                                                                 03          04   05      06     07       08     09      10       11    12
       the worse-case scenario. This should remove some uncertainty once we
       get to the other side of New Year and should lift it considerably for US       Source: Reuters EcoWin, Danske Bank Markets
       companies. Investment that is likely to have been held back should come

Widespread uncertainty and disappointing growth have kept companies in
cost-cutting mode and investment spending has been held back and suffered a
further setback over the summer. Higher earnings have mostly been saved,
                                                                                      Tentative signs of improvement in BRIC - should
leaving companies with quite high cash buffers. Companies are also lean as
                                                                                      benefit euro area soon
reducing costs has been a strategy for some time to lift earnings.
                                                                                       1 ,5                                                                                         1 ,5
                                                                                              z -s c o r e                                                         z -s c o r e
                                                                                       1 ,0                                                                                         1 ,0
If uncertainty fades there is potential for unleashing at least some of the            0 ,5                                                                                         0 ,5
pent-up demand that has still not come through. We expect companies to be              0 ,0                                                                                         0 ,0
                                                                                      -0 ,5                                                                                        -0 ,5
cautious for some time but a gradual recovery from current depressed                  -1 ,0
                                                                                                                          B R IC P M I n e w o r d e r s ,
                                                                                                                                                                                   -1 ,0
                                                                                                                          m a n u fa c t u r in g
investment levels seems likely.                                                       -1 ,5                                                                                        -1 ,5
                                                                                      -2 ,0                                                                                        -2 ,0
                                                                                                                     E u ro P M I n ew ord ers,
                                                                                      -2 ,5                                                                                        -2 ,5
EM recovery important for global economy                                              -3 ,0
                                                                                                                     m a n u fa c t u r in g
                                                                                                                                                                                   -3 ,0
                                                                                      -3 ,5                                                                                        -3 ,5
After two years of a slowdown there are finally tentative signs of a recovery                      08                09              10               11               12
in emerging markets – not least in China. Stronger activity in this region will
be important for the global economy as it drives around 75% of global                 Source: Reuters EcoWin, Danske Bank Markets

growth. In fact, lower growth in BRIC countries is behind around 80% of the
decline we have seen in global growth this year.

A turn in emerging markets will therefore be very important for the global
economy. It is one of the factors behind our expectation that the euro area
will see slightly positive growth in 2013 despite the strong fiscal headwinds
and tight credit conditions. It will also underpin corporate earnings growth in
                                                                                      EM growth expected to recover to 6% in 2013
the US and Europe where sales to these markets play an increasing role. As
can be seen in the middle chart, there is a tendency for PMIs in BRIC
                                                                                              % y/y                    E m e r g in g a n d d e v e lo p in g               % y/y
                                                                                        8                                                                                                  8
countries to lead the euro area by one to two months and sometimes more.
                                                                                        6                                                   W o r ld                                       6

A key explanation for the emerging markets recovery is that a sharp decline             4                                                                                                  4

in inflation has increased purchasing power and paved the way for a turn in             2                                                                                                  2

the policy cycle from tightening to easing. Not least, China has felt this as           0                                                                                                  0

policy was tightened quite strongly in 2011 on the back of a rise in inflation         -2                                                                                              -2
                                                                                                                                       A dvanced
to 6.5% in summer 2011. Fears of a housing bubble added to the tightening              -4                                                                                              -4
                                                                                              05        06        07      08      09       10       11       12    13         14
measures in China and the effects have been felt for most of 2012. With
inflation now below 2%, China has taken its foot off the break and is
                                                                                      Source: Danske Bank Markets, IMF
stepping cautiously on the gas again. The Chinese authorities have launched a
new infrastructure investment programme and cut the reserve requirement
ratio and interest rates. The effects have shown up in the data recently with

34 |    December 2012
Nordic Outlook

increases in PMI, credit growth and housing activity. And we look for growth
to rise further in coming quarters.                                                Emerging markets driving global economy – and
                                                                                   the recovery
Other emerging market countries have also moved to an easing stance, giving        4 .5                                                                                                   4 .5
                                                                                             % p o in t s
                                                                                                                                                                        % p o in t s
more support to growth. Especially, Brazil has eased policy significantly,         4 .0                             C o n t r ib u t io n t o                                             4 .0
                                                                                   3 .5                             g lo b a l G D P g r o w t h                                          3 .5
cutting the leading rate from 12.5% to 7% over the past year.
                                                                                   3 .0                                                                                                   3 .0
                                                                                   2 .5                                                                                                   2 .5
Monetary stimulus starting to work                                                 2 .0                                                                                                   2 .0
                                                                                   1 .5                                                                                                   1 .5
Policy stimulus in the advanced economies seems to be increasingly taking          1 .0                                                                                                   1 .0

effect. The announcement of the ECB’s OMT programme has led to sharp               0 .5                                                                                                   0 .5
                                                                                   0 .0                                                                                                   0 .0
declines in peripheral bond yields and the weighted average euro yields are                          10               11                 12                13                14
now close to the lowest levels ever. Money growth has also finally started to
                                                                                                     A d v a n c e d e c o n o m ie s              E m e r g in g M a r k e t s
climb higher. This normally gives an early indication of economic recovery.
                                                                                   Source: Danske Bank Markets, IMF
No doubt tight credit – together with fiscal austerity – is still providing a
strong headwind to growth in the euro area. However, the improved financial
conditions will be positive for growth. We don’t expect the ECB to ease
policy further but a rate cut next year cannot be ruled out if growth
disappoints again.

In the US, the Federal Reserve has also turned up the stimulus. It announced       Euro money growth points to rebound in growth
in December that it would buy USD40bn of mortgage bonds each month and                                                                                                                     2.0
                                                                                   19        % y/y                                                                                % q/q
continue this until the labour market showed substantial improvement. The                                            Euro area GDP                                                         1.5
very low financing costs and sharp decline in inventory of homes for sales is      11

likely to be behind the strong improvement seen in US housing now. The turn         7

in the US housing market will provide important impetus to the recovery as                                                                                                                 0.0
this creates new jobs and also give consumers more optimism about the               -1

                                                                                    -5                    M1 growth, 6 month lead                                                         -1.0
future as they see their wealth rise again.
                                                                                    -9                                                                                                    -1.5

The Bank of Japan has also stepped up policy easing by increasing asset            -13                                                                                                    -2.0
                                                                                          96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
purchases and will in Q4 buy what amounts to 8% of GDP. This is very
significant. We expect this pace of easing to continue in 2013 where a more        Source: Reuters EcoWin, Danske Bank Markets
dovish shift among the members of the Bank of Japan is expected.

Recovery to be moderate as some headwinds continue
Even though we expect a recovery, it is likely to be only moderate. The main
challenge for growth in the advanced economies is fiscal policy, which has
been tightened significantly in the advanced economies. The headwind from
                                                                                   Credit tightening continues in euro area
fiscal policy looks set to continue in 2013 and be a drag on growth.
                                                                                    80                                                                                                    80
However, the fiscal headwind might actually ease slightly on a global scale                    N et bal
                                                                                                                           C r e d it s t a n d a r d s                 N et bal

as budget consolidation has already reached deep into the euro area. We             60                                                                                                    60
                                                                                                                                                         H ouse
expect the fiscal drain on euro area growth to ease to around 1 percentage                                                                               p u rch a ses
                                                                                    40                                                                                                    40
point after being approximately above 2 percentage points in 2012. The
                                                                                    20                                                                                                    20
numbers are very tentative, though, due to the uncertainty over the fiscal
                                                                                               T ig h t e n in g
multipliers.                                                                             0                                              Consum er                                          0
                                                                                                                                        c r e d it              E n t e r p r is e s
In the US, fiscal policy also continues to be a headwind. Had it not been for      -2 0                                                                                                -2 0
                                                                                               05          06        07         08         09          10         11         12
the fiscal contraction, the US is likely to have been able to grow above 4% as
the positive dynamics from housing recovery have started to kick in.
                                                                                   Source: Reuters EcoWin, Danske Bank Markets
Importantly, though, as in the euro area, the drag on growth is not likely to be
bigger in 2013 compared to previous years. Although it didn’t gain much
attention, fiscal policy was already tightened quite significantly in the US in

35 |   December 2012
Nordic Outlook

2011 and 2012. This is mirrored in a clear improvement in both the actual
and structural budget deficit.                                                    High unemployment keeps wage growth subdued

Euro credit and high unemployment weigh on growth                                 4 .5   % y/y      U S w a g e g ro w th            % y/y
                                                                                                                                             4 .5

                                                                                  4 .0                                                       4 .0
As mentioned another headwind in Europe is the tight credit standards.            3 .5                                                       3 .5
According to the ECB, the banks have been tightening lending standards for        3 .0                                                       3 .0
five years now and the pace of tightening picked up in Q3 12. This is clearly     2 .5                                                       2 .5
a significant obstacle for investment and spending.                               2 .0                                                       2 .0

                                                                                  1 .5                                                       1 .5
Finally, a negative factor for global growth is the high unemployment in
                                                                                                     E u ro w a g e g ro w th
                                                                                  1 .0                                                       1 .0
advanced economies. It works to keep wages growing at a very slow pace
                                                                                     00      02     04        06        08      10   12
and holds back consumer spending. While it will improve competitiveness
relative to emerging markets this positive effect will not fully compensate for
                                                                                  Source: Reuters EcoWin, EU Commission, Danske Bank Markets
the loss of consumption in the short term.

The main risk factors continue to be related to policy. If negotiations in the
US fail, we will face a more substantial decline in growth. A re-escalation of
the euro crisis would also raise uncertainty again and pent-up demand could
then fail to come through.

Global growth expected to rise further in 2014
A first glance at 2014 points to a further increase in growth driven by
advanced economies, while growth in emerging markets is expected to taper
off slightly.

In the advanced economies, deleveraging is likely to ease as fiscal
consolidation is likely to have come a long way by then and housing should
have contributed further to growth in the US. emerging markets growth is
expected to decline slightly in 2014 as these economies have less slack – and
thus there is less room to grow without rising inflation.

36 |   December 2012
Nordic Outlook

Economic forecast

   Macro forecast, Scandinavia
                                      Private     Public      Fixed      Stock        Ex-       Im-           Infla-    Unem-      Public   Public   Current
                  Year      GDP 1     cons.1      cons.1      inv.1      build.2    ports1     ports1         tion1     ploym.3   budget4   debt4     acc.4

   Denmark        2012       -0.5        1.1        0.0        1.8        -0.6        1.8        3.2          2.4         6.2      -4.0     41.9       5.9
                  2013       0.7         1.3        0.6        2.1        0.0         1.6        2.9          1.5         6.5      0.3      41.2       4.8
                  2014       1.6         1.2        0.8        -1.5       0.0         3.6        2.0          1.7         6.5      -1.8     38.1       4.9
   Sweden         2012       0.9         1.4        0.4        3.1        -0.8        0.4        -0.4         0.9         7.7      -0.5     37.7       7.0
                  2013       1.2         1.8        0.7        0.4        0.1         1.9        2.4          0.4         8.5      -1.1     37.9       7.5
                  2014       2.0         1.5        0.5        0.8        -0.1        3.8        1.8          2.5         8.0      -1.0     38.1       7.1
   Norway         2012       3.3         3.1        1.9        6.3         0.1        2.0        2.1          0.7         3.0        -        -         -
                  2013       3.1         3.5        2.1        5.0         0.1        0.6        4.6          1.8         3.0        -        -         -
                  2014       3.4         3.5        2.0        6.0         0.0        1.5        5.0          2.2         3.0        -        -         -

   Macro forecast, Euroland
                                      Private     Public      Fixed      Stock        Ex-       Im-           Infla-    Unem-      Public   Public   Current
                  Year      GDP 1     cons.1      cons.1      inv.1      build.2    ports1     ports1         tion1     ploym.3   budget4   debt4     acc.4

   Euroland       2012       -0.4       -0.9        0.0        -3.3       -0.6        2.4        -0.7         2.7        11.4      -3.4     90.1       1.1
                  2013       0.3        -0.2        -0.3       -0.7       0.0         1.9        0.9          1.8        12.1      -2.5     92.2       1.5
                  2014       1.3        0.4         -0.3       2.2        0.1         4.4        3.1          1.8        12.2      -2.6     93.5       1.6
   Germany        2012       1.0         0.5        1.0        -4.4        0.0        5.0        2.6          2.5         7.1      -1.0     81.2       5.1
                  2013       1.1         0.3        0.5        -1.6        0.0        4.9        3.4          2.0         6.9      -1.1     82.4       4.5
                  2014       1.9         1.0        0.9        4.6         0.0        4.5        4.5          1.8         6.9      -0.8     81.1       4.3
   France         2012       0.1        -0.1        1.3        0.4        1.5         2.5        0.1          2.3         9.6      -5.2     85.8      -2.7
                  2013       0.2        0.0         0.3        0.3        -0.1        2.5        1.5          2.1        10.2      -4.7     90.8      -2.5
                  2014       0.9        1.1         0.0        1.6        0.0         4.4        4.3          1.7        10.4      -4.0     92.8      -2.2
   Italy          2012       -2.0       -3.2        -0.8       -7.7       -0.8        1.0        -7.2         2.9         8.4      -4.1     120.1     -3.1
                  2013       -0.4       -0.9        -0.4       -1.3       0.0         3.5        2.3          3.0        10.6      -2.4     124.2     -2.5
                  2014       1.1        1.1         -0.4       2.3        0.0         4.1        4.1          2.0        11.1      -1.3     122.3     -1.5
   Spain          2012       -1.3       -1.7        -3.9       -8.6        0.5        3.9        -3.6         3.0        21.7      -8.5     68.5      -3.5
                  2013       -1.5       -2.1        -4.1       -4.3        0.0        7.5        3.6          1.9        24.9      -7.0     84.5      -2.8
                  2014       0.3        -0.5        -2.0       2.4         0.0        4.7        3.6          1.7        26.4      -5.5     92.0      -0.5
   Finland        2012       0.0         1.7        -0.5       -2.5         -         -1.5       -1.5         2.8         7.7      -1.5     52.5      -1.5
                  2013       0.5         0.8        0.0        -1.0         -         1.5        1.0          2.5         8.2      -0.7     54.5      -1.0
                  2014       2.2         1.3        0.5        2.5          -         4.5        3.0          2.0         7.9      -0.5     55.0      -0.5

   Macro forecast, Global
                                      Private     Public      Fixed      Stock        Ex-       Im-           Infla-    Unem-      Public   Public   Current
                  Year      GDP 1     cons.1      cons.1      inv.1      build.2    ports1     ports1         tion1     ploym.3   budget4   debt4     acc.4

   USA            2012       2.2         1.8        -1.4       8.0         0.2        3.7        2.9          2.2         8.1      -8.6     100.0     -3.0
                  2013       2.1         1.6        -0.5       6.1         0.0        4.9        2.8          2.3         7.5      -7.7     102.0     -2.5
                  2014       2.8         2.3        -0.8       8.9         0.1        6.8        6.1          1.7         6.8      -6.3     102.0     -2.5
   Japan          2012       1.6         2.1        2.2        2.8          -         0.8        5.7          -0.2        4.3      -9.2     238.6      1.6
                  2013       0.7         0.6        1.2        2.2          -         -0.9       2.2          0.1         4.2      -9.5     245.0      2.3
                  2014       1.3         1.2        1.0        0.9          -         6.0        4.7          0.2          -         -        -        1.9
   China          2012       7.7          -           -          -          -          -           -          2.7          -         -        -        2.5
                  2013       8.6          -           -          -          -          -           -          2.9          -         -        -        2.9
                  2014       8.3          -           -          -          -          -           -          3.1          -         -        -        3.4
   UK             2011       0.7        -0.8        0.3        -2.0        1.1        4.2        2.0          4.5         8.5      -8.3     82.5      -2.0
                  2012       -0.2       0.3         0.5        2.0         1.3        -0.4       3.3          2.7         8.8      -8.0     88.4      -1.5
                  2013       1.2        1.0         -1.1       2.0         1.3        2.0        3.5          2.0         8.5      -6.5     91.4      -1.2

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

37 |   December 2012
Nordic Outlook

Financial forecast

 Bond and money markets
                                       Key int.                                                                     Currency     Currency            Currency
                                                  3m interest rate     2-yr swap yield      10-yr swap yield
                                        rate                                                                         vs EUR       vs USD              vs DKK
 USD                          19-Dec    0.25            0.31                0.41                 1.88                133.0            -                561.1
                               +3m      0.25            0.30                0.35                 1.85                 134             -                 557
                               +6m      0.25            0.30                0.40                 2.00                 135             -                 553
                               +12m     0.25            0.35                0.45                 2.30                 132             -                 565
 EUR                          19-Dec    0.75            0.18                0.39                 1.68                  -           133.0               746.1
                               +3m      0.75            0.18                0.35                180.00                 -            134                746.0
                               +6m      0.75            0.18                0.40                 2.00                  -            135                746.0
                               +12m     0.75            0.18                0.40                 2.15                  -            132                746.0
 JPY                          19-Dec    0.10            0.18                0.20                 0.80                112.3         84.5                6.64
                               +3m      0.10            0.20                0.25                 0.80                 114            85                6.54
                               +6m      0.10            0.20                0.25                 0.90                 118            87                6.32
                               +12m     0.10            0.20                0.25                 1.05                 116            88                6.43
 GBP                          19-Dec    0.50            0.52                0.71                 1.97                81.6          163.0               914.2
                               +3m      0.50            0.50                0.65                 2.00                83.0           161                 899
                               +6m      0.50            0.50                0.65                 2.15                85.0           159                 878
                               +12m     0.50            0.50                0.65                 2.35                83.0           159                 899
 CHF                          19-Dec    0.00            0.01                0.05                 0.89                121.0         91.0                616.6
                               +3m      0.00            0.05                0.15                 1.05                 121            90                 617
                               +6m      0.00            0.05                0.15                 1.15                 122            90                 611
                               +12m     0.00            0.05                0.20                 1.25                 121            92                 617
 DKK                          19-Dec    0.20            0.28                0.56                 1.79                746.1         561.1                 -
                               +3m      0.20            0.30                0.45                 1.85                 746           557                  -
                               +6m      0.40            0.35                0.60                 2.05                 746           553                  -
                               +12m     0.40            0.40                0.65                 2.30                 746           565                  -
 SEK                          19-Dec    1.00            1.31                1.21                 2.12                868.9         653.4               85.9
                               +3m      1.00            1.20                  -                    -                  850           634                87.8
                               +6m      0.75            1.20                  -                    -                  840           622                88.8
                               +12m     0.75            1.30                  -                    -                  840           636                88.8
 NOK                          19-Dec    1.50            1.81                2.09                 3.17                739.5         556.1               100.9
                               +3m      1.50            1.95                2.15                 3.15                 720           537                103.6
                               +6m      1.75            2.15                2.30                 3.20                 715           530                104.3
                               +12m     1.75            2.15                2.45                 3.30                 710           538                105.1

 Equity markets
                                                                                              Risk profile      Price trend      Price trend     Regional recommen-
                                                                                                 3 mth.           3 mth.           12 mth.             dations
 USA                                              Affected by fiscal cliff fears                Medium          -5% to +5%        5%-10%            Underweight
 Emerging markets (USD)                           Awaiting Chinese recovery                     Medium          -5% to +5%        5%-10%              Neutral
 Europe (ex. Nordics) (EUR)                       Euro area crisis to abate                      High           -5% to +5%       10%-15%             Overweight
 Nordics                                          Strong macro balances                         Medium          -5% to +5%        5%-10%              Neutral

                                                                 2012                                        2013                              Average
                                       19-Dec        Q1        Q2        Q3           Q4       Q1       Q2        Q3       Q4      2012                   2013
 NYMEX WTI                                88        103        93        92           97      103      100        97       94        96                     99
 ICE Brent                               110        118       109       109          111      115      110       105      100       112                    108
 Copper                                 8,024      8,329     7,829     7,730        7,900    8,250    8,300     8,300    8,300     7,947                  8,288
 Zinc                                   2,090      2,042     1,932     1,908        1,875    1,865    1,855     1,845    1,835     1,939                  1,850
 Nickel                                17,800     19,709    17,211    16,432       16,750   16,850   16,950    17,050   17,150    17,525                 17,000
 Steel                                   315        522       457       380          385      380      375       370      365       489                    373
 Aluminium                              2,100      2,219     2,019     1,952        1,975    1,965    1,955     1,945    1,935     2,041                  1,950
 Gold                                   1,674      1,690     1,612     1,656        1,681    1,706    1,731     1,756    1,781     1,660                  1,743
 Matif Mill Wheat                        257        210       212       259          250      240      230       220      210       233                    225
 CBOT Wheat                              818        643       641       872          841      793      745       713      680       749                    733
 CBOT Corn                               719        641       618       782          775      765      755       745      735       704                    750
 CBOT Soybeans                          1,466      1,272     1,426     1,675        1,625    1,575    1,525     1,475    1,425     1,500                  1,500

Source: Danske Bank

38 |   December 2012
Nordic Outlook

This research report has been prepared by Danske Bank Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence.
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Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’ Ethical rules and the Recommendations of the Danish
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Financial models and/or methodology used in this research report
Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual
security, issuer and/or country. Documentation can be obtained from the authors upon request.
Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text.
Expected updates
Nordic Outlook is a quarterly forecast, but new statistical data may give rise to changes in our views on individual economies.
First date of publication
Please see the front page of this research report.

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39 |   December 2012
   Global Danske ReseaRch
  Global MaRkets ReseaRch
     Head of Global danske ReseaRcH                                                                  c H i e f e c o n o m i s t at d a n s k e b a n k
  G lTho mH e aThø gmrse n tG rR e s eja Rr H
      obal as d of e aRke s ønk æ c                                                                c H i e f e c o noc ian at d a n s k e b a n k
                                                                                                     Steen B o m i s t
     +45 s Thøg 85 02
  Thom a 45 12 e rs e n G r ø n k j æ r                                                              + 4 5 4 5 ian
                                                                                                   Steen B oc 1 2 8 5 3 1
     thg r @ 12 85 02
  +45 45 da ns k e ba nk .d k                                                                        stb o@ 1 2 8 5 3 1
                                                                                                   + 4 5 4 5 d anskeb ank. d k
  thgr@ da ns k e ba nk . d k                                                                      stb o@ d anskeb ank. d k

  i N t e r N at i o N a l M a c r o               r at e s , Fx & c o M M o d i t i e s          Fixed iNcoMe research                               credit research
                                                   s t r at e g y
  C h ie f A na ly st &                                                                           Ch i e f An al y st &                               Ch i e f A n al y st &
  H e a d of                                                                                      He ad of                                            He ad of
  A l l an vo n Me hr e n                          Ch ief An alyst &                                                                                  Th o m as M art i n Hov ard
                                                                                                  Th o mas Th ø g e rse n G rø n k j æ r
  +4 5 45 1 2 8 0 5 5                              Head of                                                                                            +45 45 12 85 05
                                                                                                  +45 45 12 85 02
  al vo @d ans k e b a nk . d k                    Arne Lohmann Rasmussen                                                                             h ov a@dan sk e ban k .dk
                                                                                                  th g r@dan sk e ban k .dk
                                                   +45 45 12 85 32
  S i g n e P. R o e d -F r e d e r ik s e n       arr@danskebank.dk                                                                                  He n r i k Arn t
                                                                                                  J e n s P e te r S ø re n se n
  +4 5 45 1 2 8 2 2 9                                                                             +45 45 12 85 17                                     +45 45 12 85 04
  s ro e @d ans k e b a nk . d k                   K asper Kirkegaard                                                                                 h e an d@dan sk e ban k .dk
                                                                                                  j e n ssr@dan sk e ban k .dk
                                                   +45 45 13 70 18
  F ran k Ø la nd H a ns e n                       kaki@danskebank.dk                                                                                 Lo u i s Lan de man
                                                                                                  C h r i st i n a E . Fal ch
  +4 5 45 1 2 8 5 2 6                                                                             +45 45 12 71 52                                     +46 8 568 80524
  f ran h @d a ns k e b a nk . d k                 Chr ist in K yrme Tux en                                                                           l l an @dan sk e ban k .se
                                                                                                  ch f a@dan sk e ban k .dk
                                                   +45 45 13 78 67
  A n d e rs Mø lle r L umho lt z                  tux @danskebank.dk                                                                                 J ako b M ag n u sse n
                                                                                                  S ø re n S kov Han se n
  +4 5 45 1 2 8 4 9 8                                                                             +45 45 12 84 30                                     +45 45 12 85 03
  an d j rg @ d a ns k e b a nk . d k              Peter Possing Andersen                                                                             j ak j a@dan sk e ban k .dk
                                                                                                  srh a@dan sk e ban k .dk
                                                   +45 45 13 70 19
  F l e m m i ng Je gb jær g Nie ls e n            pa@danskebank.dk                                                                                   Asbj ø rn P u ru p An de rse n
                                                                                                  J an We be r Ø ste rg aard
  +4 5 45 1 2 8 5 3 5                                                                             +45 45 13 07 89                                     +45 45 14 88 86
  f l e m m @ d a ns k e b a nk . d k              Lars Tranberg Rasmussen                                                                            apu @dan sk e ban k .dk
                                                                                                  j ast@dan sk e ban k .dk
                                                   +45 45 12 85 34
                                                   laras@danskebank.dk                                                                                M ads R o se n dal
                                                                                                  S v e rre Ho l be k
                                                                                                  +45 45 14 88 82                                     +45 45 14 88 79
                                                   M orten Thrane Helt                                                                                madro @dan sk e ban k .dk
                                                                                                  h o l b@dan sk e ban k .dk
                                                   +45 45 14 88 82
                                                   mohel@danskebank.dk                                                                                G abr i e l B e rg i n
                                                                                                                                                      + 4 6 (0 ) 8 - 5 6 8 8 0 6
                                                                                                                                                      g abe @dan sk e ban k .dk

                                                                                                                                                      B r i an B ø rst i n g
                                                                                                                                                      +45 45 12 85 19
                                                                                                                                                      brbr@dan sk e ban k .dk

                                                                                                                                                      Åsa Haag e n se n
                                                                                                                                                      +47 22 86 13 22
                                                                                                                                                      h a@dan sk e ban k .dk
    deNMark                                        swedeN                                         FiNlaNd
                                                                                                                                                      Kaspe r Fro m Larse n
                                                                                                  P asi P e t te r i Ku o ppam äk i                   +45 45 12 80 47
    S te e n Bo cia n                              Chief Analyst &                                +358 (0)10 546 7715                                 k asl a@dan sk e ban k .dk
    +4 5 45 1 2 8 5 3 1                            Head of                                        pasi .k u o ppamak i @dan sk e ban k .co m
    s tb o @d a ns k e b a nk . d k                M ichael B oström
                                                   +46 8 568 805 87
    L as O l s e n                                 mbos@consensus.se
    +4 5 45 1 2 8 5 3 6
    l as o@ da ns k e b a nk . d k                 Roger Josefsson                                                                                    eMergiNg Markets
                                                   +46 8 568 805 58
    J e n s Nær v ig P e d e r s e N (o n leave)   r jos@consensus.se
    +4 5 45 1 2 8 0 6 1                                                                                                                               Ch i e f An al y st &
    j e n p e @ d a ns k e b a nk . d k            M ichael Grahn                                                                                     He ad of
                                                   +46 8 568 807 00                                                                                   Lars C h r i ste n se n
                                                   mika@consensus.se                                                                                  +45 45 12 85 30
                                                                                                                                                      l arch @dan sk e ban k .dk
                                                   Carl M ilton
                                                   +46 8 568 805 98                                                                                   S tan i sl av a P radov a
                                                   carmi@consensus.se                                                                                 +45 45 12 80 71
                                                                                                                                                      spra@dan sk e ban k .dk
    N o r way
                                                   M arcus Söderberg
                                                   +46 8 568 805 64                                                                                   Vi o l e ta Kl y v i e n e
    F ran k Jullum                                 marsd@consensus.se                                                                                 S e n i o r B al t i c An al y st
    +4 7 85 4 0 6 5 4 0                                                                                                                               +370 611 24354
    f j u @ fo kus . no                            Stefan M ellin                                                                                     v k l y @dan sk e ban k .dk
                                                   +46 8 568 805 92
    B e rn t Chr is t ia n Br un                   mell@consensus.se                                                                                  S e n i o r E co n o mi st
    +4 7 23 1 3 9 1 9 0                                                                                                                               S an n a Ku rro n e n ( o n l e av e )
    b b ru @d a ns k e b a nk . no                                                                                                                    +358 10 546 7573
                                                                                                                                                      k u rr@dan sk e ban k .co m

                                                                                                                                                      Vl adi mi r M i k l ash e v sk y
                                                                                                                                                      +358 (0)10 546 7522
                                                                                                                                                      v l m i @dan sk e ban k .co m

D an s k e B a nk , Ma r k e ts R e s e a rch, Holmens K anal 2-12, DK - 1092 Cope n h ag e n K. P h o n e + 4 5 4 5 1 2 0 0 0 0     w w w.dan sk e re se arch .co m

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