New Nordic Outlook: Creeping inflation at global level - risk of overheating in Nordic countries

The world economy is decelerating from a high level of growth. At the
global level, disinflationary forces remain in place but after
several years of vigorous economic upswing, inflation is slowly
beginning to creep upward. Central banks are continuing to raise
their key interest rates in most parts of the world. In the Nordic
countries, Denmark and especially Norway are showing signs of labour
market overheating. In Sweden, rapid growth will continue this year
and next, but the peak of the economic cycle is approaching.
Unemployment will fall below 4 per cent and the Riksbank will hike
its repo rate to 4.75 per cent. These are among the conclusions of
the new Nordic Outlook, which SEB is presenting today.

The American economy will grow below trend both this year and next.
The housing sector seems to be pulling down growth, but consumption
is holding up decently, which means that a recession can be avoided.
In the short term, a tight labour market and persistent inflationary
pressure pose obstacles to interest rate cuts in the US. As the
labour market weakens and inflation falls, however, the Federal
Reserve will start lowering its key rate in the autumn, bringing it
to 4.50 per cent by mid-2008.

Europe and Asia are still in an upturn phase and are only moderately
affected by the American slowdown. The labour market will become
tighter in more and more places, especially in the Nordic countries,
and central banks will continue to hike their key interest rates.
Growth in the euro zone will be stronger than in the US, both this
year and next, and the European Central Bank will raise its refi rate
to 4.25 per cent by the end of 2007. The euro will strengthen further
to USD 1.45 by the end of 2008. Bond yields in Europe will climb
somewhat, while American yields move sideways.

The Swedish economy is growing on a broad front. GDP will increase by
4.2 per cent this year and 3.3 per cent in 2008. Export growth will
decelerate only moderately due to the American slowdown, and capital
spending will remain strong for another while. Household real
purchasing power will increase at a record pace, by nearly 6 per cent
this year, and consumption will surge. Rising asset prices, driven by
such factors as wealth and real estate tax cuts, will also contribute
to the consumption boom.

The Swedish labour market will continue to improve. This year 100,000
new jobs will be created and next year 60,000. Unemployment will fall
further, to an average of 4 per cent in 2008. The new collective wage
and salary agreements imply that pay increases will rise from just
over 3 per cent annually in the previous agreement period to 4½ per
cent in the coming three years. This will contribute to higher
inflation. UND1X underlying inflation will average 1.1 per cent this
year and 1.7 per cent in 2008. In two years, inflation will have
risen past 2 per cent.

Due to the hotter economy, with a tighter labour market and higher
pay increases than expected, the Riksbank will gradually adjust its
interest rate path upward. The Swedish central bank will raise its
repo rate to 4 per cent by year-end and another 75 basis points
during 2008. Riksbank rate hikes will contribute to a strengthening
of the krona. At the end of 2008 the currency will stand at SEK 8.85
per euro and SEK 6.10 per US dollar.

Swedish fiscal policy is expansive; not all tax cuts are fully
financed. In spite of this, public financial savings targets will be
met by an ample margin. In addition, privatisations of state-owned
companies will lead to a dramatic decline in central government debt,
from 45 per cent of GDP in 2006 to 34 per cent in 2008. Tensions
between the spending ambitions of party leaders in the non-socialist
Alliance government and the forces of deceleration in the Finance
Ministry are likely to intensify ahead.


Key figures in the Swedish economy
Year-on-year percentage change unless otherwise specified

+-----------------------------------------------------------------+
|                                     | 2005 | 2006 | 2007 | 2008 |
|-------------------------------------+------+------+------+------|
| GDP, adjusted for work days         | 2.9  | 4.7  | 4.2  | 3.3  |
|-------------------------------------+------+------+------+------|
| Unemployment (%)                    | 5.9  | 5.4  | 4.5  | 4.0  |
|-------------------------------------+------+------+------+------|
| UND1X inflation                     | 0.8  | 1.2  | 1.1  | 1.7  |
|-------------------------------------+------+------+------+------|
| Public financial savings (% of GDP) | 1.9  | 2.1  | 2.0  | 2.2  |
|-------------------------------------+------+------+------+------|
| Repo rate (%, December)             | 1.50 | 3.00 | 4.00 | 4.75 |
|-------------------------------------+------+------+------+------|
| Exchange rate, EUR/SEK (December)   | 9.39 | 9.04 | 8.95 | 8.85 |
+-----------------------------------------------------------------+





The SEB Group is a Northern European financial services group for
400,000 corporate customers and institutions, and 5 million private
customers. SEB has a local presence in the Nordic and Baltic
countries, Germany, Poland, Ukraine and Russia, and through its
international network it has a presence in an additional ten
countries. On December 31, 2006, the Group's total assets amounted to
SEK 1,934 billion and its assets under management totalled SEK 1,262
billion. The Group has about 20,000 employees. Read more about SEB at
www.sebgroup.com.


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