It is extremely early of course to come to any firm conclusions. But our colleagues covering global markets have had the following initial thoughts:
UK/BoE: The economy is likely to fall into recession in H2 16 or early 2017, mainly due to falling investment. We expect the Bank of England to cut the Bank Rate from 0.5% to 0% and to make from GBP150-200bn of purchases under the Asset Purchase Facility.
EZ/ECB: A mild technical recession is foreseen in H2 16. Within the next one to three months we expect the ECB to temporarily step up monthly asset purchases from EUR80bn to EUR100bn.
US/Fed: The US economy is not immune from what is happening in Europe, so rate hikes by the Fed are off the table for this year.
This of course means something for the Riksbank's policy outlook too:
We expect the RB to reduce its growth estimates but at this stage probably not by a lot and by no means to signal a recession.
The inflation forecast might not be altered a lot as far as CPIF is concerned simply because we think that the repo-rate forecast will be lowered instead. The CPI forecast will likely shift down however as a result of fewer rate hikes.
The current rate path suggests about three (25bp) rate hikes in 2017 (starting Q2) and four in 2018. We would assume that the RB removes rate hikes in 2017 and slows the pace to two or three hikes in 2018 bringing the repo rate to 0-0.25% by end 2018.
On the back of extended/prolonged QE by the ECB the likelihood of a prolongation by RB in 2017 has increased. This is however not likely to be announced until October. The Debt Office currently plans to issue SEK77bn in nominal SEK bonds in 2017, i.e. SEK38.5bn per half year. One idea is that the RB extends QE in H1 17 by SEK35bn in nominal bonds, basically keeping pace with ECB supply, and keeps purchases of IL bonds intact (another SEK15bn).
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