"We have revised upward our current year GDP forecast for the global economy mainly due to a stronger-than-expected rebound in the euro zone and emerging economies", Swedbank's chief economist Cecilia Hermansson said in the report Global Economic Outlook.

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GDP is growing 4.3% (+0.3 percentage points compared to our spring forecast). Next year we expect global GDP growth to slow to 3.6% and in 2012 we see the pace rising slightly to 3.8%. This is 0.1 percentage point lower per year than in our spring forecast and is mainly due to more modest growth in Europe and Asia. Our forecast of sluggish US growth remains unchanged.

Beyond the rebound, growth in the Western World (West) continues to trend weakly. Fiscal austerity, debt reconstruction and weak labour, housing and credit markets are softening growth prospects. The optimism in Europe that followed in the wake of positive growth data, the bank stress tests and strong corporate earnings will soon be replaced by pessimism, similar to the situation the US now faces. Emerging economies are expected to see a soft landing. Economic policy is being tightened to avoid an overheating in consumption and asset markets. Emerging economies will continue to drive the global economy, and the convergence between them and the West is accelerating.

Despite the slowdown in the US, we consider the risk of a new recession (double dip) to be relatively small (10%). Our main scenario, with weak growth, low inflation and low interest rates in the West, has a probability of 50%. On the other hand, the risk of deflation and weaker growth has increased, i.e., a Japan scenario does not appear to be as far-fetched as before. A zero interest rate policy could also contribute to a deflation scenario. We give this a 25% probability. Faster normalisation driven by high investment growth has a 15% probability.

Although our forecast points to a continued recovery in the Nordic and Baltic countries, the region is vulnerable to a deterioration in Europe and emerging economies. Countries that combine cutbacks/stimulus with structural reforms have a better opportunity to handle new downturns and strengthen their position in the slightly longer term at a time when globalisation is leading to greater competition.