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Nordic Outlook - January 2020

Nordic Outlook is economic and financial trends from the Nordic countries, prepared by our analysts.


At a glance - slowdown catches up with the Nordics

Judging only from the headline quarterly GDP figures, the Nordic countries have for the most part done well in 2019 compared with the slow growth in Western
Europe as a whole. But on closer inspection, there are already many signs of slowdown in the Nordics.

Sweden is the clearest case, as the country has already seen an increase in unemployment and GDP growth has slowed significantly – despite what looks like temporary support from net exports. Denmark has been supported by a boom in pharmaceutical production and exports, Norway by surging investments in the oil sector, and Finland by ship exports and what looks like a temporary surge in private consumption in the third quarter of 2019. 

We do not expect these factors to continue to drive growth this year, and that will make the slowdown clear, before a slightly better global backdrop adds a bit more support in 2021.

Las Olsen

Chief Economist, Danske Bank

Underlying strong economies

Sweden is the Nordic country that comes closest to a new economic crisis in our forecasts, as we expect outright GDP declines on a quarterly basis and a further increase in unemployment. That reflects the construction boom of earlier years, as declining housing investment is now a drag on growth. Of course, all of the Nordic countries are vulnerable to global recession, which clearly remains a risk in the coming years, even though progress over trade and better key figures from around the world have made us less worried.

The Nordic countries in general are relatively well equipped to deal with recession risks, as Denmark, Sweden and Norway in particular have some of the healthiest public finances in Europe and ample space to ease fiscal policy if they decide to do so. We also do not see any of the Nordic economies as severely overheated, albeit with some local variations, such as the high prices in some metropolitan housing markets.

Hikers of the North

Sweden and Norway are among the few countries where official interest rates were increased in 2019. It is tempting to see a connection between the two, but the backgrounds are very different. Norway is simply one of the few countries where underlying inflation dynamics support the central bank’s target, especially as wage growth is firmly above 3% and the labour market remains tight.

Meanwhile, Sweden does not really fit the bill for a country where rates should be hiked, as core inflation is below target and heading lower as the economy cools. The Swedish Riksbank hiked rates at its December meeting to get away from negative interest rates, it seems. We expect the Riksbank to keep its policy rate at zero for a long time, but there is a good chance that it might have to take back the 2019 hike and return to negative. Norway, on the other hand, looks likely to hike once more in 2020 to keep inflation in check.

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