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Nordic Outlook: Modest cooling in the Nordics

It looks like a soft landing, but risks of a worse outcome are large, as we have yet to see the full effect of the monetary policy tightening and as inflation remains too high. This is one of the conclusions of the new Nordic Outlook, where key figures paint a very mixed picture of the near future.

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Following the overheating and high inflation of 2023, the global economy continues to make progress towards normalisation. Inflation continues to decline, and the US economy is a source of hope. Here, inflation seems almost tamed without the economy having gone through a recession.

However, there are still bumps in the road towards a soft landing. 

Inflation remains too high, and we have yet to see the full effect of the monetary policy tightening. On top of that, we are likely to see a period of weaker growth in China, which is normally an important driver of global growth, and the geopolitical tensions are creating uncertainty for businesses.

In the euro area, the economy fared better than expected. Overall economic activity increased driven by a strong service sector while the manufacturing sector struggled with declining activity. However, the outlook for the remainder of the year has clouded as the service sector has started to show signs of weakness. 

Denmark: Problems lurking below a calm surface
Denmark’s economy is characterised by low unemployment, solid GDP growth and a decent outlook for private consumption. 

Yet, several areas of concern remain. Growth is decent but not broad based, and largely driven by Novo Nordisk and other pharmaceutical firms, while production across the rest of the industrial sector is falling.

A number of construction companies are feeling the pinch, and bankruptcy numbers are approaching financial crisis levels – even if the reason for many companies going under is delayed pandemic effects.

Inflation has fallen more in Denmark than in many other places, but it is being pulled lower by energy prices, other prices are continuing to rise at a fast clip, so overall inflation may soon rise again if there is no downshift here. 

We still forecast employment to fall, albeit modestly, but the risk of a worse-than-expected outcome remains considerable.

Las Olsen

Chief economist, Danske Bank

On top of that, employment cannot continue to rise while the economy, without pharmaceuticals, is stagnating.

“We still forecast employment to fall, albeit modestly, but the risk of a worse-than-expected outcome remains considerable. History shows that unemployment can quickly rise during a downturn, and given that we have still not witnessed the full impact of the sharp increase in interest rates, history could definitely repeat here,” Las Olsen, Chief Economist at Danske Bank, explains.

Swedish economy treading water
The Swedish economy has been running on two tracks, with households and the housing market continuing to weigh on the outlook, offset by a strong business sector and labour market.

The new outlook shows a downward adjustment to the growth forecast, however, it is still considered more likely that the Swedish economy will tread water than fall into an severe recession.

There are several signs that inflation momentum is falling quickly but inflation is still too high, and it is expected that the Riksbank will deliver one final rate increase in September whereafter it is projected that they will cut the policy rate starting in April next year. 

Nordic GDP forecasts





2.7%1.7% (1.5%)1.2% (1%)
2.9%0.0% (0.5%)1.7% (1.9%)
3.8%1.2% (1.1%)1.4% (1.4%)
1.6%-0.2% (-0.2%)0.8% (0.8%)

Paranthesis​ are projections from June 2023

Norway: Growth has slowed
In Norway, growth is slowing as consumption and housing investment weigh on activity. 

Inflation is still too high and strong wage growth is naturally fuelling inflationary pressures and inflation risks. However, the risk of inflation really taking off again is relatively limited.

Unemployment is continuing to rise slowly, although it is still at low levels. Higher interest rates are now really beginning to bite in the Norwegian economy and Norges Bank will probably stick to its plan of raising the policy rate again in September, but this is likely to be the final increase in the current cycle.

Finland: Economy cooling before rates peak
In Finland, the economic growth is expected to stagnate in the latter part of 2023. Inflation continues to weaken the purchasing power of consumers, and rising interest rates hold back both consumers and the investments of companies. 

Labour markets will remain steady even though some sectors will reduce workforce. Many companies are still struggling with labour shortages and wages are rising faster than in recent years.

Despite the stagnation of the Finnish economy, it is expected to pick up in 2024 as a result of private consumption supported by falling inflation and the gradual reinvigoration of export demand.