Recent political events have not made the world easier to navigate for businesses, investors and other decision-makers.

It is hard to know how we will be affected by the new US administration’s fiscal and trade policies. There are signs of escalation in Russia’s war against Ukraine, the situation in the Middle East remains very tense and the political conflict between China and several other countries, especially the US, might well worsen. In Europe, the collapse of the German government could be the latest sign that political polarisation is making it difficult to form coalitions with the strength to address structural economic problems.

These are all important problems, but it is also important to not only focus on uncertainties and complications. Many economies, including the Nordic countries, stand to benefit from increasing spending power among households and lower interest rates, which should gradually support demand.

“Many economies are currently rather balanced and we forecast normalization Normalization in growth, normalization in inflation, normalization in rates, and normalization in unemployment,” says Heidi Schauman, Global Head of Research at Danske Bank. 

See Heidi Schauman explain more about the elevated risk picture and the economic outlook in this video:

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Denmark’s economy is strong 
Denmark’s economy is strong compared to its neighbours, and exports and industrial production are rising strongly due to the production of pharmaceuticals and medical equipment, in particular, but also in other areas.

Private consumption has been sluggish in 2024, but it is expected to pick up in the coming years, driven by rising real incomes and lower interest rates. 
The European Central Bank (ECB) is expected to lower the deposit rate at each consecutive meeting until it reaches 1.50 per cent around next summer, and Danmarks Nationalbank is expected to match the upcoming rate cuts without changing the policy rate spread.

Sweden: Rays of light amidst a sluggish recovery 
In Sweden, the economy is still underperforming, but there are some signs of better times around the corner. Unemployment has peaked and is expected to drop back slowly next year. 

After barely topping 1 per cent in 2024, GDP growth is expected to accelerate in 2025 as lower interest costs, accelerating real wage growth and a stronger labour market will boost households’ disposable income and, in turn, their spending.

In the base scenario, the Riksbank is expected to lower the policy rate by 25bp at each coming monetary policy meeting other than May, taking it down to 1.75 per cent next summer. 

Norway: Trend growth higher than previously assumed
Looking towards Norway, revised national accounts data show that growth in the Norwegian economy has been stronger than originally reported. The good news is that this is entirely a result of productivity growth, meaning a higher underlying trend growth rate than previously thought.

The combination of higher real wage growth and lower interest rates are expected to boost both private consumption and private investment in 2025 and 2026. 
Norges Bank is expected to leave the policy rate at 4.5 per cent until delivering a first cut in March next year. A total of four cuts in 2025 are expected, taking the policy rate to 3.5 per sent at the end of 2025.

Finland: The consumer in the driver’s seat
Finland continues a slow exit from a recession, but stronger growth is expected in 2025 supported by higher domestic demand and growth in export markets. 
Falling interest rates and low inflation are expected to boost domestic purchasing power, but the risk of unemployment still holds the consumer back. Unemployment is expected to continue to rise in the coming months until economic growth increases recruitment needs.

Sovereign credit rating outlook has weakened, and public debt ratio grows despite the government decision to tighten fiscal policy, which implies a risk of further austerity measures.