Nordic Economies Economic Forecast

Economic Snapshot for the Nordic Economies

October 26, 2016

DenmarkRevised data confirm that the Danish economy lost steam in the second quarter of this year. The economy grew 0.4% quarter-on-quarter, down from the preliminary estimate of 0.5% growth and nearly halving the growth rate in Q1. A contraction in fixed investment and slower growth in private consumption were behind the slowdown. The latest indicators from the third and fourth quarter suggest that economic activity remains sluggish. Industrial production contracted for the first time in nearly a year in August, while businesses grew more pessimistic in September and consumer confidence reached a multi-year low in October. 

FinlandThe EU’s northernmost economy stagnated in Q2, decelerating from Q1’s 0.3% quarter-on-quarter growth. Household and public spending, fixed investment and exports all expanded in Q2, but rising imports and a decline in inventories offset these gains. Data in Q3 sent mixed signals, but suggest overall that Finland’s fragile recovery is still underway as the negative repercussions of shocks, including the decline of some key Finnish industries and the recession in Russia, continue to ease. After showing strength in July, the trend indicator of output and industrial production deteriorated in August, while a narrowing current account deficit and the ongoing decrease in unemployment were positive developments. 

NorwayRobust private consumption due to an accommodative monetary policy and fiscal policy support propelled mainland growth in Q2. This positive news, however, was offset by a renewed drop in oil-related output and investment as low oil prices continue to dampen activity in the all-important sector. August’s drop in industrial production confirms the fragility of Norway’s economic growth. On 6 October, the government presented the 2017 budget and stated that it will use around 3.0% of Norway’s USD 880 billion sovereign wealth fund, which is below the 4.0% fiscal rule limit. The expansionary budget promises to shore up growth next year. In an attempt to boost its returns in a context of low government bond yields, the fund will increase its allocation to equities from 60% to 70%. Norway’s massive oil fund owns, on average, 1.3% of all globally listed equities.

SwedenRecent indicators have given conflicting signals about Sweden’s economic performance, but overall they point to a deceleration in Q3 after the GDP reading for Q2 had surprised on the upside with a mild acceleration. Although upbeat indicators in September suggest that both consumers and businesses are reasonably optimistic about future economic conditions, a recent business survey published by the Riksbank warned of a clouded outlook for companies, which are concerned about rising geopolitical uncertainty. The latest data confirm the Riksbank’s pessimistic view. Industrial production fell to its lowest level since July 2015 and exports slumped in the three months to August, despite the plunging krone. 

IcelandIceland grew a healthy 3.7% on an annual basis in the second quarter, on the back of strong private consumption and buoyant fixed investment, which benefited from the good performance recorded in the tourism sector. Monthly data suggest that the economy kept up the momentum in the third quarter. Unemployment continued to decline, reaching a level in September not seen since the beginning of the Great Recession. Consumer sentiment, after declining at the beginning of the quarter, increased in both August and September. In the political arena, snap elections are due to be held on 29 October, after revelations in the Panama Papers forced the former prime minister to resign. Polls suggest the ruling conservative coalition could lose its majority and that a future government could be forced to strike agreements with the populist, anti-establishment Pirate Party in order to govern.

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