Denmark: Denmark’s economy expanded for a second consecutive quarter in Q2, but growth remained tepid with GDP increasing 0.5% quarter-on-quarter (Q1: +0.7% qoq). The key external sector and public spending supported growth, while weaker household spending and fixed investment drove the deceleration. Subdued business and consumer confidence readings for August and September, respectively, suggest that sluggishness continued in Q3. Prime Minister Lars Locke Rasmussen from the Liberal Party presented a 10-year economic plan in August, which envisages tax cuts and several other measures to revive the economy. Yet it is very uncertain whether the plan will be approved as there is strong disagreement about the proposed tax cuts among the parties which support Rasmussen’s minority government, the Liberal Alliance and the Danish People’s Party. Tensions among the parties heightened in September, increasing the risk of a collapse in government.
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Finland: Finland’s economy stagnated in Q2, slowing down from Q1’s 0.3% quarterly expansion. Positive impulses to Q2 growth came from solid private consumption, public spending, fixed investment—which benefited from strong construction activity—and exports, which rebounded partly due to a large ship sale. Growth was flat, however, as these positive developments were countered by surging imports and falling inventories. While July’s pickup in the trend indicator of output and August’s continued decrease in unemployment send cautious signs for an improvement in Q3, July’s widening current account deficit highlights that weakness persists in the external sector. On a positive note, in September, S&P Global Ratings revised Finland’s credit outlook up from negative to stable on expectations that ongoing initiatives to restore Finland’s competitiveness—such as the competitiveness pact—will support a gradual economic recovery and bolster public finances.
Norway: In Q2, GDP growth was flat, as a contraction in domestic demand was offset by a remarkable rebound in the external sector. However, a fall in imports, a sign of weakness in the domestic economy, was behind this improvement of the external component to GDP. In July, unemployment hit the highest rate since the mid-1990s as corporations in the extraction industry were forced to downsize. The upswing in monthly industrial production seen in July was driven not only by a rebound in oil and gas output, but also from the effect of a low base in June. As global prices for crude are still low, Norwegian oil companies cannot afford to meet workers’ requests for higher wages, which prompted a strike in September.
Sweden: This year the Swedish economy has not been growing as solidly as last year, though revised data for the second quarter surprised positively. GDP accelerated slightly and logged a 0.5% quarterly expansion compared to the 0.4% increase in Q1, contrasting a previous preliminary estimate that had depicted a slowdown in Q2. The main driver of Q2’s acceleration was a smaller drag from the external sector, whereas on the domestic side, the overall slowing consumption erased the gains from fixed investment. On 20 September, the government presented its modestly expansionary budget bill for 2017 to the parliament. Total central government expenditure will total almost SEK 1 trillion, though the authorities expect this to be offset by revenues, resulting in a projected SEK 7.4 billion fiscal surplus at year-end. The bill envisages a SEK 23.6 billion reforms plan, most of which will be covered by borrowing though some new revenue-raising measures are also envisaged.
Iceland: Iceland recorded 3.7% of annual growth in the second quarter, which was well above results seen in the rest of Western Europe. Private consumption accelerated, supported by higher real wages and improved conditions in the labor market. Thanks to the rapidly growing tourism sector, investment grew at around 30% in H1. However, net trade provided a negative contribution to GDP in Q2. While exports of goods and services slowed down, imports saw a healthy acceleration. This was largely due to the increasingly strong krona which has, in addition to the wage growth, fueled consumers’ appetite for foreign goods and services.