Nordic Economies Economic Outlook February 2019

Nordic Economies: Economic Snapshot for the Nordic Economies

January 27, 2019

Economic momentum appears to have remained solid in the final quarter of the year, following a strong showing in Q3. Export growth accelerated in November from October’s recovery on robust pharmaceutical shipments, contributing to a higher current account surplus in the month. The improvement was corroborated by the manufacturing sector, with the PMI inching higher in December on stronger production, and Q4’s average PMI reading surpassing that of the prior quarter. Nevertheless, the third consecutive decline in new orders in December spells softer demand conditions moving into 2019. Turning to consumer spending, the bedrock of the economy, retail sales growth was robust in Q4, likely underpinned by strong real wage growth. Consumer confidence, however, was less upbeat in Q4, although it did improve for the first time in six months in January.

Read last month's summary on the Nordic Economies here


The economy appeared to hold up well in the fourth quarter, after growth ticked up slightly in the third quarter due to a surge in inventories and despite falling private consumption, fixed investment and exports. The resilience in Q4 was particularly evident in the labor market as displayed by the unemployment rate in December, which fell to its lowest level since November 2008. Moreover, in November, the current account balance logged a surplus for the first time in over a year on a stronger merchandise trade balance. However, growth likely remained fragile as evidenced by November’s slowdown in economic activity growth, which was weighed on by softening services production.


There were two sides to the economic narrative in the closing months on 2018. On the one hand, total economic growth in the September–November period slowed slightly in quarter-on-quarter terms compared to August–October. This was primarily due to weaker private consumption and falling exports, although increased government spending and fixed investment provided some support. On the other hand, mainland economic growth—which excludes hydrocarbon extraction activity and related transport—fared better and accelerated compared to August–October. In the political arena, meanwhile, the three-party centre-right coalition government announced on 17 January that the Christian Democratic Party would be joining its ranks, transforming it into the first non-socialist majority government since 1985. This should ease the passage of legislation through the Storting until the next elections in 2021, supporting business confidence in turn.


The economy likely bounced back in the fourth quarter from a contraction in the third quarter which was driven in large part by temporary factors. The services and manufacturing PMIs were well in expansionary territory throughout the period, even though both dipped notably in December. Moreover, the economic tendency indicator signaled solid growth, while the labor market was healthy, with solid employment growth throughout the period. However, the underlying picture is still one of gradually ebbing momentum. On the political front, in mid-January a new government was formed over four months after the general elections, with incumbent Stefan Löfven, leader of the Social Democratic Party, elected prime minister after reaching a deal with the Green, Centre and Liberal parties. The move should see a more liberal economic policy, although the new administration could be politically unstable. In the previous month, parliament approved an expansionary 2019 budget presented by the opposition Moderates and Christian Democrats, which will see lower taxes and higher government spending.


Economic momentum likely remained weak in the last quarter of 2018, following a marked deceleration in Q3 due largely to a sharp contraction in business and residential investment. Indeed, the tourism sector appears to have cooled in Q4, though the krona’s sharp fall in the quarter could support the sector going forward. While overnight tourist stays posted strong year-on-year growth in October, they were flat in November, pushing down occupancy rates as supply expanded. Moreover, airport data for December also suggests more muted tourism activity in the month. On the flipside, the labor market remained tight, with real wage growth increasing at a solid pace throughout 2018 despite softening in Q4.

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