Nordic Economies Economic Outlook March 2019

Nordic Economies: Economic Snapshot for the Nordic Economies

February 27, 2019

The economy accelerated in Q4 2018, thanks to solid momentum in the industrial and transport sectors, according to the Statistical Institute’s preliminary GDP estimate. Turning to Q1, the economy appears to be facing mounting headwinds at the start of the year. Business sentiment remained decidedly pessimistic in January, likely mired by uncertainty surrounding Brexit negotiations and future export prospects, while the manufacturing PMI lost ground in the same month on weaker growth in production and employment. In other news, following its first intervention in the foreign exchange market in nearly three years in December, the Central Bank intervened again in January to defend the currency peg after the krone weakened due to feeble international demand. This is likely a first step in the transition towards a normalization of monetary policy.   

Read last month's summary on the Nordic Economies here


Annual economic growth accelerated in the fourth quarter of last year. According to monthly economic activity data released by Statistics Finland, the economy was boosted by stronger expansions of primary, secondary and tertiary production. The pick-up in economic activity, in turn, translated into a tighter labor market, with the unemployment rate in December falling to the lowest level since November 2008. Meanwhile, the current account balance improved in Q4 compared to the previous quarter, although it deteriorated in annual terms. Turning to 2019, the recent tightening of the labor market and improved business and consumer confidence in January suggests the economy could fare well in Q1.


The economy performed well in 2018. Although total economic growth decelerated from 2017 due to softening domestic demand and a contraction in exports of goods and services, mainland economic growth—which excludes hydrocarbon extraction activity and related transport—accelerated to a four-year high. In addition, the unemployment rate fell to a four-year low in 2018 and the government’s fiscal standing is expected to have improved thanks to both the expanding economy and the substantial increase in average oil prices compared to 2017. Meanwhile, in the political arena, the government approved the construction of a new mine in Norway’s northern municipality of Kvalsund on 14 February despite years of opposition from the indigenous Sami population. Given the mine contains the country’s largest reserve of copper ore, its operation should eventually boost industrial production.


Economic growth in quarter-on-quarter terms was likely solid in Q4, although this was in part due to a favorable base of comparison after temporary factors saw the economy contract in Q3. Underlying economic momentum appeared to ebb, however, as evidenced by a slump in retail sales, lower average PMI readings compared to the previous quarter and sluggish growth in industrial production. Turning to Q1, available data points to a moderation in activity, in line with soft dynamics across the EU as a whole. Both the services and manufacturing PMIs declined in January, while the economic tendency indicator dropped sharply in the same month on worse sentiment in the manufacturing, retail and service sectors. Nevertheless, the labor market continues to perform well, as evidenced by robust annual employment growth in January.


The economy likely ended 2018 on a weaker note, after significantly decelerating in Q3 on the back of a sharp contraction in both business and residential investment. Softer tourism growth, following years of surging visitor inflows, should have put a lid on growth in Q4. This is reflected by overnight tourist stays, which rose only modestly in December after a flat November print, thus weighing on hotel occupancy rates. Lastly, although consumer confidence tumbled in November, solid wage growth and a low unemployment rate should have supported private consumption in the quarter.

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