Nordic Economies

Nordic Economies: Economic Snapshot for the Nordic Economies (November 2018)

October 21, 2018



While data for the third quarter has been mixed, the economy likely continued to expand at a steady pace. Although the manufacturing PMI fell in September as new orders and production growth slid, the average PMI reading in the third quarter was much stronger than Q2’s. Moreover, a tight labor market is strengthening households’ disposable income, which is likely feeding through to a pick-up in consumer spending—as seen by August’s solid retail sales figure. On the downside, business confidence deteriorated in September, while the agricultural sector likely faltered in the quarter, dragged down by depressed pork prices and the summer drought, which damaged crops

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The economy expanded robustly in the first two months of the third quarter. Growth was resilient in primary production—which captures agriculture, forestry and fishing activity—in July–August compared to the same period a year earlier, despite hot temperatures in August weighing on agriculture activity. Moreover, secondary production—which includes the manufacturing and construction sectors—grew strongly. Services output—the largest form of production—increased modestly. Fundamentals were good in Q3: Unemployment remained low through to August, and business and consumer confidence remained in optimistic territory in September. Meanwhile, union protests began in early October opposing government employment law proposals. In response, the government called for and won a confidence vote in parliament on 17 October. Nevertheless, protests are set to continue later in the month


Quarter-on-quarter economic growth accelerated in June–August compared to the previous rolling quarter of March–May due to a strong expansion in exports. The mainland economy—which excludes hydrocarbon extraction activity and related transport—also expanded in the same period but decelerated slightly compared to March–May. Meanwhile, on 8 October the minority coalition government outlined its spending plans for 2019. The fiscal surplus is seen benefiting from growth in revenues outstripping that of expenditures. However, the successful passage of the budget through the Storting largely depends on support from the Christian Democrats, a small independent party which has backed the government in parliament over the past five years but will vote on whether to continue to do so on 2 November.


Sweden’s economy likely performed well in the third quarter. The economic tendency indicator increased for the fourth straight month in September, while consumers also grew more optimistic in the same month. Moreover, both the manufacturing and services PMIs remained well in expansionary territory throughout Q3. However, there are signs that employment growth—which was elevated in the first half of the year—is starting to lose steam, likely due in part to matching problems in the labor market. This comes after a robust second quarter performance in which the economy was driven by private consumption and a stronger external sector. On the political scene, the country remains without a new government following the general elections on 9 September. After Ulf Kristersson, the leader of the center-right Moderate Party, failed to secure sufficient parliamentary support, the Speaker has given caretaker Prime Minister Stefan Lofven the task of forming a government. Political uncertainty is unlikely to have a meaningful impact on economic activity in the near-term.


After reaching a one-and-a-half year high in the second quarter—thanks to private consumption and residential construction investment—economic growth should have remained robust in the third quarter, particularly thanks to solid inflows of tourists during the country’s high season. Although overnight stays were stable year-on-year in June and July—due to a high base effect from 2017’s strong performance—they increased more than 10% in August. Meanwhile, the recently unveiled 2019 draft budget calls for a large expenditure increase while maintaining a sizable budget surplus, with new spending focused on infrastructure, healthcare, housing and social support.

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