Nordic Economies Economic Outlook August 2018

Nordic Economies: Economic Snapshot for the Nordic Economies

August 26, 2018


The economy lost steam in Q2 in quarter-on-quarter terms according to preliminary data, with the unseasonably warm weather dampening the agricultural sector, and mining and quarrying subtracting from growth. However, the flash estimate is still subject to a significant deal of uncertainty, and underlying economic conditions should have stayed robust. The labor market continued to perform well in the period, with the unemployment rate dipping to a near ten-year low. Coupled with elevated consumer confidence, this likely buttressed private consumption—as suggested by encouraging retail sales readings throughout the quarter. Looking at Q3, signs are fairly positive. In July, the manufacturing PMI increased sharply on faster output and new orders growth, while business confidence rose. In addition, consumer sentiment in August remained rosy, despite dipping for the second consecutive month. 

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The economy performed well in the second quarter of this year, although growth slowed compared to the first quarter. According to Statistics Finland’s monthly Trend Indicator of Output, both services and primary production increased robustly in Q2, although secondary production growth was very weak. This was partly due to strikes in the construction sector. Furthermore, unemployment fell to a multi-year low in June. A tightening labor market should have therefore supported private consumption throughout Q2. However, the current account logged a multi-year-high deficit in Q2, contrasting the surplus recorded in Q1. More recently, the European Commission’s economic sentiment indicator—which captures business and consumer confidence—improved in July, boding well for the economy in Q3. However, businesses in the construction sector turned pessimistic, contrasting the optimism recorded in June.


In the second quarter of 2018 the economy expanded from the previous quarter at an accelerated rate compared to Q1. Consumption dynamics were beneficial to growth in Q2: Private consumption increased at the fastest pace in over a year, supported by high consumer confidence and falling unemployment, and government consumption also increased at a healthy rate. Fixed investment growth, meanwhile, reached a five-year high, underpinned by elevated investment in the petroleum, services and public sectors. The external sector weighed on the economy in Q2, as import growth far outpaced that of exports. Looking ahead, investment activity in the oil and gas industry is set to increase in 2019 compared to 2018, according to data released by Statistics Norway on 23 August, as firms gear up to take advantage of higher prices.


Preliminary data suggests that the Swedish economy accelerated in the second quarter, on the back of faster growth in private consumption and a strong external sector. Private consumption was likely supported by the healthy labor market and higher wages, with exports buttressed by solid activity in regional trading partners. However, the flash estimate should be treated with caution, and a downward revision is possible given that high-frequency indicators had not hinted at such a strong performance. The third quarter has begun in a positive fashion. In July, the economic tendency indicator rose thanks to more upbeat sentiment in the manufacturing sector. In the same month, the manufacturing and services PMIs continued to indicate healthy growth, and annual employment growth was robust. On the political front, general elections on 9 September will likely produce a fragmented parliament. However, despite some potential short-term political instability and a likely weak government, positive medium-term economic prospects are unlikely to change.


The economy likely performed well in the second quarter, after growth hit an over one-year high in the first quarter, although it showed signs of weakness. The unemployment rate remained low in Q2, and real wages continued to grow in annual terms, which should have supported private consumption. However, real wage growth slowed to a 14-month low in June, before ticking up slightly in July. Moreover, the tourism sector appeared to wobble in Q2, as overnight stays decreased compared to the same period last year, possibly due to a strong Icelandic króna. In June, consumer confidence fell to the lowest level of optimism since September 2015.

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