Nordic Economies Economic Outlook December 2018

Nordic Economies: Economic Snapshot for the Nordic Economies

November 21, 2018

The economy performed well in the third quarter, with preliminary GDP data suggesting growth was driven by manufacturing—which supported stronger industrial production readings in the quarter—and construction. Moreover, low unemployment should have boosted private consumption. The final quarter began in mixed fashion: While the manufacturing PMI soared in October due to strong growth in production and new orders, consumer and business confidence both dimmed in the same month, which could soften consumer spending and investment. To address emerging labor shortages, in October the government announced a plan designed to attract employees from abroad. However, the plan failed to achieve sufficient parliamentary support, with parties objecting to the proposal of reducing the minimum wage requirement for foreign workers. As a result, difficulty attracting staff could restrain GDP growth going forward.

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The economy is having a good run this year. Preliminary economic growth was unchanged in Q3 compared to Q2 in quarter-on-quarter terms, which proved faster than the Euro-area average. Private consumption likely played a key part in the growth story in Q3 given that the unemployment rate fell to a five-and-a-half year low and consumer confidence remained high, even though it moderated slightly from the previous quarter. In terms of the external sector, the current account balance posted its best reading in three quarters in Q3, although it remained in a deficit. Meanwhile, protests in opposition to government employment law proposals were called off in late October by the Finnish Industrial Union. On 6 November, tripartite negotiations regarding these proposals—which included government, labor and business representatives—concluded with a consensus. Reduced risks of labor disruption bodes well for the economy in Q4.


The economy grew at an accelerated quarter-on-quarter rate in Q3 compared to Q2. Higher exports, particularly of hydrocarbons and services, and a decrease in imports underpinned growth in Q3. The domestic economy, however, proved lackluster as private consumption growth moderated, coinciding with an uptick in the unemployment rate and lower consumer confidence. Government consumption rose at the same sluggish pace in Q3 as in Q2, while fixed investment increased only modestly. On the political front, the Christian Democrats—a small centrist party that has supported the minority coalition government over the last five years—voted to continue to align with the government at a party conference on 2 November. Had the party voted otherwise, serious doubts would have been raised about the government’s ability to pass its 2019 budget.


Although firm GDP figures are still outstanding, the economy appeared to lose steam in the third quarter. The services PMI averaged lower than in the second quarter on slower growth in new orders (although comfortably remained in expansionary territory), while annual industrial production, retail sales growth and previously stellar employment growth all dipped. The final quarter has begun in subdued fashion: In October, both the manufacturing and services PMIs fell, while the economic tendency indicator dropped on a decline in optimism across sectors. On the political front, the country remains without a government over two months after general elections on 9 September. With the leaders of the center-right Moderate Party and center-left Social Democrats—the two largest groupings in parliament—failing to garner the support of a majority of MPs, in mid-November the speaker gave Annie Loof, leader of the Centre Party, the task of breaking the political deadlock.


Following a strong second-quarter performance, economic activity likely remained solid in the third quarter, buttressed notably by strong tourist inflows during the country’s high season. Indeed, though overnight stays were stable year-on-year in July, they increased more than 10% annually in both August and September, boding well for service exports. Moreover, the unemployment rate fell to a one-year low in Q3, in a positive sign for private consumption. Having said that, the krona has weakened markedly so far in Q4, while the powerful labor unions recently demanded steep minimum wage increases over the next three years, ahead of upcoming labor negotiations. Both of these events could stoke inflation going forward.

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