Nordic Economies Economic Outlook September 2018

Nordic Economies: Economic Snapshot for the Nordic Economies

September 24, 2018



The economy lost some steam in the second quarter from Q1’s downwardly-revised, already-modest performance, largely due to a deceleration of private consumption growth coupled with a slight contraction of exports and government spending. This was despite strong consumer confidence and near decade-low unemployment in the quarter. More positively, fixed investment recorded robust growth in Q2—even when excluding large, likely one-off, ship purchases. Looking to the third quarter, business confidence remained positively anchored in August, suggesting that the strong investment performance will continue in Q3. In addition, after weak readings throughout Q2, the manufacturing PMI increased sharply in July and again in August, indicating a large rebound of manufacturing activity that will likely buttress higher investment. At the end of August, the government presented a fiscally cautious draft 2019 budget, which set aside money to deal with potential Brexit fallout.

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A marked slowdown in the first half of the year was confirmed in recent weeks, falling short of expectations and moderating from last year’s snappy outturn as weak household spending held back economic gains. Higher inflation amid rising fuel costs, as well as new indirect taxes, ate into consumers’ purchasing power in the second quarter, contributing to this year’s waning consumer sentiment and offsetting the benefits accrued from steady job creation. Moreover, the pullback was worsened by the unraveling of global trade, which hit exports in the quarter and weighed on industrial output and broader business sentiment. Third-quarter prospects, however, look rosier. Although consumer-spending proxies suggest muted growth in recent months, chipper manufacturing metrics point to a further acceleration of business investment. Meanwhile, the next round of Emmanuel Macron’s reform push—set to tackle the pension and health care systems—took flack in recent weeks as he faced another resignation from his cabinet amid a sizeable loss of public support, calling into question his longer-term ability to cut bureaucratic bloat.


According to new monthly data released by Statistics Norway from September, total GDP contracted in July compared to the previous month in seasonally-adjusted terms, while the mainland economy—which excludes hydrocarbon extraction activity and related transport—maintained its growth momentum. This comes after GDP increased quarter-on-quarter for the seventh consecutive time in Q2 this year, driven by an acceleration in private consumption growth amid low unemployment and high consumer confidence. In terms of the housing market, prices have made a clear recovery since falling last year. In Q2 this year, prices were 1% higher than the peak reached five quarters earlier. According to Norges Bank’s Economic Survey released on 19 September, this recovery is likely to be maintained due a reasonably well-balanced housing market, which should give consumers extra confidence to spend going forward.


Comprehensive figures show Sweden’s economy performed well in the second quarter, although growth for the first half of the year was revised down notably from initial estimates. In Q2, the economy was driven by solid private consumption gains—likely thanks to a strong labor market—and an improvement in the external sector. Looking ahead to the third quarter, the outlook seems fairly positive. The economic tendency indicator rose for the third straight month in August and hints at much stronger growth than normal, buoyed by optimism in the manufacturing sector. In addition, employment growth remains robust. On the other hand, the unemployment rate has ticked up slightly so far in Q3 due to a larger workforce and matching problems in the labor market, while industrial production declined over the previous month in July. Moreover, in the political arena, general elections on 9 September resulted in a fractured parliament with uncertainty over the composition of the next government. Despite this, the economic fallout from greater political instability should be minimal.


The economy performed well in the second quarter, according to data released by Statistics Iceland in September. Annual economic growth accelerated from the first quarter to reach a one-and-a-half-year high. The expansion was driven by strong private consumption, which benefited from low unemployment and solid wage growth. Moreover, fixed investment growth surged, particularly in terms of residential construction. On the other hand, government consumption increased at a weak pace, while the external sector had a lackluster performance. According to the same data, economic growth in 2017 was revised upwards from 3.6% to 4.0%.

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