Nordic Economies Economic Outlook April 2018

Nordic Economies: Economic Snapshot for the Nordic Economies

March 28, 2018

Denmark: Domestic demand should drive growth this year, as households gain purchasing power thanks to stronger wage growth, a tight labor market and continued low interest rates and inflation. Nevertheless, the export momentum should slow due to a strong currency and maturing global business cycle, leading overall growth to decelerate slightly. A prolonged labor dispute is the main downside risk in the short term. FocusEconomics panelists expect GDP to expand 1.8% in 2018, down 0.1 percentage points from last month’s estimate. For 2019, the panel again projects growth of 1.8%. Inflation in February edged down to 0.6%, from 0.7% in January. FocusEconomics panelists expect inflation to average 1.3% in 2018 and 1.6% in 2019.


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Finland: While economic growth is expected to slow this year, there should still be a healthy expansion thanks to strong private consumption. Moreover, accommodative monetary policy and high business confidence should help drive fixed investment higher. However, the government’s ongoing fiscal consolidation will constrain public consumption growth. FocusEconomics panelists expect GDP growth of 2.5% in 2018, which is up 0.1 percentage points from last month’s forecast, and 2.2% in 2019. Harmonized inflation slowed to 0.6% in February from 0.9% in January. Higher prices for services, energy and food are expected to put upward pressure on inflation going forward. Our panelists expect harmonized inflation to average 1.1% in 2018 and 1.4% in 2019.


Norway: The economy is expected to get a boost from a strong rebound of investment in the petroleum industry this year. The mainland economy—which excludes petroleum activities and related ocean transport—is also set to benefit from resilient business investment and healthier consumer spending, although a softer housing market may dampen economic growth going forward. FocusEconomics panelists expect total GDP to expand 2.0% in 2018, which is down 0.1 percentage points from last month’s forecast, and 2.0% again in 2019. Mainland GDP is expected to grow 2.2% in 2018, which is unchanged from last month, and 2.1% in 2019. Inflation accelerated from 1.6% in January to 2.2% in February. On 15 March, the Central Bank kept the key policy rate unchanged at 0.50%—where it has been since March 2016. Our panelists expect inflation to average 1.8% in 2018 and 1.9% in 2019.


Sweden: Growth will likely stay solid in 2018. The economy will be supported by a further tightening of the labor market, stronger wage growth and a more expansionary fiscal stance. Although a weaker housing market could dampen construction investment, robust economic activity in other sectors should see heathy fixed investment overall. However, high household debt levels will continue to pose a downside risk. FocusEconomics panelists see GDP rising 2.7% in 2018, which is unchanged from last month’s forecast, and 2.2% in 2019. Inflation was unchanged at 1.6% in February, below the Riksbank’s 2.0% inflation target. Price pressures will be moderate going forward, although higher oil prices and loose monetary policy should see inflation gradually drift up towards the target. FocusEconomics panelists see inflation averaging 1.8% in 2018 and 2.1% in 2019.


Iceland: This year the economy should marginally decelerate from 2017, notably due to a cooling tourism industry and slower growth in public and business investment. Nevertheless, low unemployment and robust wage growth should support private consumption. Our panelists expect GDP to rise 3.5% in 2018, which is unchanged from last month’s forecast, and 2.9% in 2019. Inflation reached 2.8% in March (February: 2.3%). The Central Bank left the key interest rate unchanged at 4.25% at its 14 March meeting. Our panelists expect inflation to average 2.6% in 2018 and 2.7% in 2019.


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