Nordic Economies Economic Outlook February 2018

Economic Snapshot for the Nordic Economies

Nordic Economies: Economic Snapshot for the Nordic Economies

February 28, 2018

DenmarkThe economy recovered in the last quarter of 2017, after contracting in Q3 over the previous quarter. Although industrial production contracted year-on-year in Q4, it increased on a seasonally-adjusted quarter-on-quarter basis, while the external sector posted a solid performance, with robust exports of maritime transport services. Nevertheless, retail sales growth was relatively muted, pointing to some weakness in domestic demand at the end of the year. Leading indicators signaled that the economy likely improved in the first months of 2018, with consumer confidence at a seven-month high in February, and the manufacturing PMI sharply up in January as output increased markedly. On 6 February, the ruling government coalition agreed to a EUR 670 million tax cut, mainly aimed at lowering income taxes. The agreement came far short of the EUR 3.1 billion the prime minister’s Liberal Party had hoped to achieve, as talks with its far-right coalition partner collapsed due to disagreements over immigration policy  

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Finland: Recent indicators point to an economy that has been in good shape since the third quarter of last year, in which weak private consumption led to an overall slowdown. Positive signals include upward revisions to Statistic Finland’s monthly economic activity estimates from September to November. In addition, although economic activity growth slowed month-on-month in December, it remained high by historical standards and capped off a strong fourth quarter. Furthermore, although economic sentiment decreased month-on-month in January—a decrease that was consistent with a dip across the euro area as a whole—it remained elevated, while consumer confidence, specifically, hit an all-time high. However, discouragingly, real wages fell in Q4—albeit at a reduced rate compared to Q3—likely weighed on by measures agreed as part of the Competitiveness Pact.

Norway: The economy took a hit in the fourth quarter due to lower output in the offshore oil and gas sector. In quarter-on-quarter terms, economic output swung to a seasonally-adjusted contraction in the fourth quarter, down from an expansion in the previous quarter. The economy’s underlying strength, however, was evident from results excluding the offshore oil and gas sector, which showed that growth was healthy in Q4 and supported by positive consumption and investment dynamics. Overall, both the total economy and the mainland economy, which excludes petroleum activities and related ocean transport, grew faster in 2017 than in 2016—growth which translated into lower unemployment in 2017. Meanwhile, the economy has started this year on a strong footing: The consumer confidence indicator for Q1 was near a five-year high, and goods exports grew faster year-on-year than goods imports in January.

Sweden: The economy is in a groove so far in 2018. Business sentiment was elevated in January, with broad-based optimism across sectors. The PMI remained firmly in positive territory in the same month despite dipping, while industrial production grew strongly in the final quarter of last year. A healthy business environment led to solid job creation in January and saw the smoothed unemployment rate remain at a multi-year low. However, despite the strong labor market and growing signs of staff shortages across industries, private-sector wage growth disappointed through November—particularly in retail. In the housing market, prices perked up in January, which is typically a strong month, following four consecutive monthly declines. This should go some way to allaying fears of a sustained downturn in the property market.  

Iceland: Economic activity likely continued easing in the last quarter of 2017, following a disappointing performance in the third quarter due to weaker exports. Leading data suggests that the expansion in private consumption, a core driver of the Icelandic economy, slowed in Q4 from Q3, despite remaining robust. This was likely due to lower wage growth and a fall in average spending per tourist; nevertheless, tourist arrivals rose by nearly a quarter in 2017 overall. Consumer confidence, however, rose throughout the quarter, with a sharp upswing in December, signaling households should continue to be a main driver of growth going forward.

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