Economic Snapshot for the Nordic Economies April 2016
April 6, 2016
Denmark: The economy decelerated in 2015, particularly in the second half of the year, following a significant recovery in 2014. The slowdown was mainly due to weak exports, which contracted for the first time in six years and reflected subdued global demand. Conversely, private consumption was the driving force behind growth last year. The expansion was supported by greater purchasing power and lower unemployment. Despite the slowdown in exports, Denmark’s current account has recorded surpluses of over 7.0% of GDP in the last three years due to the strong foreign trade surplus. Data from the first quarter show that the economy failed to gain momentum. In March, consumer confidence dropped to a five-month low and business confidence remained in negative territory.
Finland: Finland's economy returned to mild growth in 2015, following three years of contraction during which economic activity suffered from deteriorations in key industries as well as economic struggles in Russia. 2015’s modest recovery was mainly driven by private consumption and exports, while fixed investment remained sluggish. In March, the government and trade unions reached a preliminary deal which aims to cut Finland’s high labor costs by taking measures such as increasing working hours and freezing wages. While the initiative is a step in the right direction to restore labor participation and export competitiveness, it remains to be seen if trade unions and the government can reach a final agreement in the coming months. Meanwhile, Fitch Ratings downgraded Finland from AAA to AA+ in March, citing weak growth, struggles in stimulating the economy and demographic challenges.
Norway: It is difficult to gauge whether the worst effects of the oil price shock on Norway’s economy have dissipated. Exports recorded a double-digit yearly contraction in the first two months of the year and unemployment climbed to 4.8% in January, maintaining the upward trend that has persisted since May 2014. However, this rise in unemployment may not be as dire as it appears. According to Statistics Norway, the number of employed people has remained steady and the deterioration in employment figures is primarily the result of an increase in the working-age population. This suggests that the worst of the job losses related to the decline in energy investment may be in the past.
Sweden: Although its Nordic neighbors may be suffering strong economic headwinds, Sweden’s economy is booming, supported by solid domestic demand and a surprising surge in exports. Domestic demand was buoyed by strong investment, particularly in the vibrant housing market. Sweden’s external sector has benefited not just from a relatively weak krona, but also from favorable external demand for service exports, which make up a substantial amount of Sweden’s export profile. The country is also getting a boost from increased expenditure related to the recent influx of migrants. Statistics Sweden expects that the wave of migrants that entered Sweden last year contributed to a 0.5–1.0 percentage-point increase to GDP growth in Q4.
Iceland: The Icelandic economy grew 4.0% in 2015, a clear acceleration from the 2.0% growth tallied in 2014. The reading, which was underpinned by buoyant private consumption and double-digit growth in fixed investment, is the fifth consecutive annual expansion since the 2008 financial crisis. Meanwhile, the Central Bank announced that it plans to lift capital controls in the first half of 2016 after auctioning krona in international markets. The auction aims to close the gap between offshore and onshore krona holders that was created after capital controls were imposed. The Bank pointed out that the existing krona gap is the last obstacle in the way of the removal of capital controls. On the political front, Prime Minister Sigmundur Gunnlaugsson is facing a no confidence vote in Parliament following revelations that he had undisclosed offshore accounts.
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