Economic Snapshot for the Nordic Economies February 2016
February 3, 2016
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Denmark: After recording weak growth rates in the first half of 2015, the Danish economy deteriorated further in Q3 and GDP contracted for the first time in over two years. The slowdown mainly reflected weakness in exports and government consumption. Recent data show that the economy struggled to gain momentum in Q4 and at the outset of 2016. Indeed, industrial production contracted in November and consumer confidence deteriorated in January. Earlier this month, the government approved several controversial proposals that affect refugees and aim at making the country a less attractive destination. Denmark has also imposed controls on the German border, thus temporarily suspending the Schengen agreement.
Finland: High wages and rigid employment benefits are continuing to restrict growth in what is expected to be Europe’s worst performing economy in 2016 after Greece. Since assuming office in May, Prime Minister Sipila has negotiated unsuccessfully with labor unions in an attempt to achieve more competitive wages in Finland. General strikes ensued in September last year and in early January, trade unions suggested that their members would be in favor of striking again this year, should the government continue to aggressively pursue labor market reforms. Such action could jeopardize the modest growth Finland is expected to achieve this year. In December, both unemployment and the number of inactive persons in the labor market – those who have given up looking for work – increased. However, consumer confidence rose to a five month high in January, as consumers were more optimistic that the economy would improve in 2016, and expressed more interest in making purchases than in saving money.
Norway: Norway’s Prime Minister, Finance Minister and Central Bank Governor held an extraordinary meeting in late January to discuss the current state of the beleaguered economy and how best to mitigate the impact of a collapse in Norway’s oil and gas sector. The trio concluded that current economic buffers, such as the devalued krone, low interest rates, and record levels of fiscal spending as stipulated in the 2016 budget will be sufficient to keep the country clear of a recession in 2016. This may be true, however the situation is still likely to deteriorate as unemployment increased approximately 25% on a yearly basis in October, investment in extraction related sectors fell 11.8% last year, and an estimated 30,000 jobs in the oil sector are expected to be lost permanently.
Sweden: Sweden’s economy sent positive signals to the market in January. The economic tendency survey conducted by the National Institute of Economic Research registered a second consecutive month above 110, indicating robust growth in the economy. The result was driven by the manufacturing sector, particularly in the capital goods industry, which experienced striking gains over the past three months. Unemployment has continued to follow a largely downward trend and should drive higher private consumption going forward. Meanwhile, the favourable fiscal and monetary conditions that characterised 2015 and contributed to growth during last year are expected to remain in place and sustain growth again in 2016.
Iceland: Despite a deceleration in Q3, the Icelandic economy is expected to have picked up slightly in Q4 and will likely have grown at the fastest rate since before the global financial crisis during the whole of last year. 2016 promises to be another milestone year, as the government is on track to progressively lift the capital controls that were imposed on the country’s large failed banks in the wake of the crisis in the coming months. In mid-January credit rating agency Standard and Poor’s raised Iceland’s sovereign credit rating from BBB to BBB+, citing the progress that was achieved towards the end of last year in structuring a plan for removing the controls and garnering support from creditors of the failed banks on its implementation.
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According to Statistics Norway, industrial production rose a seasonally-adjusted 2.3% in October compared to the previous month, contrasting the revised 2.0% fall in September (previously reported: -1.5% month-on-month). The rebound in October was due to a broad-based improvement across industrial sectors.
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Industrial production jumped 6.7% year-on-year in October, rebounding from September’s 0.6% dip.
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