Nordic Economics Economic Outlook July 2016
June 28, 2016
Denmark: The Danish economy accelerated surprisingly in the first quarter in seasonally-adjust terms amid strong domestic demand and a rebound in exports. Total consumption expanded at an almost-five-year high as private and government consumption accelerated. The steady growth in private consumption has likely been driven by increasing real wages and higher employment. Although GDP overshot market expectations in Q1, growth was still modest and the Danish economy continues to underperform compared to its regional peers.
Finland: Finland’s economic performance sped up in Q1. While robust private consumption was behind the uptick, fixed investment slowed and public spending and exports contracted. In recent years, Finnish exports and growth have been restrained by high labor costs. In an effort to restore export competitiveness, a labor reform deal was signed on 14 June. The deal between the government, employers and trade unions mainly aims to cut labor costs, with most measures taking effect next year. In exchange, the government granted income tax concessions in 2017. While the final deal falls short of the government’s initial targets, it still marks an important step forward in reforming Finland’s rigid labor market and will likely support exports, employment and GDP. Taking into account the country’s subdued economic performance of late, Moody’s was the last of the top three credit ratings to downgrade Finland from a triple-A credit rating. Moody’s now rates Finland at Aa1. In the political arena, on 22 June, Petteri Orpo replaced Alexander Stubb as Finance Minister after Stubb lost his leadership role to Orpo in the co-ruling National Coalition Party a couple weeks earlier.
Norway: The oil sector was the main driver of Norway’s economy for the last 15 years, however, cuts to capacity expanding investment have caused the sector to contract last year. The sector may see an even larger contraction this year as investment in the oil sector will likely fall further. Since midway through last year, the external sector has also been affected by low oil prices and weak external demand, and this has hurt Norway’s economy. Recent export data show that total exports contracted for the ninth consecutive month in May. Other data paint a mixed picture: the unemployment rate rested at 4.6% in May as job losses in oil-producing regions offset growth in other areas, while industrial production picked up in April.
Sweden: Strong domestic demand, supported by lose monetary policy, helped propel the economy last year. This year, however, growth slowed due to a number of factors, particularly the limited housing supply, which is impacting everything from labor supply to household debt. Some companies have complained that Sweden’s expensive and tightly-regulated housing market is making it difficult to find employees. The average recruitment time for businesses, the number of job openings and the amount of vacancies all increased in the first quarter of the year, even in lower-skilled industries such as hospitality. High housing prices combined with low interest rates are also fueling elevated household indebtedness, which the Riksbank has identified as a risk to financial stability. Meanwhile, recent data paint a mixed picture: economic sentiment improved in June, while industrial production fell in April.
Iceland: The Icelandic economy gained steam at the outset of 2016. The main driver of growth was fixed investment, which recorded double-digit growth over the same quarter of last year. In the political arena, on 25 June, Iceland headed to the polls for presidential elections. Guðni Thorlacius Jóhannesson, a political outsider and historian, was elected as the new President of the Republic of Iceland. Though role of president is quite ceremonial, this result is a clear sign of voters’ support for anti-establishment platforms on the back of the Panama Papers scandal that prompted former Prime Minister Sigmundur Gunnlaugsson to resign from office.
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