Economic Snapshot for the Nordic Economies March 2016
March 2, 2016
Denmark: After recording subdued growth rates in the first three quarters of 2015, the Danish economy barely avoided entering a technical recession in the final quarter as GDP expanded a weak 0.2% on a sequential basis. The result contrasted Q3’s contraction and broadly reflected weakness in domestic demand, in particular private consumption, which dropped for the first time in two years. The main disappointments last year were in private fixed investment and exports, which moderated as a result of weak global demand. Despite subdued GDP growth last year, unemployment in Denmark remains at low levels, thus fueling hopes of an economic recovery. Moreover, the government’s fiscal position remains healthy with public debt below 45.0% and a fiscal deficit of less than 3.0% of GDP.
Finland: Finland’s GDP grew by 0.1% in Q4 and, although the figure appears unimpressive, it is an improvement over the 0.2% contraction in Q3 and brings full year growth to 0.4%. Economic growth has been anemic since the financial crisis as major industries have collapsed and trading partners have undergone drastic slowdowns, while the country’s labor market remains one of the least competitive among European nations. After the government failed to implement labor reforms over the past 12 months due to staunch opposition from unions, the government requested that unions put forth a proposal for increasing competitiveness, otherwise the government stated that it would go ahead with cuts to welfare and benefits. On 29 February, union leaders agreed upon a proposal they say will meet the government’s demands and could resolve deadlocked negotiations, however, details have yet to be confirmed.
Norway: Norway’s economy registered a 1.2% quarterly contraction in Q4, which was up from the revised 1.6% expansion registered in Q3 and brought full year 2015 growth to 1.6%. Weak exports and falling investment in both the mainland and offshore energy related sector were behind Q4’s figure. The economy is undergoing a turbulent adjustment to lower oil prices, which are not expected to recover to pre-2015 levels. Offshore investment in the oil sector makes up over a quarter of total investment, however, it declined last year, taking the momentum out of growth. Moreover, Statistics Norway’s Oil Investment Survey data released in late February suggest that oil investment has further room to fall in 2016, thus restraining growth going forward.
Sweden: The Swedish economy expanded 1.3% in Q4 2015, which was almost double analysts’ forecasts and is well ahead of Germany and the United Kingdom in terms of the strength of its recovery since the global financial crisis hit these economies in 2009. The reading marked a notable improvement over Q3’s 1.0% expansion and brings full-year 2015 growth to a solid 4.1% increase. Sweden’s strong growth has been fueled by some of the world’s most accommodative monetary policy, which is raising concerns among analysts of overheating the economy.
Iceland: The Central Bank revealed the first set of measures that it will implement prior to removing capital controls later this year. In order to stem a potentially destabilizing flow of foreign currency rushing into Icelandic banks, the Bank plans to impose taxes on foreigners who purchase bonds and to remove certain interest rate privileges. The Bank fears that the country’s significantly-higher interest rate of 5.75% compared to European countries near-zero rate could compel foreign investors to flood the country’s financial market. The Bank is taking all measures necessary to avoid a repeat of the 2008 crisis. Meanwhile, Fitch credit ratings agency affirmed Iceland’s BBB+ rating and stable outlook. Fitch commented that the fiscal balance of the country will improve notably going forward as the country starts to remove capital controls.
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