Nordic Economics Economic Outlook May 2016
May 4, 2016
Denmark: The Danish economy decelerated slightly last year amid a weak external sector. However, more recent data show that the country’s GDP likely gained momentum in the first quarter of the year. Growth in industrial production accelerated in February and the consumer confidence index hit a four-month high in April. Moreover, positive developments in the labor market are seen as an indication that the Danish economy is gradually recovering. In March, the unemployment rate tallied a low reading in comparison to historical levels. In addition, low interest rates and oil prices are supporting domestic demand.
Finland: Following three years in contraction, Finland’s economy returned to slow growth last year on the back of rising private consumption and exports. Modest growth likely continued in Q1: economic activity expanded mildly in January and February, while industrial production and the current account improved in February following January’s subdued readings. Nevertheless, many of the economic constraints of recent years—such as Nokia reducing activity in the country, struggles in the forestry industry, weak demand from Russia and high labor costs—still persist. Against a backdrop of rising unemployment, Nokia recently announced plans to cut 1,300 jobs in Finland by 2018. The fiscal plan for 2017–2020 that the government announced in April envisages additional austerity measures worth EUR 400 million in order to keep growing public debt in check. The economic weakness of recent years has fueled Euroscepticism and, on 28 April, the Parliament discussed whether Finland should hold a referendum on Euro area membership as a petition forced the topic into discussion.
Norway: Last month, it appeared that the worst effects of the oil price shock were dissipating, as the rise in the unemployment rate was seen as being connected to an increase in the labor force rather than job losses. More recent data corroborate this as unemployment inched down in February. This is largely due to a shift in the economy in which the mining and extraction industries—traditionally dominated by men—are shedding jobs while the social work and healthcare industries have been adding jobs that are predominantly held by women. In fact, an increase in women finding jobs is offsetting a decrease in working men. Further, as extraction jobs tend to be higher paid, the loss of such employment may explain why wage growth has been non-existent in Norway. This is likely to cut into domestic consumption this year.
Sweden: Sweden’s dynamic economy will likely grow at a slower pace this year. In 2015, the economy was lifted by ultra-accommodative monetary policy and government spending associated in part with the recent migrant inflow. Since January, however, unemployment has picked up and is moving back towards its long-run average. The economic tendency indicator, although still resting in expansionary territory, has also moderated since January. Meanwhile, turmoil in the Swedish Parliament could have an impact on political stability. Recent gaffes by the Green Party, which holds a crucial position in the Social Democratic Party’s coalition government, have made the party unpopular. Prime Minister Stefan Loefven, who is faring poorly in opinion polls, stated that he is considering a cabinet reshuffle to rid the government of unpopular MP’s at a date yet to be determined.
Iceland: The wave of public anger and discontent that swept over Iceland recently resulted in Prime Minister Sigmundur Gunnlaugsson stepping down in early April. A trove of leaked confidential documents showed that the Prime Minister failed to disclose that he held multimillion dollar stakes in Iceland’s failed banks in offshore tax havens despite his electoral promise to clean up Iceland’s banking sector. Following Gunnlaugsson’s resignation, Sigurður Ingi Jóhannsson from the ruling-party was sworn in as prime minister and pledged to hold elections before the year’s end. However, the implications of the leak on Iceland’s political landscape are yet to be seen. Polls suggest that the ruling coalition is set to lose its majority and that non-traditional parties, such as the Pirate Party, are poised to make important gains.
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