Nordic Economics: Economic Snapshot for the Nordic Economies September 2016
September 1, 2016
Denmark: Denmark regained traction in the first quarter of this year, as improvements in the external sector coupled with rising private and public spending caused GDP growth to rebound and the economy to exit its technical recession. More recent indicators suggest that the country continued on a robust growth track thereafter. A strengthening labor market bodes well for household spending: the unemployment rate has been on a steady downward trajectory recently and fell to an over seven-year low in June. Business confidence remained robust in July, even though it receded from June’s multi-year high, and the mood among consumers improved in August, reflecting their greater optimism about the country’s current economic situation and outlook.
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Finland: The EU’s northernmost economy continued its fragile recovery in Q2, after suffering in recent years from a decline in its key industries and the recession in neighboring Russia. Quarter-on-quarter GDP picked up and recorded a third consecutive expansion. Another encouraging sign came from July’s drop in the unemployment rate to an almost two-year low, which indicates that efforts to reduce costs and rigidities in the struggling labor market are bearing fruit. Following years of austerity, the 2017 draft budget, which was unveiled in August, will likely be moderately supportive of growth as it plans income tax reliefs and no major spending cuts. In the political arena, Health Minister Hanna Mantyla resigned in August as the three-party ruling coalition struggled to reach an agreement on a landmark health reform which aims to overhaul the healthcare system and generate significant cost savings.
Norway: The Norwegian economy is going through rough times but there may be a silver lining. The quarterly business tendency survey improved in the second quarter, driven by a better outlook for producers of intermediate and consumer goods, although it stayed within pessimistic territory. The improvement, however, is only visible in sentiment so far. The oil-rich nation continues to suffer from low oil prices: in June, industrial production plunged as oil and gas extraction contracted sharply. Labor market shifts are expected as extraction companies continue to cut expenses and therefore jobs. An upward trend in unemployment, observed since August 2015, is unlikely to be reversed in the medium term as long as oil prices remain low; it will take several years for the labor force to adjust to a smaller number of jobs in the extraction industry and move into other sectors.
Sweden: The Swedish economy has shifted into a lower gear this year, expanding at consistently lower rates than in 2015. The economy slowed to 0.3% growth in seasonally-adjusted quarterly terms in Q2, down from Q1’s 0.4%, according to preliminary data from Statistics Sweden. The main driver of the economic deceleration is the weakening external sector. Exports have lost momentum in 2016 and are likely to be further affected by the consequences of the Brexit vote. On the domestic side, declines in both industrial production and fixed investment are putting the brakes on the Nordic economy. Furthermore, the Economic Tendency Indicator, which summarizes how consumers and firms view the economy, fell in August. The decrease was mainly a consequence of less optimistic sentiment in the manufacturing industry, though retail and consumer indicators also dropped.
Iceland: On 17 August, the Icelandic Parliament passed the Ministry of Finance’s bill to lift some of the capital controls in place since the financial crisis in 2008. Citizens are now permitted to purchase property abroad as well as foreign currency-denominated financial instruments up to a certain amount. In other news, Prime Minister Sigurdur Ingi Jóhannsson announced that parliamentary elections are scheduled for 29 October 2016. The anti-establishment Pirate Party is leading the polls with the support of almost 30% of voters, who are disgruntled with the political elite after the Panama Papers scandal.