Nordic Economies Economic Outlook December 2017

Economic Snapshot for the Nordic Economies

Nordic Economies: Economic Snapshot for the Nordic Economies

November 22, 2017

DenmarkRecent data shows that industrial output rebounded in annual terms in September, following two months of contractions. Exports accelerated in the month, growing at a double-digit annual pace. While upturns in the industrial, external and retail sectors at the end of Q3 are likely to have translated into higher growth, Q3 growth is unlikely to have bounced back to the level seen in Q1 following a marked slowdown in Q2. Survey data from October suggests upbeat economic prospects in the final quarter. Consumer confidence remained strong, and business confidence moved into optimistic territory. A booming housing market, propped up by decade-long negative interest rates enacted by an ultra-loose monetary policy, and healthy real wage growth have kept the domestic economy sturdy. On 13 November, the government and rival parties agreed to simplify the country’s tax system in a bid to boost investment. The measures are expected to be fully implemented by 2022. 

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FinlandA flash estimate showed strong quarter-on-quarter GDP growth of 1.1% in Q3. Although a breakdown by components is still outstanding, growth was likely driven by broad-based expansions across both the domestic and external sectors. The former saw robust private consumption growth outperform expectations in the first half of the year due to rising employment and subdued inflation, and retail sales data for the July-to-September period suggests the trend extended into Q3. The external sector has benefited from improving economic conditions in neighboring trading partners as well as competitiveness gains stemming from the government’s structural reform program aimed at lowering labor costs. Looking into the fourth quarter, data remains upbeat. The economic sentiment indicator was steady in October at September’s over six-year high, while consumer confidence in the same month remained unusually strong, easing only slightly from September’s print. 

Norway: The economy is in good shape, with recently released figures showing that total GDP expanded robustly in Q3, albeit at a slower rate than in the prior quarter. Q3’s figure was driven by a continuing recovery in the oil and gas sector thanks to higher crude prices. In addition, household spending remained solid, buoyed by a fall in unemployment. Encouraging signs are visible so far in the final quarter: Consumer confidence rose to a three-year high in Q4, while mainland exports surged in October. In parliament, budget talks between the minority government and opposition parties are underway. The government will attempt to avoid making too many concessions to keep public spending in check; a 3.5% rise in nominal spending is currently penciled in for 2018. The Liberal and Christian Democrat parties, likely allies, will push for greater investment in education and more generous family-related benefits, respectively.

SwedenThe economy remains in sturdy shape heading towards the end of the year, after a robust performance in Q2 thanks to strong expansions in private consumption and fixed investment. Industrial production rebounded in September after two consecutive monthly declines, while the economic sentiment indicator continued to indicate above-normal growth in October thanks to greater optimism in the building and civil engineering, retail trade and private service sectors. In addition, retail sales were strong in Q3, likely aided by low unemployment. However, the flipside of the tight labor market is the increasing prevalence of labor shortages and long recruitment times. Another more pressing concern is high and rising household debt linked to a surge in house prices in recent years, and a banking sector highly exposed to real estate. With interest rates set to remain low for some time to come, the Central Bank recently called for further macroprudential measures to cool the market and slow the build-up of debt.

IcelandIceland’s economy has remained upbeat in recent months despite adjusting to slower GDP growth. The tourism sector, which experienced double-digit growth in the year through September, helped unemployment reach a near-decade low in Q3 and contributed to higher disposable incomes. In turn, household spending rose and imports surged in October. Furthermore, while the strengthening of the krona has made imports cheaper, it has hobbled exports and weighed on GDP growth. Since 28 October’s snap elections, in which the Independence Party lost its governing majority but remained the largest bloc, messy coalition talks have so far left the Left-Green Party with the strongest chances of leading a three-party coalition government which would include Independence.

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