Nordic Economies Economic Outlook January 2017

Economic Snapshot for the Nordic Economies

Nordic Economies: Economic Snapshot for the Nordic Economies

December 21, 2016

DenmarkGDP grew a seasonally-adjusted 0.4% over the previous quarter in Q3, according to a preliminary estimate. The mild acceleration was driven by a jump in government consumption and a softer drop in fixed investment, while the contribution from the external sector was flat. However, private consumption, Denmark’s largest contributor to growth, has been slowing down since posting strong growth at the outset of the year. The downbeat momentum was reflected in the latest consumer confidence reading, which was at the lowest level observed in over three years in November. The tepid climate is likely due to homeowners being weighed down by high levels of indebtedness caused by record-low interest rates. Borrowers with high loan-to-income ratios will struggle to offset the expected effects of rising interest rates in the U.S. and in Europe over the next years.

FinlandThe long stagnant economy churned out another quarter of weak growth in Q3, expanding 0.4% from the previous quarter. Although the headline number was a better reading than Q2’s 0.1% contraction, the details showed a still beleaguered external sector, which remains too heavily centered on a struggling agricultural sector and a battered forestry industry. Conversely, domestic demand continued to be a bright spot, and its upbeat momentum is likely to have carried over into the fourth quarter, as suggested by both a second month of strong expansion in industrial output in October and an over five-year high in consumer confidence in November. Less positive was October’s unemployment rate, which jumped after having reached a two-year low in August.

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NorwayAfter disappointing growth in the third quarter, economic activity in Norway has shown tentative signs of improving momentum in recent months. In October, annual growth in industrial production rebounded to a 5-month high on the back of a strong improvement in the petroleum sector. The expected slight acceleration in the economy in Q4 comes on the back of the authorities’ efforts to mitigate the severe headwinds the economy has faced since the global oil market crisis. The government has made use of its abundant sovereign wealth fund for the first time in 2016 and increased spending to support activity. It has also adjusted monetary policy to face the difficult environment of subdued investment in petroleum extraction: Norges Bank has kept the key policy rate at a record low of 0.50% throughout the year, after cutting it in early 2016. 

SwedenThe latest data for GDP growth in Q3 were downbeat. The economy entered into a lower gear in the third quarter compared to the previous quarter, mainly due to a near stagnation in domestic demand. Stagnant fixed investment was the main driver of the deceleration. Flat government consumption also constrained growth, though this reflected a steep decrease in extra spending on the refugees’ resettlement program as the latter is no longer an emergency in Sweden, which could trigger an improvement in the country’s public finances. 

IcelandThe Icelandic economy continued to perform strongly this year. GDP growth in the third quarter came in at over 10% annually, the country’s fastest pace of growth since Q4 2007. The multi-year high was fueled by a strong net contribution from the external sector, as exports surged thanks to a booming tourism industry. Developments in the political arena have not been as smooth, however: attempts to form a coalition government have failed for the second time since October’s snap parliamentary election delivered a more fragmented Parliament. Pirate Party-led talks with the Left-Green Movement broke down in December, weeks after the Independence Party had already been unable to form a coalition.

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