Nordic Economies Economic Outlook June 2018

Nordic Economies: Economic Snapshot for the Nordic Economies

May 29, 2018

DenmarkRecent data suggests that the economy is performing relatively well in the first half of the year. While the manufacturing PMI and consumer confidence were strong throughout the first quarter, business confidence and exports deteriorated. Moreover, a strong base effect will likely prompt the economy to contract in annual terms in Q1. Moving into the second quarter, business confidence in April reached its best reading so far this year, and consumer confidence in May jumped to a near one-year high on solid labor market dynamics and muted inflation. On the political scene, Danish Prime Minister Lars Lokke Rasmussen reshuffled his cabinet after two ministers resigned on 1 May. The resignation of the ministers has been interpreted by political analysts as internal party maneuvering to prepare for upcoming general elections due next year.   


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FinlandSo far in 2018, the economy has remained in good shape, following solid growth last year. In May, consumer confidence remained near record highs. Moreover, in April, unemployment was unchanged from March at the lowest rate in over five years. Following two months of modest growth, economic activity expanded robustly in March, driven by increased manufacturing and construction output. In the same month, however, the current account logged a deficit for the first time in nine months. Meanwhile, in May, the Bank of Finland said that household indebtedness has reached historic levels as consumers have soaked up easy credit conditions in recent years. With conditions expected to tighten in the coming years, this represents a concern for long-term economic resilience. On the political front, lawmakers are currently behind schedule to pass important reforms in June aimed at reducing government spending.


NorwayThe economy grew quarter-on-quarter in Q1 2018, contrasting the output decrease recorded in Q4 2017. Growth in the quarter was led by exports, which were underpinned by strong sales of Norwegian ships, oil platforms and aircraft, and traditional goods. Weighing on the GDP figure, however, was a contraction in fixed investment and flat household consumption, which came despite high consumer confidence and declining unemployment. More recently, as international oil prices climbed in April, so too did oil production in Norway, which reached the highest level since November 2011. Moreover, house prices rose for the third consecutive month in April, although they were still down compared to the peak recorded in March of last year. Meanwhile, on 15 May, a revision to this year’s fiscal budget was proposed to parliament; the revision would reduce spending slightly compared to the current budget. The budget also forecasts reduced withdrawals from the country’s huge sovereign wealth fund. Parliament will decide on the revision by the end of June.


Sweden: The economy remains in good health in the second quarter, according to recent indicators. In April, the services PMI rose on greater business volumes, while the manufacturing PMI remained firmly in expansionary territory, despite dipping. Strong economic activity saw employment rise strongly, while the smoothed unemployment rate dipped to a fresh multi-year low. In addition, economic sentiment readings continue to indicate significantly stronger growth than normal. Although GDP data is still outstanding for Q1, growth likely dipped from Q4, in line with the EU as a whole, but should have stayed solid. In April, the government presented its final spring budget before elections later this year. The budget provided an extra SEK 2.6 bn (USD 0.3 bn) of funding for the labor market, welfare, security and climate change.


IcelandGrowth appears to have recovered in Q1 from a sharp slowdown in Q4, partially due to positive labor market developments that led to robust real wage growth, supporting private consumption. Meanwhile, investment likely remained healthy, buttressed by a dynamic tourism sector and access to cheap renewable energy. The fishing industry also recorded strong growth in Q1, bolstering exports. Fish catch volume data in April furthermore suggests a strong start to Q2. Nevertheless, the trade deficit widened in April, signaling that the external sector might not repeat the strong gains made in Q1.


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