Nordic Economies November 2017

Nordic Economies

Nordic Economies: Nordic Economies

October 25, 2017

DenmarkThe economy has struggled to keep up the brilliant pace seen at the outset of the year. Although growth still clocked in at a solid 0.7% rise in quarterly terms in Q2, household consumption growth was flat from the previous quarter in spite of a tight labor market and stronger wage compensation. The third quarter is unlikely to have yielded better results, with soft retail sales data throughout the July-to-September period and car sales still subdued due to protracted negotiations on the revision of vehicle registration fees. However, economic momentum remains resilient, with ultra-loose monetary policy conditions, a buoyant housing market and healthy real wage growth all buttressing the domestic economy. In addition, firming economic performances across Denmark’s main trading partners amid the upsurge in global trade is expected to prove a boon to the country’s all-important external sector in H2. 


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FinlandRecent indicators suggest that Finland’s economic expansion continued in the third quarter. Private consumption growth, which boosted the economy in Q2, looks healthy: Throughout Q3, retail sales posted strong gains and consumer confidence remained buoyant. In addition, economic sentiment was at a six-and-a-half year high in September. The external sector, a driver for growth in recent quarters on the back of government efforts to improve Finland’s economic competitiveness and improving external demand, posted healthy results in July and August. However, although Statistics Finland’s latest monthly economic activity indicator signaled a healthy economy in August, it nevertheless recorded the weakest reading since December of last year. In addition, recent reports of political disagreements regarding healthcare and local government reforms in Finland could have the potential to create political and economic instability, and frustrate the government’s efforts to strengthen the fiscal position going forward.


Norway: Strong economic growth has held firm in Norway, boosted by higher oil prices, robust household spending and healthy external demand. The oil and gas sector contributed to the overall trade balance in September, which posted a healthy surplus. According to Statistics Norway’s most recent business survey, manufacturing output increased in the third quarter of the year, and is expected to do so again in the fourth quarter. Meanwhile, although the minority government of Prime Minister Erna Solberg plans to increase government spending by 3.5% in 2018—which is higher than expected revenue growth of 1.1%—as outlined in its budget for the year, government figures suggest that any economic boost from this budget will be minimal. The fiscal deficit in 2018 will be funded by withdrawals from the country’s USD 1 trillion sovereign wealth fund.


SwedenThe economic picture continues to look fairly positive. Economic sentiment surged in September to its highest level in well over six years on the back of a more optimistic manufacturing sector, while retail sales were buoyant in July and August, likely thanks in part to low unemployment. However, growth in industrial production has disappointed over the summer. In late September, the government presented its 2018 budget, which takes advantage of the country’s enviable fiscal position to boost spending by SEK 43.8 billion ahead of next year’s election. Significant additional funding has been allocated to defense, healthcare, education and the environment, which should foster more inclusive growth. However, next year’s spending plan could eat into the budget surplus and limit fiscal flexibility in subsequent years, due to spending commitments for 2019-2020 and the need to meet the government’s new surplus target.


IcelandIceland’s economy has been bustling this year thanks to skyward growth in the tourism sector and a plentiful catch; the technical recession in H1 was only the result of last year’s high base. Fixed investment—especially in tourism and manufacturing—has climbed this year with the recovery in FDI, and household spending has been benefiting from higher real wages supported by low unemployment and weak inflation. Ahead of snap elections set for 28 October, in which the Left-Green Movement could sweep power from the conservative Independence Party, figures showed a wide fiscal surplus for H1.


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