Nordic Economies: Nordic Economies
September 26, 2017
Denmark: In the second quarter, the Danish economy grew at the same pace as in the prior quarter and a notch above market expectations. The modest performance was supported by a rebound in fixed investment growth that offset a slowdown in government consumption growth, while private consumption recorded a flat reading in quarterly terms. Moreover, the slowdown in household spending is likely to have carried over into the third quarter of the year as retail sales in July inched down for a second consecutive month. Consumer confidence also continued its downward trajectory in September despite strong labor market dynamics. Business confidence, similarly, fell to the neutral zero-point mark in August from July’s three-year high—a seeming erosion of firms’ assuredness that had propelled fixed investment growth only a quarter earlier.
Finland: President Emmanuel Macron scored an important victory on 22 September when he signed his flagship labor reform bill into law in spite of protests and criticism over his use of executive powers. The reforms, passed by presidential decrees, will cap severance payments and make it easier for firms to lay off and hire workers to improve competitiveness, among other measures. These policies should rekindle faster growth in the medium term and provide further impetus to the economy if current dynamics persist. GDP growth for Q2 was confirmed at the 0.5% quarter-on-quarter increase reported previously, reflecting higher corporate investment, stronger growth in residential construction and healthy consumer demand supported by a strengthening labor market. The latest survey-based data from the third quarter and beginning of the fourth quarter is positive and suggests that the growth momentum will carry through the second half of the year.
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Norway: The economy recorded a better-than-expected performance in Q2, signaling that despite some sluggishness, the recovery from the collapse in global energy prices is now firmly underway. Boosting growth in the quarter was a rebound in the oil and gas sector, which had contracted sharply in Q1. Although exports expanded modestly as shipments of refined products rose, the turnaround in the external sector was largely due to a steep drop in imports. Domestically, household spending reached a more than four-year high as consumer confidence and employment continued their upward trajectories. Moreover, fixed investment shot up on soaring business confidence. It appears, however, that H2 got off to a more uneven start, with a substantial slowdown in the growth of industrial production in July. Having campaigned on tax cuts and paring back spending of the country’s sovereign wealth fund, which recently topped USD 1 trillion, the ruling Conservative Party-Progress Party coalition won a majority in parliament on 11 September, securing another four-year term for Prime Minister Erna Solberg.
Sweden: Revised data from 13 September showed that the economy grew at a slower pace than initially reported in Q2, although the expansion was still impressive. The momentum was driven by the external sector, which offset weaker growth in domestic demand. However, recent data seems to indicate that the slowing propulsion has extended into Q3. The PMI, though still above the crucial 50-point mark, fell to its lowest level of the year to date in August on the back of weaker growth in production and new orders. On the other hand, recent unemployment data shows a bright spot for the Swedish economy: Joblessness decreased in the first two months of Q3, boding well for private consumption. Meanwhile, Prime Minister Stefan Löfven survived a motion of no confidence on 15 September by a wide margin following a data breach scandal.
Iceland: News that the economy entered a technical recession in H1 was taken in stride in early September as fears of a harder landing following outsize growth last year were quelled. In fact, the further cool-off in Q2 came as a surge in imports—underpinned by the significant appreciation of the krona in Q2—outstripped notable improvements in household spending, fixed investment and exports. Furthermore, the modest slowdown appeared to allay concerns that the country’s booming tourism sector and soaring housing prices would overheat the economy. In mid-September, the coalition government collapsed after only one year in office following a clemency scandal that ensnared Prime Minister Bjarni Benediktsson. In the aftermath, snap elections were set for 28 October.