Nordic Economies Economic Forecast

Economic Snapshot for the Nordic Economies

January 31, 2018

DenmarkRecent data for the final quarter points to a lackluster close to 2017 following the worst quarter-on-quarter GDP growth performance since Q3 2011 in the third quarter. Industrial production contracted in October and November, and average growth in retail sales was markedly lower in than the previous quarter amid weaker consumer confidence. Meanwhile, business sentiment stabilized. However, household consumption likely picked up at the outset of 2018 as consumer confidence rose to a six-month high in January. Rising employment is reducing slack in the labor market and buttressing wages, while subdued inflationary pressures are boosting consumers’ real purchasing power. Data released by the Central Bank on 29 January revealed that households also made large returns last year from investments in Danish-listed stocks, generating a return of DKK 51 billion from dividends and price gains.  

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FinlandThe economy performed well in the final months of last year, after private consumption dynamics led to a slowdown in the third quarter. From September to November, private sector employees saw their compensation levels increase year-on-year in real terms. This likely gave a boost to retail sales, which grew strongly in the fourth quarter compared to the same quarter a year earlier. Moreover, economic activity growth accelerated in November after a slight lull in October, as manufacturing and construction activity picked up. In December, confidence in the industrial, retail and construction sectors was above average and helped push overall economic sentiment to its highest level in over ten years. Overall, the economy is expected to have expanded at its fastest pace since 2011 last year. More recently, on the political front, Finns re-elected Sauli Niinistö for another term as president on 28 January, a position which is primarily ceremonial but has a role in foreign policy.

Norway: The economy performed well in the months following the third quarter, when output in the oil and gas sector rebounded and delivered an overall economic boost. In November, the unemployment rate stood at 4.1%, down from 4.7% in the same month a year earlier. Moreover, although industrial production decreased year-on-year in November, the rate of decrease moderated compared to October. On the political front, Prime Minister Erna Solberg announced a new cabinet on 14 January after a reaching an agreement to broaden her coalition government. The coalition government comprising Solberg’s Conservative Party and the Progress Party will now include the Liberal Party. As part of the deal, the Liberal Party demanded that parts of Norway’s oil-rich Arctic remain off limits to oil exploration.

SwedenThe economy continues to look strong. Industrial production figures were solid in October and November, the manufacturing PMI ended 2017 at a historically high level and business sentiment in January was firmly in positive territory despite dipping slightly, with broad-based optimism across sectors. Firms’ rosy outlook is bolstering the labor market, which in Q4 saw sustained job creation and the unemployment rate reach its lowest level since 2008. This comes after GDP growth in the third quarter was substantially above the EU average on the back of surging fixed investment. However, the housing market has weakened in recent months, with prices continuing to fall in December on the back of greater supply. This could negatively impact private consumption and residential investment, although high savings rates, low unemployment and strong growth in other areas of the economy should cushion any downturn. 

IcelandLeading indicators for the fourth quarter have been mostly positive, suggesting economic growth continued easing towards potential through year-end. The labor market appears to have rounded out the year in good shape, with tight conditions helped along by the crush of tourists that boosted the services sector. Tourism experienced another year of eye-watering annual growth, with tourist arrivals rising by nearly a quarter in 2017—to more than two million—despite the rapid appreciation of the krona following last year’s lifting of capital controls. On the other hand, exports have proven less resilient to the strengthening of the currency; an unexpected decline in exports dragged on otherwise upbeat growth in the third quarter.

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