Nordic Economies Economic Forecast

Economic Snapshot for the Nordic Economies

March 27, 2019

The Danish economy appears to be slowing in the first quarter of the year. Business confidence in the industrial sector continued its downward trend in February, and although the manufacturing PMI recovered in the same month—spurred by a surge in employment and robust production—the average of the quarter remains below that seen in Q4. Moreover, subdued consumer confidence throughout the quarter could suggest weaker household spending, despite a vibrant labor market and sustained wage growth. On a brighter note, merchandise exports rebounded in January from December’s fall. The less upbeat narrative so far in Q1 comes on the heels of the fourth quarter’s solid turnout which was driven by a recovery in household consumption and a positive contribution by the external sector.

Read last month's summary on the Nordic Economies here


Economic growth accelerated in the fourth quarter of last year compared to the previous quarter, boosted by higher private consumption and a turnaround in fixed investment. Private consumption benefited from a tightening labor market, as reflected by the unemployment rate falling to its lowest level in a decade in December. On the other hand, government consumption declined and the external sector detracted from growth. Turning to this year, the unemployment rate fell again in January, hitting the lowest level since July 2008. Meanwhile, on the political front, the current coalition parties are lagging in the polls as the general election, scheduled for 14 April, edges nearer; opposition parties more open to loosening the public purse strings appear to be in the ascendancy.


Fresh data has underlined the sturdiness of the Norwegian economy. Although economic growth slowed in 2018, the mainland economy, which excludes hydrocarbon extraction activity and related transport, grew at the fastest pace in four years due to robust private consumption. Private consumption was supported by a tighter labor market, with the unemployment rate falling to a four-year low, and high consumer confidence. In addition, the substantial increase in average oil prices in 2018 compared to 2017 strengthened both the country’s public finances and its external sector: the fiscal and current account surpluses both rose to four-year highs. Turning to 2019, consumer confidence remained in optimistic territory in the first quarter, although it dipped slightly, and monthly GDP data showed both the total economy and mainland economy expanded in January compared to December.


The economy has likely expanded at a moderate pace in Q1 2019. January and February PMI readings for the services and manufacturing sectors suggest modest growth, with both indicators tracking notably lower than their Q4 2018 averages. The economic tendency indicator tells a similar story, remaining slightly above neutral territory in February but still down markedly since Q3. Moreover, industrial production was soft in January. However, the labor market continues to perform well, with the unemployment rate in smoothed and seasonally adjusted terms currently at a multi-year low. This comes after a better-than-expected fourth quarter GDP reading, which was largely driven by a rebound in private consumption and a strong external sector, despite weakness among key EU trading partners.


The economy recovered in Q4 2018 following Q3’s sharp deceleration, although growth nevertheless remained weaker than in H1. A rebound in residential investment largely drove the print, the only silver lining in an otherwise gloomy quarter. Private consumption faded noticeably, as did public spending, while business investment sharply contracted for a second consecutive quarter. The external sector also deteriorated, as imports and exports both fell steeply—with service exports plunging due to softer tourism activity. Looking ahead, large scale union strikes have been scheduled in coming weeks after wage negotiations broke down, which could negatively impact growth in the second quarter.

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