28 January 2019

Nordea EconomicOutlook: Shaky ground

Helge J. Pedersen

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We might be a bit more used to the ‘new normal’ now at the start of 2019, but sometimes it’s worth taking astep back and observing just how abnormal the current world situation is. There are a number of ‘strong’ men

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in power around the globe and that is sending ripples, sometimes even waves that are having their impactglobally and locally as we in the Nordic countries are only too aware.

Nordea Group’s chief economist Helge J Pedersen sums it up thus:

“The trade war, political uncertainty in Europe and tighter financial conditions are hurting economicdevelopment, and we have downgraded expectations for growth in the world economy this year and next,”he says. “In the Nordics, the focus is on higher policy rates and their likely impact on each country. The roleof household debt and its eect on the housing market will not be trivial, and interest rate sensitivities posedownside risks to the Nordic economies, be it at varying degrees.”

What does that mean individually? Most obviously, there is little homogeneity. There are a number ofdierent narratives emerging across the four Nordic countries and it would be a mistake to treat them as onemonolothic whole.

Sweden: Housing alert

The Swedish economy has gradually lost steam on the back of an uncertain housing market that hasimpacted investment and sluggish private consumption. Exports have also been slow,but will improvesomewhat in coming years while a tight labour market has not yet translated into anything more than modestwage growth. Inflation has hovered around the 2% target, enabling the Riksbank to raise the repo rate by25bp in December. When the eect of the SEK depreciation fades and energy prices stabilise, inflation willstart falling by mid-2019. The Riksbank is only expected to hike rates again at the end of 2019, tracking anexpected first move by the ECB.

Norway: Treading carefully

Our view on the Norwegian economy is largely unchanged despite financial market turmoil, lower oil pricesand downward revisions to global growth forecasts. Mainland export growth may be lower, and slightlylower oil prices could dampen growth over time, but growth will remain relatively strong, partly driven byprogress in the oil-related industries. Due to the more cautious monetary-policy line and a weaker growthoutlook for key trading partners, Norges Bank will proceed more carefully than we previously expected withits normalisation of interest rates.

Denmark: Robust upswing

The Danish economy had its worst growth rate last year since 2013 but as this was due largely to one-o factors, it doesn’t change the underlying picture of a sustained robust economic upswing. Even moreencouraging is the fact that the upswing has not given rise to any economic imbalances. In the years ahead,growth will be driven mainly by increased household consumption and growing business investment. Theoutlook for exports is more uncertain, though, due to mounting protectionism and waning demand amongseveral of key trading partners.

Finland: Export ramifications

The outlook for the Finnish economy has worsened more than we expected in our previous forecast onthe back of global uncertainty rippling out from Finland’s most important export markets. Export growth isexpected to remain sluggish, but there are clear signs that residential construction in particular may even startto decrease after a number of years of robust growth. Continued positive developments in the labour marketare expected to boost consumption which will be the main engine of growth in the coming years.

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Helge J. PedersenGroup Chief Economisthelge.pedersen@nordea.com+4555471532

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