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Nordea (CPH:NDA) The economic slowdown has hit all the Nordic countries due to stronger inflation and higher interest rates. The economy is not expected to pick up until 2010. There are also clear signs that the unemployment rate will rise in future after several years' downtrend.
Nordea's economists have lowered their forecast of coming years' economic growth in the publication Economic Outlook published today. The US slowdown coupled with a European currency at its strongest level ever has hit the European export sector hard - and a similar trend is evident throughout most of Asia. At this juncture it has also become clear that there is no decoupling of the US economy from the rest of the world.
- The credit crisis is not yet over and the housing markets in many countries are in serious trouble, which impacts the outlook for both private consumption and investments activities and it is evident that we can expect a relatively long period with subdued growth - also in the Nordic countries, says Helge J. Pedersen, Global Chief Economist in Nordea.
The Danish economy is in the midst of a sharp slowdown. The main reason is still the downturn in the housing market, which has resulted in lower consumer spending growth and falling residential investment. However, also high inflation and a rather gloomy economic outlook for Denmark's main trading partners point to lower growth over the next couple of years. Hence, we also expect unemployment to rise from the current record-low level and this will over time put a damper on wage growth. The low-growth period will thus contribute to easing the currently strong inflationary pressures in the Danish economy and ensure that exporters' competitiveness is not seriously eroded. The risk of an overheating of the economy is therefore fading. Conversely, there is a growing risk of an even more pronounced slowdown of the Danish economy.
The outlook for the Finnish economy has weakened further. This time the reason is not merely the duller export outlook; the domestic economy is also directly hit by the inflation spike and high rates. Overall, we estimate that economic expansion in Finland will slow to well below the average level as early as the second half of 2008, and a recovery cannot be expected until 2010. Still, the Finnish outlook is fairly reasonable compared to many other countries. Overall, the macroeconomic balance is in good shape and the housing market has been more stable than elsewhere in the Nordic countries. Nonetheless, the risks related to economic growth are distinctly higher than before.
In Norway interest rates have been raised sharply over the past years and will be raised one more time due to inflation being higher than the central bank has expected. Household demand will slow significantly and mainland investment could fall. Lower growth in mainland exports will also add to the slowdown in the economy. Strong growth both in government demand and in oil investment will prevent the downturn from being too strong. Still, unemployment will rise in coming years and wage growth will slow somewhat. That will bring core inflation back down on target during 2009. Norges Bank will then start to lower its key rates slowly. The spread between Norwegian short-term rates and rates in the Euro area will, however, increase and the NOK will be rather strong.
The Swedish economy came to a halt in the first half of 2008 and next year will only show very slow growth before a recovery will take place during 2010. Employment has risen sharply during the past few years, but layoffs have started to pick up and employment growth is now slowing. We expect employment to decrease somewhat over the next years, while unemployment is seen picking up. Inflation has been boosted by rising prices of energy and food, but with stabilising prices of oil and other commodities, inflation is expected to fall going forward. We expect inflation to reach the 2 per cent target by summer 2009. With falling inflation, slower growth and a less tight labour market we expect the repo rate to be lowered to 3.50 per cent.
View interview with Helge Pedersen on Nordic economic trends at www.nordea.com/eo/uk - where the report can be downloaded.
For further information: Helge J. Pedersen, Global Chief Economist, +45 33 33 31 26
