Dim outlook for Nordic economies
2 September 2008

Written by Sophie Baker

Nordic countries are facing an economic slowdown as stronger inflation and higher interest rates begin to take their toll, says Nordic and Baltic financial services group, Nordea.

Economists at Nordea have predicted that these sluggish economies will not pick up until 2010, and warned that there are clear signs that the unemployment rate will rise in the future.

Nordea’s publication, Economic Outlook, shows that economists’ forecasts have been influenced by the US slowdown and the strength of European currency, and says that at this point in time it has 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 of subdued growth – also in the Nordic countries,” commented Helge J. Pedersen, global chief economist at Nordea.

Individual Nordic countries are faring poorly. The Danish economy is experiencing a sharp slowdown, attributed to the downturn in the housing market which has resulted in lower consumer spending growth and falling residential investment.

Finland has weakened further, due to the inflation spike and high rates. Nordea economists expect Finland’s economic expansion to slow to well below the average level as early as the second half of 2008.

Norway has seen sharp rises in interest rates over the past years, and Nordea says it will rise one more time due to inflation being higher than expected by the central bank. However, this is expected to be combated by strong growth in both government demand and oil investment. Unemployment is expected to rise and wage growth to slow, bringing core inflation back on target in 2009.

The Swedish economy is expected to show slow growth following the halt in the first half of 2008. Recovery is expected to take place during 2010, although unemployment is expected to grow over the next few years.
The report can be downloaded here.