FocusEconomics Nordic Economies

Nordics

Economic Outlook

Nordics Economic Outlook

What do leading forecasters predict for the coming quarters?

Nordic Countries

Economic Outlook

What do leading forecasters predict for the coming quarters?

The difference in coronavirus responses between Sweden and the other Nordic countries has been much discussed.

Sweden’s less draconian response allowed the economy to narrowly avoid contraction in Q1, with the economy expanding 0.1% in seasonally-adjusted terms. However, like Denmark, Finland and Norway, the economy appears to have slumped in the second quarter, and coronavirus cases and deaths relative to the other Nordic countries have been high.

The Nordic economy is set to shrink sharply this year, as weaker private consumption and faltering fixed investment weigh on domestic demand. However, robust fiscal and monetary stimulus should soften the downturn, contributing to a more moderate downturn in the Nordics than the Eurozone. The prolonged and uncertain nature of the pandemic clouds the outlook. FocusEconomics panel of leading professional forecasters expert the regional economy to contract 5.2% in 2020 (GDP ann. var. in %).

The economy appears to have slumped in the second quarter, after growth slowed in Q1. Although the economic sentiment indicator, which measures business and consumer confidence, climbed to a three-month high in June, it still remained historically subdued, indicating weak private consumption and fixed investment. Moreover, the unemployment rate rose in June to the highest level since at least January 2001, further pointing to weak private spending. On the external front, merchandise exports dropped by just over a quarter in May, after falling by nearly a fifth in April, due to waning global demand. More promisingly for Q3, the government has eased some restrictions in recent weeks, coinciding with an improvement in the coronavirus case trend, including those on European travel restrictions.

The economy will shrink this year as coronavirus and associated social distancing measures hamper both domestic activity and foreign demand for exports. However, huge and coordinated fiscal and monetary policy stimulus should moderate the downturn. 

The economy likely shrank sharply in the second quarter as a whole, due to domestic lockdown measures and weak demand abroad. Moreover, the labor market softened—the unemployment rate rose to an over six-year high in May. However, the lifting of most restrictions from May, including the reopening of cultural activities, restaurants, retailers and schools, saw activity rebound swiftly at the tail end of Q2. The manufacturing PMI returned to expansionary territory in May and remained there in June on greater output and new orders, while retail sales rebounded in May on pent-up spending. Positively, Denmark recently opened borders to most EU countries and selected non-EU countries. This should be supporting a gradual recovery in the tourism sector heading into Q3, while the
government’s robust fiscal response should be buttressing the economy more broadly.

Despite healthy fiscal stimulus, the economic downturn this year is set to be the sharpest in decades. Some lingering domestic restrictions and weaker sentiment will drag on domestic activity, while soft activity abroad will hurt exports. A possible second wave of infections and prolonged weak external demand pose downside risks.

The downturn looks set to intensify in the second quarter, after the economy entered a technical recession in Q1. Available data paints a bleak picture: Economic activity slumped at the fastest pace in over a decade in May as manufacturing and services sectors suffered from local and international lockdown measures. Exports plummeted in May on slack external demand, while imports followed suit, indicating diminished domestic demand. Moreover, weakening industrial output in the same month added to the malaise. However, an uptick in consumer confidence in June—hitting a 12-month high despite remaining pessimistic—and a fall in the unemployment rate point to the beginning of a recovery at the tail end of Q2. This comes amid an easing of restrictions taking place in advance of most other countries in the region, with high frequency data pointing to retail and recreation activity having returned to pre-pandemic levels in mid-July.

This year, the economy is projected to contract sharply as shrinking household spending and faltering fixed investment impair domestic demand, while exports are set to tumble amid soft external demand. Increased public spending should soften the downturn somewhat, but the prolonged and uncertain nature of the pandemic remains a key downside risk. 

The economic downturn appeared to soften at the end of the second quarter, amid rebounding domestic activity. Economic output in May expanded robustly following the sharp contraction in March–April. Private consumption spearheaded the rebound, while public spending and fixed investment both rose sharply in the month. Moreover, a sharp uptick in retail sales in May and a strong increase in imports in June further indicated the rebound in domestic demand. However, diminished external demand hampered the improving panorama, with exports continuing to fall sharply in May and oil production in May–June significantly below
levels seen in the last four years. Moving to the third quarter, the easing of lockdown measures and sharp fall in Covid-19 cases bodes well for a continued rebound, with retail and recreation activity in July returning to pre-pandemic levels.

The economy is projected to contract sharply this year as shrinking private consumption and lower fixed investment weigh on domestic activity. An uptick in government spending should soften the downturn, although the full extent of the hit to international demand for oil and gas remains a key risk to the external sector.

Source: John Hopkins University – 03/08/2020

Source: FocusEconomics Consensus Forecast Nordic Economies – August 2020

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FocusEconomics is a leading provider of economic consensus forecasts for 131 countries and 34 commodities. Since 1999, we have been supporting the world's leading companies and institutions with timely and reliable economic intelligence.