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Nordea upbeat on Swedish economy

Sweden's economic recovery is gathering pace and the economy is now close to a return to a normal economic cycle, Nordic bank Nordea has stated in an upbeat new report.

Published: 30 August 2010 11:43 CEST

Nordea upbeat on Swedish economy

“The Swedish economy started to recover in mid-2009 and gained further momentum in 2010. The high growth will ease next year and accelerate again in 2012,” the bank wrote.

The bank forecasts that GDP growth will amount to 4.2 percent in 2010, 2.8 percent in 2011, and 3.1 percent in 2012.

Nordea observed that Sweden’s export industry has benefitted from the improvement in global trade and even if the international economy slows down, “domestic demand in Sweden will contribute to sustain growth”.

Industrial production continues to rise and order inflows indicate a continued upswing with benefits for the improving labour market and stronger public finances, which the bank forecasts as “heading for balance as early as this year”.

Despite continued rising prices throughout the recession, the household sector is reported to be in good shape and car sales have also surged.

Inflation is expected to pick up slightly in the next few years with further interest rate hikes from the Riksbank to be expected.

“We expect the repo rate to reach 1.25 percent at the end of 2010 and 3 percent in two years’ time,” Nordea forecasted.

The assessment of the Swedish economy is presented as part of a broader overview of the Nordic region which Nordea claims is well prepared to withstand any international slowdown.

“The need for radical fiscal policy austerity measures is much smaller here than in most other countries,” the bank claimed with all the Nordic economies showing positive momentum.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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