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ECONOMY

Strong Nordic economies face threat in 2015

Sweden and Norway's economies may have outperformed the rest of Europe since the financial crisis, but a leading bank in the region has warned that they are under threat.

Strong Nordic economies face threat in 2015
Danske Bank, which is one of the largest financial enterprises in the Nordic region, argues that falling oil prices and deflation could affect Scandinavian economies which previously managed to weather the storm of the global banking crisis much better than many of their European neighbours.
 
"The Nordic countries have been looking strong in recent years, with economic and financial crisis in much of Europe… However, after years of robust growth, the shine seems to be wearing a bit off," said economists led by Steen Bocian in a report from the Scandinavian bank out Thursday.
 
The report also noted that Finland had been hit by the recession in Russia, linked to the ongoing unrest in Ukraine.
 
Norway and Sweden reported economic growth of 0.7 percent and 1.3 percent respectively in 2013. Across the EU, there was an average of no growth in the same period.
 
But growth has slowed in recent months, with Sweden and Norway reporting 0.5 percent percent between July and September 2014 and Sweden recording 0.3 percent.
 
"This does not mean that there are signs of economic crisis in the two otherwise very strong economies, but growth rates are heading towards the European average and downside risks have increased," said Bocian.
 
In Sweden rising household debt and a complex and overpriced housing market have caused concerns for economists, while falling oil prices are having an impact on Norway.
 
Both currencies have weakened against the US dollar in recent months.
 
Danske Bank has forecast that growth will remain a challenge for Sweden in 2015.
 
"To reduce the risks linked to the increasing household debt, Sweden has introduced stricter rules for amortisation, which will increase savings and thereby reduce the strength of domestic demand – the main engine in the Swedish economy in recent years," said Bocian.
 
Denmark bucks the trend in Scandinavia, with Danske Bank reporting that the “economy seems to be slowly moving in the right direction”. 
 
“GDP growth was positive in Denmark in 2014 – the first year of positive growth rates since 2011. Danish house prices are increasing and consumption seems to be picking up and in the forecast period should continue to be supported by the significant drop in oil prices,” the report reads. 

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ECONOMY

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

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

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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