Helsinki: Silta, News Desk
Growth and inflation are exceeding expectations in the major economies, pointing to fewer and slower interest rate cuts.
In the Nordic countries, the picture is more mixed, but the overall outlook remains for both higher growth and lower interest rates.
Among other things, there are upside risks to the outlook from consumer spending in Europe including some of the Nordic countries, and downside risks from US consumers and the troubling
geopolitical situation.
The latest edition of Nordic Outlook strikes a mostly optimistic tone for the major economies.
Economic data has been better than expected in the US, in Europe and in China and growth are exceeding expectations. So what about the inflation?
“We expect that inflation will continue to move towards the targets around 2 percent, but the road will be bumpy and uneven, as it has been over the past months as well. Especially services inflation and
wage inflation creates risks around the inflation outlook and could also be the factor that lessens the risk appetite by central banks, so that central banks do now want to cut as much as has been priced in earlier,” says Heidi Schauman, Global Head of Research, and elaborates:
“Currently, we forecast two rate cuts by both the Fed and the ECB in 2024, slightly less for the ECB than what we thought a few months back”.
Looking at the Nordic countries, the picture is more mixed, but the overall outlook still points to both higher growth and lower interest rates.
Denmark: Broadening growth
Looking at Denmark, the economic data are strong: GDP grew by 1.9 percent in 2023, inflation fell to 0.8 percent in April, unemployment is low, and businesses are competitive – to mention just a few of the highlights.
Yet, Danish consumers and businesses are not particularly positive when asked for their views on the economy by Statistics Denmark. This can be seen in relation to most wage-earners purchasing power is lower now than three years ago, and growth is very concentrated around Novo Nordisk, while the rest of the economy stagnated in 2023 overall.
However, in new outlook, this perception is expected to brighten going forward. Higher real wages, lower interest rates, still subdued unemployment and rising house prices will support households, while growth appears to be broadening to include more businesses.
Sweden: Headed for an upswing
Despite concerns about Swedish growth in the light of weakness in neighbouring countries such as Sweden’s largest trading partner, Germany, most indicators suggest that Swedish exports will continue to perform well.
Bankruptcies are record-high in Sweden, but they are currently having only a mild effect on unemployment because the firms going under are mostly microenterprises with very few employees.
Unemployment continues to rise and hit 8.4 percent in April. However, this is mainly because of large inflows of people who were previously outside the labour force, rather than people losing their jobs.
In March and April, inflationary pressures in Sweden dropped well below the Riksbank’s expectations and the Riksbank made a first policy rate cut in May and is signalling a further two in the second half of the year.
Source: Danske Bank