Economic Outlook: Positive with increasing uncertainties

18-05-11 9:00 | Press release

The outlook for the world economy is still positive, but uncertainties are more pronounced than previously. We still expect the world economy to weather the storm though mainly because the current growth momentum seems even stronger than at the beginning of the year.

The Nordic economies are still in the lead. Economic growth in Sweden and Norway looks set to be strong again this year supported by impressive public and external balances. But the Swedish and Norwegian central banks also have to hike interest rates to prevent overheating in the housing and labour markets. Economic growth in Finland is also strong while Denmark is the laggard, but on the right track. Both countries are facing slight fiscal policy tightening, but their public finances are in much better shape than average for the Euro area.

The Swedish economy grew by a record-strong 5.5% in 2010 and GDP will continue to increase over the forecast horizon albeit at a somewhat slower pace. Exports benefit from the upswing in global trade and the household economy is in good shape, supporting private consumption. Investment picked up in 2010 and will increase further. Employment, already at a record-high level, is seen growing sharply in 2011 supporting public finances in reaching the target of 1% of GDP in 2011. Inflation will pick up on the back of rising energy prices and higher wages, which is why the Riksbank is expected to continue to raise rates.

We still expect fairly strong Norwegian economic growth but have revised down our unemployment forecast and raised our wage growth forecast for next year. Core inflation has been lower than expected this year in spite of sharply increased retailers' purchase prices. With expected strong growth in consumption, retailers will gradually pass on the costs to consumers. A more rapid uptick in inflation will lead Norges Bank to hike interest rates more aggressively than the ECB.

Growth in the Danish economy fell surprisingly in Q4 2010 for the first time since mid-2009. But a few negative quarters are not unusual and the latest indicators point to renewed improvement, which is expected to continue during the forecast period. We believe that growth will be sufficiently high to reduce unemployment. Ultimately, this could have a decisive impact on the general election to be held in November this year at the latest.

The outlook for the Finnish economy remains strong, driven by both foreign trade and domestic demand. Exports benefit from the exceptionally strong performance of Finland's most important trading partners Germany, Sweden and Russia. Investment growth will accelerate markedly following the rise in the industrial capacity utilisation rate. Sharply higher consumer prices will lead to a slowdown in consumption growth towards the end of the forecast period, despite the balancing effects of higher employment and an expected fall in household savings.

The full report is available on www.nordea.com.

For further information:
Helge J. Pedersen, Global Chief Economist, + 45 33 33 31 26