Chief economist: Nordic economies continue to show strength

Despite the ongoing conflict in the Middle East, elevated energy prices and persistent tensions in international trade, there are no indications that the global economy is heading into a pronounced slowdown. This resilience is underpinned by substantial capital expenditure in artificial intelligence, the defence industry, and the green and digital transition — investment flows that are expected to accelerate further in the coming years, particularly across Europe.

Against this backdrop, we have broadly maintained our global growth forecast in line with the May projection: approximately 3% in both 2026 and 2027. For 2028 — covered for the first time in the current forecast — we project global growth of 3.2%. We continue to assess the balance of risks as tilted to the downside.

The Middle East and Ukraine conflicts represent potential game-changers for the growth outlook — both through their direct impact on energy and commodity prices, and through their effect on business and consumer confidence. In the baseline scenario, we anticipate a partial reopening of the Strait of Hormuz within the current year, while we assess it as probable that the Russia-Ukraine war will at some point transition into a frozen conflict — one in which active hostilities are suspended but could rapidly re-escalate, with front lines locked in the absence of a formal peace agreement.

The Middle East conflict has already left its mark on inflation, initially through rising energy prices, and now through continued risk of supply shortages and broad-based price pressures across a range of goods. Compounding this is the drought that affected Europe over the summer, which is amplifying price pressures on energy, transport and food. The risk of so-called second-round effects — whereby wages and profit margins also begin to rise — remains present.

The intensifying inflationary pressure is the primary driver behind the ECB's decision to raise its policy rate by 25 basis points earlier this year. We expect the central bank to implement three additional rate hikes over the forecast horizon as it seeks to anchor inflation expectations around its medium-term target of 2%.

We likewise expect the Fed to tighten monetary policy to curb inflation, though the uncertainty here is considerably greater. This reflects both political pressure from President Trump to lower rates and the fact that the new Fed Chair, Kevin Warsh, has established five task forces to examine areas central to the broad conduct of monetary policy. The findings, expected to be published before year-end, could materially influence the Fed's future reaction function.

Market interest rates have nonetheless risen in the United States as well, partly reflecting significant uncertainty surrounding the sustainability of US sovereign debt, which now exceeds 125% of GDP. This has spilled over into European long-term government bond yields, which in many countries have reached their highest levels in nearly 15 years. Given the substantial financing requirements for public and private investment over the coming years, we assess that long-term yields may rise further over the forecast horizon.

The US fiscal imbalances are also reflected in the depreciation of the dollar against, inter alia, the euro — a trend we expect to persist throughout the forecast period.

The Nordic economies have thus far demonstrated a high degree of resilience to international headwinds. This is attributable in part to the fact that these countries rank among the most energy-efficient and digitally advanced economies globally. In Denmark, Norway and Sweden, household purchasing power has been shielded from higher energy prices through tax and duty relief, while export-oriented industries have maintained strong competitive positions.

On this basis, we have revised the growth forecast upward for all countries, and in particular Denmark, Finland and Sweden. We anticipate independent policy rate hikes in both Norway and Sweden this year, while Danmarks Nationalbank continues to follow the ECB.