Following one of the coldest winters on record and serious debt problems in a number of EU countries, Europe is finally sensing the dawn of better things to come. In EconomicOutlook Nordea's economists maintain a relatively optimistic view on economic growth in the Nordic region.
2010 has so far been a year with much drama on the economic front. The serious debt problems in a string of EU countries, with Greece as the worst example, have set the agenda. Add to this one of the coldest European winters on record and the volcanic eruption in Iceland influencing the European air traffic.
- Against this background, it is even more encouraging that several economic data now indicate that Europe, including the Nordic countries, is finally sensing the dawn of better things to come, says, Nordea's Global Chief Economist Helge J. Pedersen.
The Danish economy is again heading for brighter times. Interest rates are low, confidence indicators are high, the housing market has stabilised and the main export markets are showing positive growth trends. At the same time private consumption has been stimulated by tax cuts and low interest rates, and higher government consumption is still providing quite a boost to economic growth. However, these positive factors are accompanied by a sharp rise in unemployment and next year will bring a consolidation of public finances. Overall, this paints a picture of economic growth of about 1.7 per cent in 2010-2011.
The recovery of the Swedish economy is relatively strong. Employment has already started to grow, public finances are close to balancing and house prices are rising rapidly. The GDP performance was admittedly weak in 2009, but conditions are in place for healthy growth figures this year. As the stimulus effects fade in the rest of world and to some extent also in Sweden, growth will slow somewhat in 2011. GDP is expected to grow by just under 3 per cent this year and around 2.5 per cent in 2011. The Riksbank seems ready to hike its policy rate substantially this year. Nordea's economists expect a repo rate of 1.75 per cent at end-2010.
Growth in Norway seems to be weaker than expected earlier. With lower output at the beginning of the year and prospects of lower real wage growth, Nordea's economists have cut the forecast for mainland economic growth to just 2 per cent in 2010. Interest rates could rise less in 2010 than anticipated. There is less confidence in the government's commitment to tightening the budget in 2011. Against this background, growth in 2011 should be broadly in line with growth this year.
The recovery of the Finnish economy is set to gain strength going forward. Nordea's economists still expect reasonable 2.7 per cent GDP growth this year and a further acceleration into 2011 driven by domestic demand. The unemployment rate is set to peak at a relatively modest level this summer. This helps to keep the public deficit at about 3 per cent of GDP. Consequently, the future challenges to balanced public finances will be moderate compared to the other Euro-area countries.
For further information:
Helge J. Pedersen, Global Chief Economist, + 45 33 33 31 26