Nordea Economic Outlook: Feeling the Squeeze

The energy crisis has hit the European economy hard, and the risk of a recession in the Euro area is real. Inflation has reached the highest level since the early 1980s, and central banks seem determined to fight it through aggressive monetary policy. This is also the case in the Nordic countries where housing markets face a sharp slowdown, says Helge Pedersen, Nordea Group Chief Economist.  

The Nordic economies have recovered strongly from the pandemic but are now being hit by the sharp increase in cost of living and the uncertain economic environment. The common denominator for the Nordic countries is their strong starting point before Russia's invasion of Ukraine, thanks to high personal savings, strong public finances and robust job creation, which have continued up to now. This gives the economies a buffer and some degree of resilience during this dramatic time in world history.

Danish households feel the impact of falling purchasing power, and businesses are hurting from the global slowdown. Still, the economy is well braced for a period with headwinds. We expect a decline in housing prices of 5-10% from their current level, although uncertainty is high.

The Finnish economy fared well in the first half of 2022, but the outlook is deteriorating. The rise in interest rates and slowdown in the housing market are hurting construction, while high energy prices are limiting household consumption. Expect growth to slow in the latter half of 2022.  

High price growth and rising interest rates make these tough times for Norwegian households. The impact on consumer spending will be mitigated by lower savings and more people in paid work. Unemployment could rise somewhat but will likely stay very low. High gas and oil prices will mean huge income for Norway and activity in the oil sector is expected to surge.

The Swedish economy is weakening from a very strong position. Rate hikes and high inflation put a damper on the economy, and unemployment will rise. We expect a stabilisation in 2024, but the recovery will be slow as the economy gradually adjusts to higher interest rates.

Read Economic Outlook here

GDP growth forecast, % year-on-year

For further information: 

Helge J. Pedersen, Group Chief Economist, Tel: +45 55471532 | Mob: +45 22697912
E-mail: helge.pedersen [at] nordea.com (helge[dot]pedersen[at]nordea[dot]com)
 
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