Nordic Region Out Look 2013

7/29/2019 Nordic Region Out Look 2013

1/15

Overview

1 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS

Glimpse of light

in the dark

Overview 02GLIMPSE OF LIGHT IN THE DARK

Denmark04DIM LIGHT AT DAWN

Sweden06WINTER HAS ARRIVED

Norway08SUSTAINED GROWTH

Finland10

INDICATORS POINT TO A TURN BEFORE THE SUMMERKey figures12

FORECASTS FOR THE GLOBAL ECONOMY

ECONOMICOUTLOOK

NORDICS

D E C E M B E R 2 0 1 2


2/15

Overview


Glimpse of light in the dark

If your biggest wish for Christmas is economic expan-

sion, you should pin your hopes on the US and China

which appear to be well on their way out of the dol-

drums. The Euro zone, on the other hand, is back in re-cession following a deep confidence crisis and fiscal

tightening. However, monetary policy will continue to

support the European economy for a long time to come

as core inflation stays low and unemployment remains

high. We have revised down our forecast for global

growth this year to 3% (from 3.1% in September). We

have also revised down our forecast for 2013 to 3.3%(from 3.5% in September), but the forecast for 2014 has

been revised up to 4% (3.8% in September).

The Euro-zone crisis has also hit the Nordic economies,

with the exception of Norway; consequently, we have re-

vised down our 2012 and 2013 growth estimates for thisregion. It will still maintain its safe-haven status in the

financial markets, though. One of the main reasons is the

Nordic countries relatively sound public finances com-

pared to most other countries.

Real GDP growth, %

2011 2012 2013 2014

World 3,9 3,0 3,3 4,0

Denmark 1,1 -0,5 1,5 1,7

Finland 2,7 0,5 1,0 2,7

Norway 2,5 3,4 3,0 2,5

Sweden 3,7 0,8 0,8 2,4

Euro zone back in recession

The news flow out of the Euro zone this autumn was a

mixed bag of positive and negative news. On the one

hand, the risk of one or more countries leaving the euro

has declined markedly after Greece agreed to new spend-

ing cuts and the ECB announced its new OMT (Outright

Monetary Transactions) programme allowing it to pur-

chase government bonds of debt-ridden countries. On the

other hand, it has proven very difficult to revive growth.

And it is now a fact that the Euro zone is back in reces-sion.

The reasons why it is so difficult for the Euro zone to

drag itself out of recession are manifold. First, rising un-

employment and the prospect of poor market conditions

have eroded confidence to such an extent that householdsand businesses alike have cut down on spending and in-

vestment. Second, high oil prices and fiscal austerity

measures are eroding consumers purchasing power and

causing the overall operating conditions of companies to

deteriorate. Third and lastly, the new stricter regulation

of the financial sector has reduced the odds of this sectorstarting a credit-driven upswing in the region. Against

this backdrop it is difficult to imagine a strong economic

recovery in the Euro zone during the forecast period.

Still, our baseline scenario assumes that the crisis is

about to reach a climax and that growth will return in

2013 and 2014 driven by an extremely loose monetary

policy line.

US remains on track

There are more bright spots elsewhere in the globaleconomy. After his reelection President Barack Obama

will be pleased to see that the US economy is heading

towards a self-sustaining recovery. Thanks to a very ex-

pansionary monetary policy line unemployment has de-

clined and the housing market has turned around. More-

over, banks are easing their credit standards, and confi-

dence indicators all point towards further progress.

Things are thus looking good in the US at the moment,

but bear in mind that the US still has to resolve its huge

debt problems. Our baseline scenario, however, factors in

a decision by Congress to raise the debt ceiling and ex-tend the tax breaks introduced by the Bush Administra-

tion that otherwise expire by end-2012. If Congress fails

to reach a compromise, the US economy will fall over

the fiscal cliff and no doubt end up in recession again.

This could have dire consequences for growth in the rest

of the world.

Sino-Japanese tensions

At its 18th congress the Chinese Communist Party elect-

ed its new leaders. In March 2013 current Vice President

Xi Jinping will take over from President Hu as the leader

of the worlds most populated nation. This change of

leadership ensures stability in the economic developmentof China. In the years ahead focus will be on changing its

growth model. In future, private consumption is to be the

key driver of growth instead of public investment and

exports. But this shift in growth drivers should not jeop-

ardise the goal of ensuring a growth rate sufficiently high

to prevent social unrest. Accordingly, the Chinese au-thorities will continue to play a role in regulating eco-

nomic activity in China. Recent indicators suggest that

growth, which during the summer was dangerously

weak, is rising again after the government (once again)

introduced new infrastructure projects and monetary pol-

icy was eased.

Chinas new role as an economic (and therefore political)

superpower has, however, created further tensions with

neighbouring countries. Not least Chinas relations with

Japan have cooled after the Japanese government bought

the small remote and uninhabited Senkaku/Diaoyu is-

lands that China claims belong to its territory. The dis-

pute has led to a Chinese boycott of many Japanese

goods and sanctions against Japanese companies operat-

ing in China. These steps have had dire consequences for

the export-oriented Japanese economy, which is alreadystruggling as a result of the strong yen and is now again

balancing on the edge of a new economic recession.


3/15

Overview


Oil prices have peaked

Given the weak global economic trend combined with

new oil finds and shale gas covering an increasing pro-

portion of US energy consumption, oil prices have de-

clined overall. Prices of other commodities have dropped

as well, and this will contribute to dampening inflation

globally over the forecast period. However, due to geo-political risks especially in the Middle East our oil price

forecast is fraught with considerable uncertainty. For in-stance, an escalation of the conflict between Israel and

Iran or an Arab Spring version 2.0 in countries such as

Saudi Arabia could trigger a new spike in the price of

Brent, which would seriously harm the global and es-

pecially Europes growth outlook.

Low rates for a long time to come

Our baseline scenario assumes a continued low interest

rate level in coming years. There are no signs that mone-

tary policy will be tightened in any of the core countries

until 2014 at the earliest and everything indicates thatthe Fed will be quicker to tighten than the ECB, although

Fed Chief Ben Bernanke has said that rates will be kept

exceptionally low until 2015. Moreover, given the pro-

spect of more aggressive monetary policy tightening in

the US than in the Euro zone, we believe that the USD

will firm versus the EUR during the forecast period. But

as always, currency trends are very uncertain.

Government bond yields will also remain low as long as

the economic outlook is weak and inflation is low. How-

ever, it seems indisputable that current levels in the

benchmark countries are too low. That is why we expect

long yields to edge higher during the forecast period and the increase will also at the long end of the yield

curve be most pronounced in the US.

Norway goes solo

Growth in the Norwegian economy is robust and largely

as expected in our September forecast. Retail sales fig-

ures have been weaker than expected and this createdsome uncertainty about whether consumption growth

was really as strong as expected. However, national

count figures for Q3 show that strong growth in the con-

sumption of services and abroad compensated for weak

goods consumption. We see no reason to change our

view that growth will remain strong in the years ahead.But a strong inflow of labour will prevent major capacity

problems and wage growth will stay at the current level.

Inflation should remain well below target and Norges

Bank will therefore take a cautious rate setting approach.

Low interest rates internationally and the risk of exces-

sive NOK strengthening will also make Norges Bank

hold back. Gradually, enough room will be created for a

tentative rate hike without the NOK appreciating too

much.

Cold winds have hit the Swedish economy. The globaldownturn hurts exports and domestic demand is also

weakening. The uncertain future weighs on both con-

sumer spending and investment activity; overall econom-

ic trends will thus be lacklustre over the coming quarters,which will also see rising unemployment. However,

growth will rebound somewhat during 2013 and gather

further momentum in 2014 when the labour market will

also show signs of improving. In light of the weak eco-

nomic trends and very low underlying inflation, theRiksbank can easily lower rates further. We look for ratecuts in both December this year and February 2013.

Tightening will not be resumed until 2014. The prospect

of a lower policy rate will also weaken the SEK near

term.

Exports have been the ray of sunshine in the Danish

economy in recent years, but now the Euro-area reces-

sion has also hit this sector. Therefore it is crucial that

domestic demand shifts into a higher gear to boost the

economy. In our view, things are starting to look bright-

er. The record-low interest rates will support the housingmarket and following recent years stagnant consumer

spending, the pent-up demand among Danish households

is quite substantial and only waiting to be released. At

the same time investment activity will again make a posi-

tive growth contribution to the Danish economy, drivenby both public and private investment and supported by

the governments so-called investment window. In com-

ing years, growth will be sufficiently high to lead to a

slow increase in employment again. But this does not

mean that vacancies will abound, and we see a signifi-

cant risk that the prolonged crisis has inflicted structuraldamage on the labour market. Consequently, unemploy-

ment will be permanently higher than before the crisisstarted.

The Finnish economy has technically avoided sliding in-

to a recession this year, but only because GDP has fol-

lowed a zig-zag pattern along a downward sloping path.

The naked truth is that the economy is contracting. Con-

sistent with an expected mild Euro-area recovery, we an-

ticipate a moderate export-led pick-up in economic activ-ity already before the summer of 2013. The weak short-

term outlook, however, weighs on investment and em-

ployment, which are both expected to deteriorate for

most of 2013. Higher unemployment, higher income tax-es and VAT are all factors that restrict advances in

household purchasing power and keep private consump-tion growth moderate in a historical comparison. We

have revised our GDP forecast for 2013 slightly down to

1.0%.

Helge J. Pedersen, Global Chief [email protected] +45 3333 3126
mailto:[email protected]:[email protected]


4/15

Denmark


Dim light at dawn

Danish economy slowly reviving

Housing market licking its open wounds

Alarming labour market cracks

Public budgets with major wild card

The Danish economy has run out of steam. The past two

years have seen a largely unchanged activity level, andzero growth has made employment decline further.

Near term we expect the Danish economy to remain

stuck in darkness. But during 2013 economic activity

should start accelerating again. The pick-up will mainly

be driven by substantial pent-up demand among house-holds following recent years stagnation. Against this

background, we expect the Danish economy to expandby 1% next year and 1% in 2014.

Private consumption growth engine running on idle

Household consumption is still very muted. In our view,the reason is two-fold. Firstly, recent labour market

trends have made consumers more uncertain, causing

them to increase their savings. Households bank cash

balances have consequently swelled to DKK 500bn. And

recent surveys from the Danish central bank suggest that

mortgage lenders and banks have tightened credit stand-

ards for private borrowersprimarily due to higher fund-

ing costs and credit rating considerations. The tighter

credit policy weakens the chances of a loan-financedconsumption boom going forward.

We expect household consumption to gradually resume

the role as growth engine in the Danish economy during

2013. This will mainly happen through a gradual reduc-

tion of the savings ratio as households become more con-

fident about the future. At the same time rising disposa-

ble incomes in 2013 (lifted by the delayed financing ele-

ment of the tax reform) will help ensure higher house-

hold consumption.

Housing market licking its open wounds

The Danish housing market is still stabilising after the

price plunge that hit the market. We believe this process

is underpinned by solid fundamentals that have largelyrestored prices on average to their long-term equilibrium

levels. The biggest risk of further price drops is thus the

psychological factor, which by definition is highly uncer-

tain.

But apart from this uncertainty we see good chances thatthe ongoing consolidation in the Danish housing market

will continue in the coming quarters. Particularly in andaround the large cities we expect a rising number of

transactions and moderate price gains. On the other hand,

prices will still edge lower in other parts of the country,

resulting in more diversified geographical trends in theDanish housing market.

Alarming labour market cracks

Despite the economic doldrums, unemployment has been

stable in recent years. But employment has continued to

fall during the same period. This indicates that the labour

force has shrunk in step with the lower employment. Areduced labour force is not in itself a problem as long as

the decline is temporary and due to more people enteringthe educational system, for instance. The problem arises

if the contraction becomes permanent and the labour

force loses elasticity when demand for labour increases

again. At this point in the economic cycle it is very diffi-

cult to say how much of the labour force contraction that

is permanent. Looking at the number of vacancies rela-

Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)

2009 (DKK bn) 2010 2011 2012E 2013E 2014E

Private consumption 822 1,7 -0,5 0,9 1,4 1,8

Government consumption 496 0,4 -1,5 0,1 0,7 0,8

Fixed investment 304 -2,4 2,8 2,2 4,7 2,1- government investment 32 8,9 4,2 2,9 -4,6 -2,4

- residential investment 71 -0,6 14,6 -9,4 1,0 4,8

- business fixed investment 201 -4,9 -1,6 6,8 7,8 2,0

Stockbuilding* 1,0 0,5 -0,5 0,0 0,0

Exports 793 3,0 6,5 1,8 2,1 3,1

Imports 728 3,2 5,6 3,2 3,0 3,3

GDP 1,6 1,1 -0,5 1,5 1,7

Nominal GDP (DKKbn) 1.665 1.761 1.792 1.823 1.876 1.939

Unemployment rate, % 6,3 6,2 6,2 6,5 6,3

Gross unemployment level, '000 persons 164,5 162,1 163,6 169,7 165,2

Consumer prices, % y/y 2,3 2,8 2,5 1,7 1,9

Hourly earnings, % y/y 2,3 1,8 1,6 1,8 2,1

Nominal house prices, one-family, % y/y 2,8 -2,8 -3,4 1,2 1,9

Current account (DKKbn) 103,6 101,2 103,9 90,0 80,0

- % of GDP 5,9 5,6 5,7 4,8 4,1General govt. budget balance (DKKbn) -47,4 -34,5 -71,0 -35,0 -10,0

- % of GDP -2,7 -1,9 -3,9 -1,9 -0,5

Gross public debt, % of GDP 42,9 46,6 45,5 44,5 43,0

* Contribution to GDP growth (% points)


5/15

Denmark


tive to the number of unemployed, much indicates that

recent years stalemate has inflicted more lasting struc-tural damage to the labour market.

Exports are doing fairly well

Danish exports are doing fairly well. Despite the crisis in

the Euro area and sharply eroding wage competitiveness,exports have been increasing across markets and product

groups. This resilience is mainly explained by the gener-ally low cyclicality of Danish exports. Over the coming

years Danish exports are forecast to continue to rise in

step with the slow recovery of the global economy. How-

ever, viewed in a historical perspective progress will be

very moderate given the very low economic activity in

Denmarks core export markets. Slightly longer out weexpect exports to rise further on the back of improved

competitiveness achieved through low wage growth,

relatively high productivity gains and a weakening of the

trade-weighted DKK.

Public budgets with major wild card

Next year we expect fiscal policy to still stimulate eco-

nomic growth slightly mainly through the time lag as-

sociated with planned growth in public spending and in-

creased use of the open investment window, which

should help lift overall private business investment into

2013.

Our baseline scenario assumes that next years public

budget deficit will end up at DKK 35bn. However, this

forecast does not take into account the potentially huge

one-off government revenues in 2013 as a result of the

changed rules for taxation of capital pension schemes.However, extraordinary receipts of up to DKK 150bn

could give rise to significant distortions. The tax reform

rules clearly state that any added revenues must be used

to pay off public debt. But the prospect of a very drastic

reduction of the public debt ratio also entails a latent risk

that fiscal policy becomes less restrictive, which in a

long-term perspective could turn out to be hurtful for the

Danish economy.

Helge J. [email protected] +45 33333126

Jan Strup [email protected] +45 33333171

Stagnant Danish economy

The Beveridge curve is shifting

Households have increased their savings

Exports are holding on
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


6/15

Sweden


Winter has arrived

Weak economy in coming quarters

Low inflation for a long time

Riksbank cut to 0.75% next year

Gradual SEK weakening

Cold winds have hit the Swedish economy. The global

slowdown is increasingly taking its toll on the export sec-tor, with resultant cuts in both production and manpower.

Domestic demand is also slowing. Household finances

are sound, but consumers are reluctant to spend. At the

same time investment activity is declining. GDP growth

will therefore be weak in coming quarters. According to

our forecast, demand for labour will recede and unem-ployment rise to about 8.5%.

Growth will gradually rebound during 2013 driven by

improved international economic trends, domestic stimu-

lus measures and stronger confidence among consumers

and businesses. However, a weak start to the year will

keep full-year growth low at around 1%. The economy

will improve further in 2014, but unemployment will not

decrease until the end of the forecast horizon.

Domestic demand mixed pictureHousehold consumption will be a key factor in coming

years. Households are generally quick to react to signals

of cyclical changes and this has also been the case over

the past year. Labour market worries have intensified,consumption growth has been muted and the savings ra-

tio has risen.

Households are probably facing a bumpy road also going

forward. However, savings are historically high and low

inflation will boost purchasing power. And lower mort-

gage rates allow households to spend more and support

the housing market. This suggests that moderate growthin household consumption can be maintained next year.

But investment growth will be lacklustre due to an unfa-

vourable backdrop of uncertainties and falling capacity

utilisation. Notably business investment is forecast to

drop. And energy investment will reverse following re-

cent years significant growth. However, residential con-

struction should soon bottom and an expansionary fiscal

policy via infrastructure projects will curb the decline in

total investment.

Indicators clearly point to weak exports near term. But

Swedish exporters are competitive and once demand inexport markets picks up again in the course of 2013,

Swedish exports should recover. The uncertain situation

in the Euro area is still the main risk to our forecast for

the Swedish economy.

Restrained wage growth

The autumn saw a string of layoff notices, hiring plans

have become more pessimistic and a decreasing number

of vacancies are reported to the Swedish Public Em-ployment Service. The weaker economy has already fed

through to wage formation, with strong downward pres-

sure on wage growth. The union IF Metalls initial de-

mands ahead of the pay talks are lower than last time. Forsome companies, the unionsadmittedly under threat of

bankruptcy have even accepted lower compensationlevels, which is very unusual for the Swedish labour

market.

Sweden: Macro economic indicators (% annual real changes unless otherwise noted)

2009 (mia. SEK) 2010 2011 2012E 2013E 2014E

Private consumption 1,533 4.0 2.1 1.4 1.4 1.8

Government consumption 860 2.1 1.1 0.4 0.7 1.4

Fixed investment 559 7.2 6.4 3.0 -2.5 3.0

- industry 74 2.7 11.4 9.8 -5.8 3.0

- residential investment 92 15.7 14.7 -8.2 -3.1 4.5Stockbuilding* -46 2.2 0.5 -0.8 0.0 0.0

Exports 1,489 11.4 7.1 -0.1 -1.1 4.5

Imports 1,288 12.0 6.3 -0.9 -2.1 3.9

GDP 6.6 3.7 0.8 0.8 2.4

GDP, calendar adjusted 6.3 3.7 1.1 0.8 2.5

Nominal GDP (SEKbn) 3,106 3,338 3,500 3,574 3,648 3,791

Unemployment rate, % 8.4 7.5 7.7 8.4 8.4

Employment growth 1.0 2.1 0.5 -0.4 0.3

Consumer prices, % y/y 1.2 3.0 0.9 0.3 1.8

Underlying inflation (CPIF), % y/y 2.0 1.4 1.0 1.1 1.4

Hourly earnings, % y/y 0.4 2.9 3.3 2.8 2.8

Current account (SEKbn) 206 217 227 244 263

- % of GDP 6.2 6.2 6.4 6.7 6.9

Trade balance, % of GDP 2.6 2.6 2.9 3.2 3.3

General govt budget balance (SEKbn) -2 6 -16 -45 -55

- % of GDP -0.1 0.2 -0.5 -1.2 -1.5

Gross public debt, % of GDP 37.7 42.1 39.5 40.4 40.2

* Contribution to GDP growth( % points)


7/15

Sweden


Inflation to stay low for a long period

Core inflation (CPIF) has remained well below the Riks-

banks 2% target over the past two years. And with eas-

ing domestic cost pressures through more moderate wage

increases and a sustained downtrend in prices of import-

ed goods and services, core inflation will remain below

target also during the forecast period.

The scene is thus set for more rate cuts by the Riksbank.However, the Riksbank also takes into account the risks

associated with keeping interest rates low for a prolonged

period. Most of all the Riksbank will not want a further

sharp increase in household indebtedness from current

levels. But short term the key determinants of monetary

policy will be low inflation and rising unemployment.We look for repo rate cuts in December 2012 and Febru-

ary 2013.

Note that household credit growth stabilised around SEK

10bn per month already a year ago after the previousdownturn. Credit growth may well pick up next year andonce again become a source of concern for the Riksbank.

But with subdued resource utilisation and low inflation

any rate hikes will probably be postponed until 2014.

Election year approaching

The budget for 2013 included unfinanced reforms forSEK 23bn or 0.7% of GDP. They primarily relate to cor-

porate taxes and infrastructure investment. In 2014,

which is an election year, we expect fiscal policy stimu-

lus to the tune of SEK 20bn, partly targeted at house-

holds. Our forecast factors in a budget deficit of some

1.5% of GDP in both 2013 and 2014. Even if activity inthe economy should slow further, we doubt that policy-

makers will be willing to boost the deficit beyond this

level.

SEK to weaken slightly

The relatively strong growth in the Swedish economy

over the past year allowed the Riksbank to pursue a lessexpansionary monetary policy than many other central

banks. As a result, the SEK has strengthened versus most

other currencies. Short term, we see the SEK weakening

slightly versus the EUR in tandem with the Swedish eco-

nomic slowdown and diminishing interest rate differen-

tials. Longer out, the SEK should strengthen again versusthe EUR as Swedish fundamentals prove more stable.

During the entire forecast period the SEK will likely

gradually weaken versus the USD.

Torbjrn [email protected] +46 614 8859

Labour market to deteriorate

Will household credit growth gear up?

Inflation low for long

The SEK weaker in recent months
mailto:[email protected]:[email protected]:[email protected]


8/15

Norway


Sustained growth

Strong domestic demand underpins growth

No labour market tightening

Norges Bank to act cautiously

We expect the key drivers of Norwegian economic

growth this year, ie private consumption and oil and

housing investment, to be major growth engines nextyear as well. In 2014 we see a slowdown, albeit not a

dramatic one as growth will merely approach the trend

rate. Given strong labour migration, unemployment and

wage growth will remain largely around current levels.

Norges Bank will take a cautious approach to rate hikes

as inflation will remain below the 2.5% target.

Consumer spending on services and abroad is rising

This year consumers purchasing power has increasedconsiderably as a result of decent wage growth coupled

with strong employment growth and very low inflation,

and consumer spending has increased sharply. Over the

past four to five months retail sales growth has slowedmarkedly compared with at the beginning of the year,

which could signal slowing spending growth. However,

the Q3 GDP figures show that consumer spending re-

mains high thanks to growing spending on services and

rising holiday spending abroad.

Although still solid, purchasing power growth looks set

to slow in 2013 and drop further in 2014 as a result of

higher interest rates. We still expect income growth tooutstrip spending growth, and households savings ratio

should rise further from the current high level.

Key drivers are oil/gas and housing investment

A recent survey suggests that oil investment activity on

the Norwegian shelf will increase sharply also next year.

We have revised up our forecast presented in the Sep-

tember 2012 issue of Economic Outlook and now look

for oil investment growth of 12% following an estimated17% this year. Accordingly, the good times for the oil

supplier industry will likely continue.

Housing investment growth has outpaced our September

forecast and now looks set to be close to 9% this year.

The number of housing starts has risen to levels not seen

since the 2006-07 construction boom, and by all accounts

construction activity is not likely to slow going forward.

Housing demand will also remain high, underpinned by

sustained low interest rates, strong wage growth, a be-

nign labour market and high population growth. The

strong growth in residential construction will ease some

of the pressure on the housing market, but constructionactivity growth will hardly match the current high rate of

growth in demand for owner-occupied housing. We see

house prices rising 7% in 2013 and 4-6% in 2014.

Against this backdrop, housing investment growth should

pick up further going forward.

At the end of 2011 and the beginning of 2012 Norwegian

exports of goods and services excluding oil and gas grewat a healthy clip. However, in the course of 2012 export

growth has more or less levelled out. The part of the ex-

port sector supplying goods and services to the oil and

gas industry will likely continue to show a positive trend,

while exports of for instance metals look set to declinefurther. All in all, we expect exports of goods to remainlargely flat and exports of services to grow moderately in

2013. In 2014, however, export growth should pick up

again in tandem with the growing activity internationally.


Norway: Macroeconomic indicators (% annual real changes unless otherwise noted))

2009 (NOK bn) 2010 2011 2012E 2013E 2014E

Private consumption 1.028 3,8 2,5 3,2 3,5 3,0

Government consumption 531 1,3 1,8 1,9 2,0 2,0

Fixed investment 516 -8,0 7,6 7,2 6,5 3,1

- gross investment, mainland 349 -4,5 8,5 3,4 4,4 2,7- gross investment, oil 144 -15,0 9,7 18,0 12,0 4,0

Stockbuilding* 14 3,5 0,1 0,0 0,0 0,0

Exports 929 0,4 -1,8 2,4 0,4 1,2

- crude oil and natural gas 416 -6,9 -6,2 2,5 0,0 0,0

- other goods 277 3,4 0,0 2,0 0,0 2,5

Imports 660 9,0 3,8 3,5 3,8 3,0

GDP 2.357 0,5 1,2 3,2 2,4 2,0

GDP, mainland 1.876 1,7 2,5 3,4 3,0 2,5



Core inflation, % y/y 1,4 0,9 1,2 1,3 2,1

Annual wages (incl. pension costs), % y/y 3,6 4,2 4,2 4,3 4,3

Current account (NOKbn) 304,6 383,3 425,3 449,3 460,4

- % of GDP 12,0 13,9 14,5 14,4 14,1

Trade balance, % of GDP 11,9 13,3 13,8 13,6 13,2

General govt budget balance (NOKbn) 284,5 386,6 399,1 410,0 420,0

- % of GDP 11,2 14,1 13,6 13,1 12,8


9/15

Norway


Stable wage growth, but gradually higher inflation

Based on relatively strong growth in demand for labour,

wage growth last year and this year exceeded 4%, which

is much higher than Norways trading partners . And

given sustained strong economic growth, wage growth

will likely remain elevated. But strong labour migration

will prevent an overall labour shortage and, in turn, risingwage growth. Weak earnings in some sectors exposed to

competition will also put a damper on wage growth even

though these sectors influence on wages does not seem

to match that of oil-related industries.

With wage growth over 4% and relatively weak produc-

tivity growth, inflation should edge higher. Meanwhile,

the effects of the past years strengthening of the NOKon import prices will subside. But low inflation interna-

tionally will keep a rein on Norwegian inflation, and bar-

ring anything triggering higher cost growth, inflation

should stay below target in the forecast period.

Norges Bank in no hurry

In an environment of low inflation and stable wage

growth slightly above 4%, Norges Bank is in no hurry

hiking rates. We see the first rate hike coming in H2

2013. Although we see no rate hikes among Norways

trading partners, markets will likely start to price in high-

er rates globally in 2014. This will make it easier forNorges Bank to hike rates without risking excessive

NOK strengthening. In 2014 central banks across the

board will likely start raising their policy rates, with

Norges Bank hiking rates three times by 25 bp.

Beginning at the monetary policy meeting in March 2013Norges Bank will make recommendations on the so-

called countercyclical capital buffer. If banks costs ri se

sharply as a result of this, it could mean lower credit

growth, lower GDP growth and fewer rate hikes than we

have factored into our baseline scenario.

Stable or slightly weaker NOK

The NOK strengthened in H1 2012 in tandem with the

escalation of the Euro-area crisis. However, since sum-

mer fears of a collapse of the euro have faded, but still

EUR/NOK has not changed much. Temporary factors

such as Norges Banks surprise decision not to buy for-

eign currency for the Government Pension Fund Globalin November may have prevented the NOK from weak-

ening versus the EUR as a result of the brighter prospects

for the Euro zone. Over time Norges Bank will likely re-

sume its buying of foreign currency, and we see the NOK

weakening against the EUR. But with one rate hike in

2013, the NOK weakening should be moderate.

Erik [email protected] +47 2248 4449

Katrine Godding [email protected] +47 2248 7977

Oil investment growth to remain strong also in 2013

Housing starts and house prices rising

Practically no labour market tightening

EUR fears easing, NOK still strong vs EUR
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


10/15

Finland


Indicators point to a turn before the summer

We have lowered our growth forecasts slightly

Exports to recover just before the summer

Moderate increase in private consumption

Weaker trend in employment and investment

A turn before the summer lower growth estimatesEconomic activity has subsided across the board as

expected. Export growth has stagnated, subdued

domestic demand (consumption and investment) has

resulted in a distinct decline in imports and employment

has begun to fall. In line with our forecast for

international economy, we expect export demand to pick

up and economic growth to regain momentum just before

the summer. This is distinctly later than what we

estimated in our September forecast. The OECD'sindicator for the Finnish economy also anticipates this

trend.

We have lowered our economic growth forecast for 2013

only a little to 1.0% (previously 1.2%). The forecast for2014 remains almost intact. We base our view on the fact

that employment and investment will react to economic

boosts with a minimum lag of six months. Due to modest

economic growth, the unemployment rate is expected to

rise to 8.2% on average in 2013.

GDP zigzags and is very difficult to interpretThis year Finnish GDP has followed a zigzag path. Total

production has zigzagged up and down around thedeclining trend. Due to this zigzag pattern, production

has not contracted in two consecutive quarters, so the

technical definition of a recession has not been met. In

practice, however, Finland has been in a recessionthroughout the year.

According to the flash estimate of Statistics Finland,

Finnish economy grew 0.3% in Q3 from Q2. Further

details were not available at the time of writing, but other

data may prove that the rise has been even more robust.

The positive effect of net exports and privateconsumption is more likely to have outweighed the

negative effect of decreased investment. Goods exports

increased somewhat, but goods imports declined clearly.

Car sales picked up from the crash in Q2 caused by the

car tax hike at the beginning of April. In addition, retail

trade increased somewhat in Q3. Investment probably

decreased across the board.

We estimate that total production will increase slightly

also in the current Q4 not only year-on-year but also

quarter-to-quarter. Net exports and consumption will

support growth but investment will dampen it. Without a

new sharp decline, goods exports will grow year-on-year

due to weak comparison figures, but imports willdecrease.

Investment will decrease

The investment outlook is subdued across the board. Thetrend in the new orders of the industrial sector indicates

that machinery and construction investment will only

start to recover when we are well into 2013. In the last

few months, new construction has declined clearly from

last year, and the dramatic drop in the number ofconstruction permits does not suggest a quick fix. We

estimate investment to continue to decrease in 2013.

Moderate increase in private consumptionPrivate consumption will grow much slower than normal

during the forecast period. Salaries and pensions will

rise, but weaker employment, tightened taxation and a

fairly quick rise in consumer prices will limit the

improvement of household purchasing power.

Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)

2009 (EUR bn) 2010 2011 2012E 2013E 2014E

Private consumption 94 3,3 2,5 1,1 1,4 2,0

Government consumption 43 -0,3 0,4 0,4 0,5 0,5

Fixed investment 34 1,9 6,8 -2,7 -2,3 5,4Stockbuilding* -2 0,8 1,1 0,1 0,1 0,0

Exports 64 7,5 2,6 0,3 0,9 6,5

Imports 62 6,9 5,7 -2,3 0,0 6,2

GDP 3,3 2,7 0,5 1,0 2,7

Nominal GDP (EURbn) 172,3 178,8 189,4 195,8 200,4 208,6


Industrial production, % y/y 8,3 0,9 -2,0 2,0 4,0


Hourly wages, % y/y 2,6 2,7 3,5 3,0 3,0

Current account (EURbn) 2,9 -2,2 -1,2 0,2 0,5

- % of GDP 1,6 -1,1 -0,6 0,1 0,2

Trade balance (EURbn) 2,6 -1,2 0,7 1,8 2,2

- % of GDP 1,4 -0,6 0,4 0,9 1,1

General govt budget balance (EURbn) -4,5 -1,2 -2,9 -1,4 -0,4

- % of GDP -2,5 -0,6 -1,5 -0,7 -0,2

Gross public debt (EURbn) 87,0 92,8 100,1 106,1 111,2

- % of GDP 48,6 49,0 51,1 52,9 53,3



11/15

Finland


Weaker employment

The labour market is facing a difficult winter, as the

economic pick-up we are anticipating will increase

demand for labour in late 2013 at the earliest. We

estimate that the unemployment rate, excluding seasonal

effects, will increase to 8.4% in the autumn. In practice,

this means the disappearance of 25,000 jobs and anincrease of 20,000 in the number of the unemployed.

Inflation to remain relatively high

According to the national consumer price index, the rise

in consumer prices slowed down to around 2.5% in the

autumn from approximately 3% in the first half of the

year. The main factors behind the rise are higher food

prices and several tax hikes effected at the beginning of

this year. Tax hikes account for almost 1 percentage

point of the price rise. There is another tax hike

impending at the beginning of 2013 when the general

value added tax will be raised by 1 percentage point. Part

of this raise will show in prices. The decreased marketrates will continue to weigh on housing loan interests

well into 2013 and keep restricting the consumer price

rise. This effect will, however, diminish gradually. We

expect the national consumer price index to rise an

average of 2.5% per year during the forecast period.

Taxation increased at a bad time

It has been customary in Finland to raise the income

limits in the government's income tax brackets annually

based on either the inflation estimate or the rise in

average income level (the latter has been used in recent

years). With this practice the government has aimed at

taxation only being increased when real wages rise or, asin the latter case, when income rises more than theaverage income level. In 2013 and 2014 the income

limits of the tax brackets will exceptionally remain

untouched, so national income taxation will increase

even when income rises less than consumer prices. Local

taxation will also increase on average. In addition, the

capital transfer tax applied to homebuyers will reduce thedesire of home owners to move in search of a job. There

may be more hikes in the pipeline in the spring when the

government will have its mid-term check-up and

reconsider the effect of the economic outlook on the

government finances.

At the moment, there are no obvious growth drivers inthe Finnish economy as exports are not growing,

investment dwindles, consumption growth is meagre and

employment deteriorates. This means that taxation

increases at an exceptionally bad stage of the economic

cycle. In municipal politics, decisions to raise the tax rate

at difficult times are usual. The main reason behind the

government now doing effectively the same is the need

to raise more tax income by any means necessary in

order to maintain the high credit rating the objective is

not an economic policy that supports growth.

Pasi [email protected] +358 9 165 59942

OECD indicator anticipates pick-up in GDP growth

Champagne sales suggest GDP is bottoming out

Employment set to weaken towards autumn 2013

Car registrations are recovering gradually
mailto:[email protected]:[email protected]:[email protected]


12/15

Key figures


Growth, % Inflation, %2010 2011 2012E 2013E 2014E 2010 2011 2012E 2013E 2014E

World1) 4,7 3,9 3,0 3,3 4,0 World1) 2,9 4,2 3,0 2,9 2,9

USA 2,4 1,8 2,2 2,1 2,4 USA 1,6 3,1 2,1 2,1 2,3

Euro area 1,9 1,5 -0,3 0,4 1,7 Euro area 1,6 2,7 2,2 1,7 1,5

China 10,4 9,1 7,8 8,1 8,5 China 3,3 5,4 3,1 4,0 3,8

Japan 4,6 -0,7 1,6 0,2 0,8 Japan -0,7 -0,3 0,1 -0,1 -0,1

Denmark 1,6 1,1 -0,5 1,5 1,7 Denmark 2,3 2,8 2,5 1,7 1,9

Norw ay 1,7 2,5 3,4 3,0 2,5 Norw ay 2,5 1,2 0,7 1,7 2,1

Sw eden 6,6 3,7 0,8 0,8 2,4 Sw eden 1,2 3,0 0,9 0,3 1,8

UK 1,8 0,9 -0,2 0,9 1,8 UK 3,3 4,5 2,9 2,2 1,6

Sw itzerland 3,0 1,9 0,4 1,2 1,9 Sw itzerland 0,7 2,4 -0,5 0,3 0,2

Germany 4,0 3,1 1,0 0,9 2,1 Germany 1,2 2,5 2,2 1,6 2,1

France 1,6 1,7 0,1 0,4 1,3 France 1,6 1,7 0,1 0,4 1,3

Italy 1,8 0,5 -2,3 -0,5 1,0 Italy 1,8 0,5 -2,3 -0,5 1,0

Spain -0,3 0,4 -1,2 -0,9 1,1 Spain -0,3 0,4 -1,2 -0,9 1,1

Finland 3,3 2,7 0,5 1,0 2,7 Finland 1,2 3,4 2,9 2,6 2,5

Estonia 3,3 8,3 2,3 3,5 3,8 Estonia 3,0 5,0 3,7 3,0 2,9

Poland 3,9 4,3 2,2 1,8 2,8 Poland 2,6 4,3 3,8 2,3 2,4

Russia 4,3 4,4 4,2 4,8 5,0 Russia 6,9 8,5 6,3 6,8 7,0

Latvia -0,9 5,5 4,2 2,5 3,9 Latvia -1,1 4,4 2,3 2,5 2,8

Lithuania 1,5 5,9 2,7 3,3 3,5 Lithuania 1,3 4,1 3,0 2,8 3,0

India 9,6 6,9 6,0 6,7 7,2 India 9,6 9,5 7,5 6,8 7,0

Brazil 7,6 2,8 2,6 4,6 4,8 Brazil 5,0 6,4 5,2 5,4 5,8

Public finances, % of GDP Current account, % of GDP2010 2011 2012E 2013E 2014E 2010 2011 2012E 2013E 2014E

USA -8,8 -8,3 -7,0 -5,5 -4,7 USA -3,1 -3,1 -3,0 -3,5 -3,0

Euro area -6,2 -4,1 -3,7 -3,0 -2,5 Euro area -0,6 0,0 0,3 0,2 0,2China -1,7 -1,1 -1,5 -2,3 -1,9 China 5,1 2,8 2,5 2,2 1,5

Japan -9,0 -9,7 -9,9 -9,6 -9,0 Japan 3,7 2,1 2,1 2,5 2,4

Denmark -2,7 -1,9 -3,9 -1,9 -0,5 Denmark 5,9 5,6 5,7 4,8 4,1

Norw ay 11,2 14,1 13,6 13,1 12,8 Norw ay 12,0 13,9 14,5 14,4 14,1

Sw eden -0,1 0,2 -0,5 -1,2 -1,5 Sw eden 6,2 6,2 6,4 6,7 6,9

UK -10,1 -8,2 -7,6 -6,4 -4,7 UK -2,5 -1,9 -3,0 -2,5 -1,8

Sw itzerland 0,7 0,8 0,2 0,4 0,4 Sw itzerland 14,4 14,2 10,5 11,0 14,2

Germany -4,1 -0,8 -0,4 0,0 0,5 Germany 6,1 5,6 5,6 4,8 4,0

France -7,1 -5,2 -4,7 -3,9 -3,5 France -2,0 -2,6 -2,4 -2,1 -2,0

Italy -4,5 -3,9 -2,5 -1,8 -1,0 Italy -3,5 -3,3 -1,5 -1,0 -0,5

Spain -9,7 -9,4 -7,0 -6,5 -5,0 Spain -4,4 -3,7 -2,4 -1,0 0,0

Finland -2,5 -0,6 -1,5 -0,7 -0,2 Finland 1,6 -1,1 -0,6 0,1 0,2

Estonia 0,2 1,0 -1,5 -0,5 -0,3 Estonia 3,8 2,1 -2,3 -1,5 -1,3

Poland -7,8 -5,0 -3,3 -3,8 -3,2 Poland -4,7 -4,3 -3,2 -2,5 -2,5

Russia 6,2 7,0 0,2 0,5 0,7 Russia 4,8 4,5 4,2 3,0 2,5

Latvia -8,2 -3,5 -2,2 -2,0 -2,0 Latvia 3,0 -1,2 -3,2 -3,5 -3,6

Lithuania -7,2 -5,5 -2,7 -3,0 -3,0 Lithuania 1,1 -1,6 -2,7 -3,0 -3,0

India -3,6 -6,6 -7,0 -7,5 -8,0 India -3,3 -2,8 -4,0 -3,0 -2,2

Brazil -2,3 -2,1 -2,5 -2,7 -2,8 Brazil -2,3 -2,1 -2,5 -2,7 -2,8

1) Weighted average of co untries in this table. Accounts fo r 76.5%of world GDP. Weights calculated using PPP adjusted GDP levels for 2 008 according t o the IMF' s World Economic Outloo k


13/15

Key figures



14/15


Sweden:

Annika Winsth, Chief Economist Sweden

[email protected], tel. +46 8 614 8608

Torbjrn Isaksson, Chief Analyst


Andreas Jonsson, Senior Analyst

[email protected],+46 8 534 910 88

Bengt Rostrm, Senior Analyst


Linus Lauri,Assistant Analyst

[email protected], tel. +46 8 614 80 03

Siri Pettersson,Assistant Analyst

[email protected], tel. +46 8 614 80 03

Estonia:

Tnu Palm, Chief Analyst

[email protected], tel. +372 628 3345

Latvia:

Andris Strazds, Senior Analyst


Lithuania:

Zygimantas Mauricas, Analyst

[email protected], +370 5 2657 198

Russia:

Dmitry A. Savchenko, Analyst

[email protected], +7 495 777 34 77 4194

Dmitry S. Fedenkov, Analyst

[email protected], +7 495 777 34 77 3368

Poland:

Piotr Bujak, Chief Economist Poland

[email protected], +48 22 521 36 51

Economic Research Nordea

Denmark:

Helge J. Pedersen, Global Chief Economist


Johnny Bo Jakobsen, Chief Analyst


Anders Svendsen, Chief Analyst


Jan Strup Nielsen, Senior Analyst


Amy Yuan Zhuang, Senior Analyst


Aurelija Augulyte,Analyst


Henrik Lorin Rasmussen,Assistant Analyst


Heidi stergaard,Assistant Analyst


Daniel Freyr Gustrafsson,Assistant Analyst


Finland:

Roger Wessman, Chief Economist Finland


Pasi Sorjonen, Senior Analyst


Annika Lindblad,Analyst


Norway:

Steinar Juel, Chief Economist Norway


Erik Bruce, Chief Analyst


Thina M. Saltvedt, Senior Analyst


Katrine Godding Boye, Senior Analyst


Bjrnar Tonhaugen, Senior Analyst



15/15


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Documents

Nordic Region Out Look 2013