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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
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Overview
2 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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.
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Overview
3 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Denmark
4 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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)
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5 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Sweden
6 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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)
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7 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Norway
8 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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.
* Contribution to GDP growth (% points)
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
Unemployment rate, % 3,6 3,3 3,1 3,0 2,9
Consumer prices, % y/y 2,5 1,2 0,7 1,7 2,1
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
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9 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Finland
10 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
Unemployment rate, % 8,4 7,8 7,7 8,2 8,0
Industrial production, % y/y 8,3 0,9 -2,0 2,0 4,0
Consumer prices, % y/y 1,2 3,4 2,9 2,6 2,5
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
* Contribution to GDP growth (% points)
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Finland
11 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Key figures
12 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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
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Key figures
13 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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14 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
Sweden:
Annika Winsth, Chief Economist Sweden
[email protected], tel. +46 8 614 8608
Torbjrn Isaksson, Chief Analyst
[email protected], tel. +46 8 614 8859
Andreas Jonsson, Senior Analyst
[email protected],+46 8 534 910 88
Bengt Rostrm, Senior Analyst
[email protected], tel. +46 8 614 8378
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
[email protected], tel. +371 67 096 096
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
[email protected], tel. +45 3333 3126
Johnny Bo Jakobsen, Chief Analyst
[email protected], tel. +45 3333 6178
Anders Svendsen, Chief Analyst
[email protected], tel. +45 3333 3951
Jan Strup Nielsen, Senior Analyst
[email protected], tel. +45 3333 3171
Amy Yuan Zhuang, Senior Analyst
[email protected], tel. +45 3333 5607
Aurelija Augulyte,Analyst
[email protected], tel. +45 3333 6437
Henrik Lorin Rasmussen,Assistant Analyst
[email protected], tel. +45 3333 4007
Heidi stergaard,Assistant Analyst
[email protected], tel. +45 3333 6102
Daniel Freyr Gustrafsson,Assistant Analyst
[email protected], tel. +45 3333 5115
Finland:
Roger Wessman, Chief Economist Finland
[email protected], tel. +358 9 165 59930
Pasi Sorjonen, Senior Analyst
[email protected], tel. +358 9 1655 9942
Annika Lindblad,Analyst
[email protected], tel. +358 9 1655 9940
Norway:
Steinar Juel, Chief Economist Norway
[email protected], tel. +47 2248 6130
Erik Bruce, Chief Analyst
[email protected], tel. +47 2248 4449
Thina M. Saltvedt, Senior Analyst
[email protected], tel. +47 2248 7993
Katrine Godding Boye, Senior Analyst
[email protected], tel. +47 2248 7977
Bjrnar Tonhaugen, Senior Analyst
[email protected], tel. +47 2248 7959
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15 ECONOMIC OUTLOOK NORDICS DECEMBER 2012 NORDEA MARKETS
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