The global economy is demonstrating resilience, with prospects for a soft landing appearing more likely. However, robust labor markets present challenges for monetary policy as the natural interest rate may be higher than previously thought. Additionally, the evolving geopolitical landscape remains a significant risk to growth and inflation forecasts, according to Helge Pedersen, Nordea Group Chief Economist.
In the Nordic region, economic conditions vary. Norway and Denmark maintain strong positions, while Sweden is stabilizing and expected to improve further once interest rates decrease. Conversely, Finland's economy has slowed down and remains in recession.
Denmark's economic expansion continues, primarily driven by the pharmaceutical sector. Employment is on the rise, and unemployment levels are low. Solid growth is anticipated in the coming years due to positive real wage growth benefiting households. Nevertheless, challenges persist in the construction sector and housing market.
Finland faces high interest rates that have led to a recession, making it one of Europe's weakest performers in 2023. Despite struggles in the housing market, inflation issues have subsided and the labor market remains stable. With improving purchasing power and rising global demand, Finland's economy is expected to grow again next year.
Norway anticipates increased economic activity with low unemployment levels. Persistent inflation, a weak NOK (Norwegian Krone), high wage growth, and stronger household purchasing power will delay Norges Bank’s planned rate cuts until next year. The NOK continues to be influenced by geopolitical challenges and slower international rate cuts.
Sweden's economy appears to be stabilizing after turbulent years. Household consumption is set to rise; export production will align with demand; and inflation should stabilize at low levels. Although unemployment may increase, multiple rate cuts from the Riksbank are expected to facilitate a gradual recovery.