Nordic Outlook - Danske Analyse - Danske Bank

Investment Research 

Nordic Outlook 

Economic and financial trends 

June 2013 

Denmark: Economy ready for a change of pace 

- economic adjustments make Denmark ready for growth 

Sweden: Summer daze 

- an economy slowly convalescing 

Norway: Growth pause 

- but no signs of crisis; the Norwegian economy is still in good shape 

Finland: Second year of misery 

- GDP set to contract in 2013 but growth should return in 2014 

www.danskeresearch.com


Markets Research 

Editorial deadline 25 June 2013 

Investment Research 

Editor-in-Chief: 

Steen Bocian Chief Economist + 45 45 12 85 31 stbo@danskebank.dk 

Macro economics: 

Jens Nærvig Pedersen Denmark +45 45 12 80 61 jenpe@danskebank.dk 

Las Olsen Denmark +45 45 12 85 36 laso@danskebank.dk 

Roger Josefsson Sweden +46 (0)8-568 805 58 rjos@danskebank.dk 

Frank Jullum Norway +47 85 40 65 40 fju@danskebank.no 

Pasi Petteri Kuoppamäki Finland +358(0)105467715 paku@danskebank.dk 

Sales contacts: 

Thomas Thøgersen Grønkjær Head of Markets Research +45 45 12 85 02 thgr@danskebank.dk 

Rolf Kofoed Head of Sales Copenhagen +45 45 12 69 92 roko@danskebank.dk 

Henrik Voetmann Mikkelsen Global Head of Equities +45 45 14 73 05 hvm@danskebank.dk 

Anders Damgaard 

Derivatives Sales and +45 45 12 85 50 andd@danskebank.dk 

Structuring 

Jesper Ronald Petersen FX Sales and Structuring +44 (0)20 7410 8149 jrp@danskebank.dk 

Bo Wetterstein Debt Capital Markets +45 45 14 72 83 bwe@danskebank.dk 

Lars Worsøe Andersen Fixed Income +45 45 14 69 97 lawa@danskebank.dk 

Torben Frederiksen 

Head of Sales and Sales 

Trading, US 

+1 212 293 0340 tfr@danskemarkets.com 

This publication can be viewed at www.danskebank.com/danskeresearch 

Statistical sources: Datastream, Reuters EcoWin, OECD, IMF, National Institute of Social and Economic Research, 

Statistics Denmark and other national statistical institutes as well as proprietary calculations. 

Important disclosures and certifications are contained from page 36 of this report. 

2 | June 2013 



Contents 

Denmark Economy ready for a change of pace 4 

Forecast at a glance 10 

Sweden Summer daze 11 


Norway Growth pause 20 


Finland Second year of misery 26 


Global overview Bumpy global recovery 32 

Economic forecast 33 

Financial forecast 34 

The Nordic Outlook is a quarterly publication that presents Danske Banks view on the economic outlook for 

the Nordic countries. The quarterly publication the Global Scenarios sets out our global economic outlook. 

Updated economic forecasts for the following countries and regions are available at 

www.danskebank.com/danskeresearch: 

Denmark 

Sweden 

Norway 

Finland 

US 

UK 

Eurozone 

Switzerland 

Central and Eastern Europe 

Asia 

3 | June 2013 



Denmark 

Economy ready for a change of pace 

 

 

 

 

 

 

The Danish economy is currently becalmed. For while domestic 

demand is showing signs of improvement, exports are struggling due 

to the recession in the euro area. 

However, we expect that the Danish economy will escape the 

doldrums towards the end of the year and begin to grow again. 

Growth will be driven by both rising domestic demand – including 

stronger private consumption and investment – and a pick-up in 

exports on the back of an improvement in the global economy. 

Growth in the coming years is unlikely to be strong enough to create 

many new jobs, though it should be sufficient to keep employment 

and unemployment stable. 

Inflation has fallen sharply since the start of the year, though this is a 

temporary fall due to, among other things, the abolition of the socalled 

fat tax. 

The housing market seems to have bottomed out, so we expect to see 

prices gradually picking up across the country in the coming years. 

Changes relative to previous forecast 

Current forecast Previous forecast 

2013 2014 2013 2014 

GDP 0.1 1.5 0.4 1.5 

Private consumption 0.4 1.2 0.4 1.1 

Public consumption 0.8 0.5 1.2 0.2 

Gross fixed investment 1.7 1.8 0.3 -0.5 

Exports -0.8 3.5 0.1 3.2 

Imports 1.9 2.4 0.0 1.6 

Gross unemployment (thousands) 156 155 160 159 

Inflation 0.8 1.7 1.3 1.9 

Government balance, % of GDP -1.9 -1.1 -1.4 -0.3 

Current account, % of GDP 4.6 5.1 4.1 4.7 

Source: Statistics Denmark, Danske Bank 

Two steps forward and two steps back 

Denmark’s economy has been taking two steps forward and two steps back 

over the past three years. GDP has failed to grow and the labour market has 

been frozen solid – but a change of pace is under way, i.e. two steps forward 

and just one step back. However, while that represents a clear acceleration, 

unfortunately the final velocity will still not be high. The Danish economy 

has come far in its much needed adjustment following the financial crisis and 

the overheating of its housing and labour markets. House prices have fallen 

by around 20%, wage growth has slowed sharply and companies, in 

particular, have increased their savings considerably. The adjustment has 

come at a price, but it has been necessary and now provides room for 

economic growth. This, together with expectations of a gradual improvement 

in the European economy, is the reason we expect a shift away from the 

close-to-zero growth rates of the past three years. However, while this is an 

improvement, it is still a long way from what could be termed an upswing. 

While we expect the economy to expand by just 0.1% overall this year, we 

would emphasise that we expect quite decent growth in both Q3 and Q4 – 

and estimate this will continue into 2014, when annual GDP growth could 

reach 1.5%. Growth will be driven by both exports and domestic demand and 

should be sufficient to ensure a modest increase in employment in 2014. 

Low growth and relatively high unemployment have prompted a discussion 

on whether fiscal policy should be eased in 2014 relative to what has been 

planned. The so-called wise men of the Economic Council recommend 

easing fiscal policy by DKK10-12bn, while both the OECD and the Danish 

central bank (Danmarks Nationalbank) are opposed. The divide in opinions 

reflects the current debate on fiscal policy’s room to manoeuvre, how much 

No GDP growth for almost three years 


Domestic demand on the rise 


4 | June 2013 



spare capacity there is in the economy and probably also how effective fiscal 

easing would be in a small, open and very interest rate-sensitive economy. 

Unfortunately there is no clear solution, even though both the wise men and 

the central bank appear keen to suggest they have the answer sheet. Our view 

is that we should instead concentrate on enacting initiatives that strengthen 

the economy structurally. If such initiatives can be designed so they also have 

a slightly expansionary effect on economic activity in 2014 that should 

certainly be considered, but it is the structural content that should be in focus 

– not fine tuning the business cycle. For as the debate above illustrates 

perfectly clearly, controlling the business cycle is not a precision tool. 

Moreover, the debate between these competent and independent research 

units demonstrates that there are both pros and cons regardless of the precise 

degree of tightening and that the economic risks can extend in several 

directions. 

Comparing our current forecast with the previous one from March, we have 

not changed our view on the economy going forward. True, we have revised 

down our growth estimate for 2013 slightly, but that was mainly due to the 

Danish economy disappointing in H1 – looking ahead, we maintain our 

cautious optimism. There are many uncertainties surrounding the forecast – 

but clearly the largest uncertainty is whether the crisis might drag on longer 

than we have anticipated in our forecast. The timing of a pick-up is always 

difficult to predict. The prerequisites for a change of pace are definitely in 

place, but as yet there are no certain indications that it will happen in H2 13, 

which of course starts in just a few days. 

Private consumption on the mend 

As expected, private consumption has been rising slightly so far this year. It 

grew 0.1% in Q1, pushed higher by spending on holidays and fuel during the 

cold spring and by higher food consumption after the fat tax was dropped at 

New Year. Dankort (Danish debit card) transactions in May suggest that the 

modest pace of growth has continued or perhaps even accelerated slightly in 

Q2. Overall, the indication is that private consumption will grow by almost as 

much as real post-tax incomes this year. The growth rate for 2013 as a whole 

will not be impressive – we estimate 0.4% However, this conceals a quarter 

on quarter increase in consumption of around 0.3%, which is not far off what 

could be termed normal growth for Danish private consumption. 

Real incomes will grow less in 2014 than this year. On the other hand, we 

estimate that consumers will spend a greater share of their income, so the 

prospect of rising consumption growth remains in place. A gradual 

improvement in the housing market and eventually in the labour market too 

should lift consumer confidence. However, we do expect to see only a very 

gradual improvement and thus just a very gradual increase in the 

consumption ratio – which according to our estimates is only slightly below 

its historical average at the moment. The crisis has prompted a sharp fall in 

consumption relative to disposable income, but the decline was from a very 

high level. Hence, we are not expecting any ‘ketchup effect’, whereby a 

sudden turnaround in consumer confidence suddenly triggers a rise in the 

consumption ratio back to e.g. 2007 levels. 

Outlook points to growth 


Private consumption growth to pick up 

Source: Statistics Denmark, Nets, Danske Bank 

Consumption low, but not extremely so 


5 | June 2013 



Large but technical fall in inflation 

Year-on-year inflation is now down to 0.9% (May 2013). That is quite a 

dramatic fall considering that as recently as February 2012 inflation was 

running at 2.8%. A series of external and technical factors pushed inflation 

up in 2012 and down again this year. This was especially true of energy 

prices and duties, not least the fat tax. There was also a fall in the measured 

price of transport insurance of 15.5% in January, which is pulling inflation 

sharply lower in 2013. Inflation is in fact even lower than we expected in our 

previous forecast due, in particular, to the decline in oil prices since then. We 

expect to return to an inflation rate of just below 2% in 2014. Before then, 

however, we are likely to see even lower rates of inflation in the late summer 

and autumn, as there will be a minor cut in duties in July (and another one in 

January) plus the base effect from 2012 will also have a downward effect. 

The inflation rate could actually fall so close to zero that the risk of deflation 

might come up for discussion. However, real deflation is still a long way off 

in Denmark, as the low level of price growth is due to temporary factors and 

there is still wage growth. We estimate that private sector wage growth this 

year will be on a par with last year's 1.6%. Looking ahead to 2014, a slightly 

better employment outlook might produce slightly higher wage growth. 

Fragmented housing market 

The housing market is on the mend again after a downturn that has lasted 

several years. Price movements over the past year indicate that the owneroccupier 

market for apartments is well on the way to recovery, with prices 

rising around 8%. House prices, too, have been showing signs of 

improvement, moving 3% higher over the past 12 months. The price rises 

reflect the decline in the supply of homes for sale. Since the total housing 

supply peaked in mid-2011, the number of homes for sale has fallen by just 

over 9,000. Part of the fall is due to some sellers taking their property off the 

market again, but another reason is a slight pick-up in sales. 

While the overall national picture has brightened a little, the housing market 

is currently very fragmented. Recent housing market growth has mainly been 

due to a pick-up in prices in the Greater Copenhagen area, where apartment 

prices have risen handsomely and house prices have increased at least 

modestly. In contrast, prices are continuing to fall in certain areas – most 

notably in the Zealand region. This development is also reflected in the 

number of repossessions and forced sales. Repossessions continue to hover at 

the high end compared to pre-2008 levels at around 425 a month. This is 

partly due to the still high number of repossessions in the Zealand region, 

while the opposite applies in the Greater Copenhagen area, where the number 

of repossessions has been falling steadily of late. 

We expect that house prices will continue to recover over the forecast period. 

Price growth will likely hover around 1.5% a year on average for the country 

as a whole, but there will continue to be significant regional differences. 

While the outlook is for growth, it is worth emphasising that the housing 

market remains fragile. Local authorities are increasing the Land Tax and 

interest-only mortgage payment periods are close to expiring for a sizeable 

number of homeowners. The weakness of the labour market is also a limiting 

factor for the housing market. 

Temporary decline in inflation 

Contributions to changes in inflation since February 2012 Percentage points 

Fuel -0.5 

Food -0.5 

Insurance -0.3 

Financial services -0.1 

Coffee -0.1 

Alcohol and tobacco -0.1 

Electricity -0.1 

Rent 0 

Clothing -0.1 

Liquid fuel -0.1 

Restaurants etc. -0.1 

Books 0.1 

Charter holidays 0.1 

Leisure, culture, sports 0.1 

Total -1.9 

Source: Reuters EcoWin, Danske Bank 

Housing supply has fallen 

Source: Assoc. of Mortgage Banks, Danske Bank 

Number of repossessions still high 

Source: Statistics Denmark 

6 | June 2013 



Negative interest rate for the rest of the year 

Since Danmarks Nationalbank (DN) was forced to hike rates in January to 

offset pressure on the fixed exchange rate policy, the Danish krone has 

remained relatively stable below its central parity rate against the euro. 

However, DN cut the lending rate again by 0.10 percentage points in early 

May in response to the rate cut delivered by the European Central Bank. That 

brought the lending rate back to the historical low of 0.20%, while the 

certificates of deposit rate was kept at -0.10%. 

Hence, DN has maintained the negative rates policy it implemented in July 

2012 and there is much to suggest that this will be kept in place for the rest of 

the year. The Danish economy will thus continue to get a helping hand from 

historically low interest rates. Low interest rates have not been enough to 

stimulate demand, but they have provided support for the economy, including 

homeowners, who have benefited from historically low mortgage rates. 

Investment up from very low level 

In the aftermath of the crisis, the business investment ratio has hovered 

around 10% of GDP, which is the lowest ever in the history of the quarterly 

National Accounts. Property and transport investments have been particularly 

low, while investments in machinery have risen quite well after the big fall in 

2008 and 2009 and so have helped compensate. Current corporate 

depreciations and amortisations suggest there is an investment backlog at the 

moment. The unwillingness of companies to invest is presumably a result of 

the weak growth outlook in recent years – which makes investment look less 

attractive – and the banks tightening credit standards in the wake of the 

financial crisis. In contrast, government investment over the same period has 

been considerable due to the bringing forward of public sector investments, 

for example in connection with the government's so-called Kick-start 

programme. Housing investment, meanwhile, has stabilised at the same level 

as before the building boom of the 2000s. 

Several factors cause us to expect decent growth in investment activity in the 

coming years. For one thing, the government's "investment window" 

(advantageous depreciation programme) will close at the end of 2013, which 

will probably boost business investment this year and especially towards the 

end of the year. Some of this business investment will, however, likely be 

investment brought forward from 2014. Business investment will also be 

lifted by the ongoing Metro project and construction of the Femern Belt 

connection to Germany. Housing investment will get a helping hand from the 

‘BoligJobordningen’ scheme (labour costs connected with home 

improvements and services such as cleaning are tax-deductible up to a certain 

limit), which as part of ‘Vækstplan DK’ (Growth Plan DK) has been 

extended to 2014, plus there will be the planned refurbishments of public 

housing. Growth Plan DK also includes a further bringing forward of 

government investment. Finally, the prospects for growth are brightening at 

the moment, which should stimulate the appetite for investment. 

Large regional differences in house price 

developments 

Source: Assoc. of Mortgage Banks, Danske Bank 

Negative policy rate since last summer 

Source: Danmarks Nationalbank (central bank) 

Investment levels are low 

25.0 % of GDP % of GDP 

20.0 

15.0 

10.0 

5.0 

0.0 

90 92 94 96 98 00 02 04 06 08 10 12 

Housing investments 

Public investments 


Business investments 

25.0 

20.0 

15.0 

10.0 

5.0 

0.0 

7 | June 2013 



Productivity growth at a standstill 

Hourly labour productivity in Q4 was at about the same level as two years 

ago. Cyclical factors were probably the main reason for this flat 

development. Since 2008, companies have been continuously adjusting 

capacity to the weaker demand situation, which has resulted in lower 

employment and greater unemployment, among other things. However, 

companies have not fully adjusted to the present situation, so they could get 

more out of their current workforces – i.e. they have been cautious with layoffs 

so that they have labour in reserve for when a recovery comes. This 

means there is probably a significant productivity gap in the Danish economy 

at the moment, which could initially limit employment growth when demand 

begins to pick up. 

Productivity grew by around 1.25% a year on average between 1995-2005, 

and structural productivity growth in the Danish economy probably lies 

around this level. However, this is somewhat lower than productivity growth 

among Denmark's neighbours. Since 2000, productivity has increased by 

around 2.5% more in the Netherlands, roughly 6% more in Germany and the 

UK and a whopping 13.5% in Sweden. While there are also countries that 

have performed less well – productivity in Italy is now around 6.5% lower, 

for example – there is, nevertheless, clearly a need to consider the options for 

improving productivity in Denmark. Our view is that Denmark could benefit 

from looking at the recommendations of the productivity commission, which 

so far show that there is a good chance of increasing productivity by 

considering such things as deregulation, privatisation of public sector firms 

and improving efficiency in the public sector. 

Labour market has bottomed out 

The Danish economy has been largely flat for almost three years. Naturally 

this has had an effect on the labour market, which has gradually weakened 

over the period. For while private sector employment has remained more or 

less stable, a decline in the number of public sector jobs has dragged down 

overall employment. Gross unemployment has actually fallen significantly 

since New Year – it is currently 6,000 less than at the start of the year – but 

this fall is largely due to factors connected with the implementation of the 

unemployment benefits reform. 

Demand will be weak in 2013 and only approach trend in 2014. Moreover, 

there is currently a productivity gap in the Danish economy. Both factors 

suggest companies will not need to hire in the coming years. However, there 

is normally also a close correlation between companies' investment appetite 

and their demand for labour – when companies invest, they also tend to hire 

new personnel. Given that we expect investment to grow in the coming years, 

this may help push the labour market in the right direction. The government 

appears to be planning for just slight growth in public consumption, which 

will reduce the need to hire more public sector employees. Overall, we 

therefore expect that employment will be largely unchanged in the coming 

years, probably showing a minor fall this year and slight growth next year. 

We also expect unemployment to remain essentially stable. 

Productivity growing faster in neighbouring 

countries 

Source: Eurostat, Danske Bank 

Note: Chart shows relative growth in hourly labour productivity in 

each country compared to Denmark 

Public sector employment has fallen 


Greater investment appetite equals lower 

unemployment 

25.0 

22.5 % of GDP % 

20.0 

17.5 

15.0 

 

5.0 

2.5 

90 92 94 96 98 00 02 04 06 08 10 12 

Source: Statistics Denmark, OECD and Danske Bank 

25.0 

22.5 

20.0 

17.5 

15.0 

12.5 

10.0 

7.5 

5.0 

2.5 

8 | June 2013 



Much needed slowdown in public consumption growth 

The government's Growth Plan DK paves the way for a slowdown in public 

consumption growth in the coming years. The introduction of the budget law 

and the expense ceiling will presumably make it easier to keep consumption 

growth at moderate levels. This is something the Danish economy needs, as 

the public sector – even taking into account the current economic situation – 

still accounts for a large slice of the economy. It would therefore not be 

desirable for any future fiscal easing to be via increased public consumption. 

The deficit on the EMU account ran to 4% of GDP last year, thus exceeding 

the EU limit of 3% of GDP for the first time. However, the overrun was due 

to one-off payouts of early retirement contributions, which were part of the 

general pension reform. The bringing forward of the tax on capital pensions 

will generate temporary additional revenues, which will help consolidate 

government budgets. Originally, the plan was only to allow immediate 

taxation of earlier contributions to capital pensions in 2013, but the 

government's Growth Plan DK opens the door to this being possible in 2014 

too. We expect that this will generate one-off revenues of around DKK40bn 

overall, with the bulk coming in 2014. 

Brighter prospects for exports 

Exporters have faced tough trading conditions in recent quarters. The 

recession in the eurozone, Denmark's most important export market, has 

dragged on, while the effective krone exchange rate has firmed by around 4% 

since August last year. The strengthening of the krone comes on the back of 

pronounced monetary easing in the US and Japan and a reduced risk of a euro 

collapse. However, exporters should see conditions improve towards the end 

of the year. The pronounced easing of monetary policy in the US and Japan 

should lift demand there, while nascent signs of a recovery in the eurozone 

are emerging. This should, all else being equal, increase demand for Danish 

goods and thus lift exports. This year will probably see exports retreat 

slightly, but we expect to see decent growth in 2014. 

Imports should grow nicely in the coming years. This is largely because 

much of the increase in business investment and some of the inventory 

building going on this year will be covered by imports. The rise in imports 

means that net exports will make a significant negative contribution to 

growth this year and that the current account surplus will fall slightly. The 

tide will turn next year, however, with net exports again contributing 

positively to economic growth and the current account surplus increasing 

once more. While the surplus will probably shrink modestly this year, it 

remains substantial. Furthermore, although the fall is partly due to weak 

exports, some of it is also the result of increasing domestic demand – which 

has to be seen as a healthy sign. 

Public consumption accounts for a large slice of 

the Danish economy 


Difficult export conditions in recent quarters 


Danish krone has firmed since last summer 

Source: Danmarks Nationalbank, Danske Bank 

9 | June 2013 



Denmark: Forecast at a glance 

National account 2011 2012 2013 2014 

DKK bn (current prices) 

Private consumption 874.5 0.6 0.4 1.2 

Government consumption 508.1 0.2 0.8 0.5 

Gross fixed investment 311.7 0.0 1.7 1.8 

- Business investment 2.7 5.7 1.6 

- Housing investment -9.5 -2.9 2.6 

- Government investment 7.4 -7.8 1.3 

Growth contribution from inventories 3.6 -0.4 0.3 -0.2 

Exports 956.8 0.9 -0.8 3.5 

- Goods exports 593.4 -0.4 0.2 3.3 

- Service exports 363.4 3.0 -2.4 3.9 

Imports 863.3 1.8 1.9 2.4 

- Goods imports 552.7 1.8 3.6 1.6 

- Service imports 310.6 1.7 -1.1 3.8 

Gross domestic product 1791.5 -0.5 0.1 1.5 

Economic indicators 2012 2013 2014 

Current account, DKK bn 105.0 85.0 95.0 

- % of GDP 5.8 4.6 5.1 

General government balance, DKK bn -72.5 -35.0 -20.0 

- % of GDP -4.0 -1.9 -1.1 

General government debt, DKK bn 832.5 825.0 810.0 

- % of GDP 45.8 45.0 43.4 

Employment, ex. leave (thousands) 2758.8 2750.5 2757.5 

Gross unemployment (thousands) 161.7 155.8 154.8 

- % of total work force (DST definition) 6.1 5.9 5.9 

Oil price - USD/barrel 112.0 106.0 99.0 

House prices, % y/y -3.4 1.5 1.6 

Private sector wage level, % y/y 1.6 1.4 1.7 

Consumer prices, % y/y 2.4 0.8 1.7 

Financial figures 25/06/13 +3 mths +6 mths +12 mths 

Repo rate, % p.a. 0.20 0.20 0.20 0.30 

2-yr swap yield, % p.a. 0.88 0.70 0.85 1.00 

10-yr swap yield, % p.a. 2.30 1.90 2.05 2.25 

EUR/DKK 7.46 7.46 7.46 7.46 

USD/DKK 5.67 5.74 5.87 5.92 

Source: Statistics Denmark, Danmarks Nationalbank, Reuters EcoWin, Danske Bank 

10 | June 2013 



Sweden 

Summer daze 

 

 

 

 

 

 

 

 

In Sweden, we enter a long awaited summer with a sense of economic 

‘je ne sais quoi’ regarding, well, just about everything. 

Fortunately, it seems we are not alone in our ambiguousness, even the 

Riksbank does not seem to be sure how to respond to an economy 

behaving like a seismograph. 

In short, and given a recent history of being caught empty handed in 

search of a trend, we play it safe and hold fast to our view of an 

economy slowly convalescing, leaving our GDP growth estimates for 

2013 and 2014 more or less intact at 1.7% y/y (previously 1.7% y/y) 

and 2.1% y/y (previously 2.0% y/y) respectively. 

However, the volatility in the world economy leaves our forecasts for 

the small open economy of Sweden vulnerable to major future 

revisions – not only on the downside. 

Nonetheless, demand growing by circa 2% y/y should be enough to 

keep employment growing and eventually push the unemployment 

rate below 8%, despite a high influx of labour. 

Considering our, admittedly, low estimate of 1.5% y/y potential GDP 

growth, the above developments would suffice to increase resource 

utilisation. However, as an excess supply of resources is likely to be 

sustained throughout the forecast years, inflationary pressures will 

probably remain very low and excluding the interest rate component 

we expect inflation (CPIF) to undershoot the 2% y/y inflation target 

even within the three year horizon. 

The Riksbank, with a couple of new members on board, is due to 

convene shortly after this text is published and we are honestly very 

uncertain on what to think of the Riksbank’s future decisions. Up 

until this spring, we had been advocating a more expansive monetary 

policy stance but as the world economy is on the mend, we have also 

had a change of heart, sort of. 

To be more specific, we have chosen to look away from our more 

pessimistic fundamental views on, exempli gratia, the debt situation in 

the world as the unconventional monetary policy enacted by major 

central banks is at last showing signs of working. Also, from a shortterm 

perspective, it seems unwise to fight the FED, the ECB, the 

Bank of Japan and so on – at least all at the same time… 

Losing market share 

Sources: National Institute for Economic and Social Research 

(NIESR), National Institute for Economic Research (KI) and 

Statistics Sweden (SCB). Danske Bank calculations 

Setting the global stage for a small open economy 

starlet 

The US economy in general, and the US housing market in particular, 

continues to be a source of optimism, where new houses are again being 

erected as household formation has finally depleted inventories of unsold 

houses and outpaced the historically low housing completions by some 

margin (not to mention for some time). Hence, and to no little extent thanks 

to apt monetary policy measures directed at the financing of house 

11 | June 2013 



mortgages, house prices have posted consecutive growth for almost a year, 

with an apparent chance of positive dynamics through both wealth effects 

and a relaxation of credit conditions. 

A long sought after recovery in activity in large developing economies (the 

BRIC countries to use a popular acronym) also seems to be underway, 

despite perhaps being inadequate for those expecting a new world order 

within a year or two. After all, a slowing growth rate is to be expected as 

many of the BRICs approach the Lewis turning point, where domestic 

demand becomes the main impetus of growth (and as they successfully steer 

clear of the middle-income trap). This process entails becoming more 

specialised and more import dependent, which should be regarded as a longterm 

gain for the world economy. In addition, from what we can gather, 

many of the measures taken to stimulate demand in growing economies are 

also aimed directly at increasing investments, which is an extra boon, 

particularly for the investment goods laden Swedish exports industry. 

Even the manufacturing giant Japan seems ready for a bold step into the 

unknown with an(other) significant fiscal stimulus package and a new, 

almost foolproof, resolve by the Bank of Japan to escape the liquidity trap 

once and for all (herein lie significant risks too but we hope for the best). 

Despite what seems a shift in tactics from unrelenting and unpopular 

austerity measures to longer term growth-enhancing reforms (privatisation, 

deregulation, etc.) southern Europe, including France, is mired in recession 

and we expect little positive news from these economies near term. Alas, the 

downside risks of the European situation are abundant, not only from a 

Swedish but also from a global perspective. Luckily, the south of Europe is a 

miniscule part of Swedish export markets, which is why we expect growth in 

international import demand for Swedish exports – world market growth – to 

hold up relatively well over the forecast horizon. 

In short, we expect Swedish world market growth to surpass 3% y/y in 2013 

and be in line with historical averages, at around 6.5% y/y, in 2014. 

Notwithstanding the emergence of a more positive financial market sentiment 

and stabilising real developments, downside risks are still predominant and 

the dispersion and development of risks is likely to take close scrutiny going 

forward. Among these risks are possible confidence effects from the rather 

mild fiscal contraction in the US, a more assertive stance from the ECB or 

other creditors (IMF, Germany et al, etc.) on fiscal slippage in southern 

Europe and, of course, political upheaval in conjunction with elections or 

critical fiscal policy decisions in both creditor and debtor nations. 

12 | June 2013 



Economic policy mix and asset prices 

Since April, the SEK has developed sideways measured against most 

currencies and the broad trade-weighted currency index KIX has bounced 

back up (i.e. depreciated) in both nominal and real terms, providing some 

short-term relief for exporters. However, due to the fundamental strengths of 

the Swedish economy, we suspect this relief will prove temporary. In our 

view, the foreseen stronger currency will hurt profit margins and might cause 

Swedish stock markets to underperform global stock market indices for a 

protracted period. 

Interest rates have continued to rise over the past few months, on almost all 

maturities, counteracting some of the monetary policy stimuli released over 

the past few months. However, (credit) risk premiums have continued to 

move lower, leaving corporate and housing financing rates at, or very close 

to, historically low levels on most horizons. As in most other countries, shortterm 

interest rates are firmly repressed by the central bank, whereas the 

improved market sentiment and economic outlook have started to push longer 

interest rates upwards. As the tentative rise in longer term rates represents a 

positive change in market sentiment and the economic outlook and the 

absolute levels are still close to historical lows, we do not believe current 

interest rate levels constitute any threat to the economic recovery. Any 

renewed weakness in the outlook should thus be accompanied, rather than led 

on, by changes in market interest rates. This proposition is further underlined 

as the Riksbank enjoys a very high inflation fighting credibility, further 

negating the risk of a stifling rise in market interest rates. 

Countering the nine year soft patch 

Sources: KI and SCB. Danske Bank calculations 

Believing that a tepid economic recovery is about to unfold, it should come 

as no surprise that we expect the Riksbank eventually to initiate a hiking 

cycle. However, such actions should take place only against the background 

of a Swedish economy on much firmer footing, which we believe implies a 

first hike deep into 2014, continuing at a very slow pace for the remainder of 

the forecast horizon (and beyond). Under any circumstances, the foreseen 

hikes would keep monetary policy in expansionary territory for a very long 

time, even when taking account of various structural issues such as lower 

potential growth and higher structural unemployment. 

The other, often overlooked, pillar of stabilisation policy is the economic 

policy mix in general and fiscal policies in particular. For even in a perfect 

world, where fiscal policy is concentrated on structural issues, any decision is 

likely to have cyclical consequences when being promulgated through the 

economy. According to Finance Minister Anders Borg, there is room for 

additional structural measures – mainly tax cuts for low- and middle-income 

earners – but his calculations are based on an optimistic 2.7% y/y potential 

growth rate, which is rather far from our own estimate of 1.5% y/y. We can 

understand the political rationale behind such arguments but, given the strong 

legal framework surrounding the sustainability of fiscal policy, the 

government is likely in time (pass the forecast horizon) to be forced to cut 

back on some of its promises or even reduce spending (or hike taxes). In our 

forecast, nonetheless, government expenditure is set to expand by circa 1% 

y/y in both 2013 and 2014, pushing central government net lending to -1% of 

GDP this year and -0.75% of GDP next year. 

13 | June 2013 



To conclude our discussion on the economic policy mix, our estimates indicate 

that while monetary policy is suitably expansionary throughout the forecast 

horizon, we see a risk of overly expansionary fiscal policy necessitating future 

austerity, perhaps at a more sensitive stage of the business cycle. 

The expansionary stance of domestic monetary policy is augmented by 

abundant liquidity on a global scale on the back of significant quantitative 

measures from all central banks in major currency areas. As can be seen from 

statistics on, inter alia, portfolio investments, this liquidity has to some extent 

washed onto Swedish shores, and foreign demand for Swedish assets has been 

rising on trend for almost two years. Sovereign, corporate and housing 

financing have therefore remained cheap or have become even cheaper over 

the last couple of years. Despite the effect of the stronger SEK, Swedish stock 

markets have thus developed on a strong note, even compared with doped 

stock markets such as the US, UK et al. We expect Swedish stock markets to 

develop in line with (long-term) nominal GDP, i.e. rise by 3-5% a year. 

Monetary Conditions seem balanced 

Note: MCI is calculated as the deviation from a filtered trend of 

different interest rates and an exchange rate index (all variables 

are normalised). 

Source: Macrobond. Danske Bank calculations 

Swedish housing markets have remained afloat despite a public discourse on 

increased regulations of lending standards and a generally sour sentiment 

during autumn last year. In some areas, a small decrease in housing prices is 

visible but at a national level prices are more or less unchanged. We continue 

to expect a limited fall in house prices, amounting to between 2.5% y/y and 

5.0% y/y in both 2013 and 2014. From a longer term perspective, our view is 

that Swedish house prices are above their fundamental value by more than 

20%, underlining that something will probably have to yield; either prices 

demonstrate a more abrupt correction or – in a more benign scenario – 

household incomes rise while house prices remain stable. 

Summing up economic and financial conditions, we believe that the supply and 

price of credit no longer places restrictions on the Swedish economy. Instead, it 

is a lack of demand for credit – viable investment projects – that is lacking. 

This probably has more to do with depressed expectations of future incomes 

than anything. A more pronounced shift in the income outlook– in line with our 

short-term forecasts – would nonetheless benefit from credit being freely 

available. There is even a non-negligible risk that this process will pick up 

steam much faster than we expect due to the extremely loose global monetary 

conditions, creating a not so clear cut policy dilemma for many central banks. 

Under the influence 

The global outlook is slowly becoming more positive and demand for 

typically Swedish export products is on the increase. At the same time, 

economic conditions are mostly benign, lending support to the recovery. 

However, the stronger krona – though not yet at levels where it wreaks havoc 

on the export industry – is likely to restrain international demand growth for 

Swedish exports over the entire forecast horizon, which is why our forecast 

for exports is quite subdued from a historical perspective. In 2013, we even 

expect export growth to be negative, at 0.9% y/y, due largely to a very weak 

starting point for 2013, whereas annualised growth rates going forward 

demonstrate export growth above 4% y/y. In 2014, we forecast export growth 

will improve further to 4.1% y/y. 

Net exports losing its shine 

Source: KI, SCB, Danske Bank calculations 

14 | June 2013 



If Swedish exports froze in the winter months, import growth was worse still. 

Weak demand for industrial goods and a need to control inventories pushed 

consecutive import growth into the red over the winter. However, looking at 

demand and inventory indicators, there is evidence that this inventory cycle 

has run its course and we should see some recoil in imports. In addition, the 

stronger krona is beneficial for importers and consumers, lifting import 

growth throughout the forecast horizon. All in all, we expect positive import 

growth of 0.5% y/y and 6.8% y/y in 2013 and 2014, respectively. 

Taken together, and under the influence of a structurally stronger krona, this 

means we expect net exports to stop being a main contributor to growth over 

coming years, with the net export contribution calculated at a meagre 0.5pp y/y 

this year and 0pp y/y in 2014. Underneath these dismal figures, we nonetheless 

see signs of a gradual restructuring of the export sector towards higher value 

added products (services), which are normally less sensitive to currency 

changes. 

Investment outlook better than could be feared 

The currently low growth in exports and consumption demand, together with 

production in the manufacturing industry running low, has produced 

considerable slack in the economy, which we expect to keep a lid on 

investment growth over the first few quarters of our forecast horizon. However, 

our long-held view is that the slack in the economy is considerably lower than 

generally perceived, as a lot of the capital stock has become obsolete due to 

large shifts in relative costs and exchange rates, etc, in the wake of the great 

recession. These shifts necessitate investments in productive capacity in new 

and growing industries. In addition, there is an excess demand for housing and 

in areas where market prices exceed production costs (Tobin’s Q), typically 

high population density areas, there should be room for additional investments, 

even when taking our sombre outlook on house prices into account. 

The krona pushes up imports, and alters the 

inventory cycle 


Investments warranted by new economic 

structures 


Public investments are another area where we expect to see positive growth. 

The government has previously announced large investments in infrastructure 

and so on and, with an election year approaching, we expect an increase in 

public investments. 

To sum up, we expect investment growth in 2013 to be negative, falling by 

2.8% y/y. In 2014, we expect the above-mentioned factors to come more 

clearly into play and, together with a higher overall level of demand, we 

believe they will produce investment growth of close to 4% y/y, on our 

forecasts. 

Labour market developments are not so bad 

Despite a superficial weakening of Swedish labour markets, the lingering 

impression is one of relative stability. The newfound flexibility among both 

employers and unions has let hours worked (and thus largely also the 

monthly pay cheque) become a buffer instead of large layoffs at the first sign 

of a deceleration. This pattern has been discernible ever since the onset of the 

great recession and seems to have worked well, even though we initially 

considered this merely to be traditional labour hoarding, albeit in a somewhat 

more sophisticated form. 

15 | June 2013 



Despite the labour market normally lagging growth by a couple of quarters, 

we can already see some green shoots in labour market indicators. Not only 

have notices of layoffs come down close to ‘normal’ levels, employment 

plans and other survey data on the labour market have clearly turned a corner 

and are even in expansionary territory again for some business sectors. 

Nonetheless, investment growth has historically proven to be perhaps the 

most reliable indicator for employment, as investments not only demand 

people to construct and install them but also to operate new equipment. We 

do not think this time around will be much different but the large pool of 

people outside the labour force might keep unemployment rates higher for 

longer even with pronounced improvements in employment. 

Another issue when judging labour market developments is how to dissect 

that it is almost solely the group of (full-time) students looking for a job that 

is pushing up the unemployment rate. This is not necessarily a bad omen but 

rather an effect of the Swedish student financing scheme and, perhaps, too 

many students of liberal arts (pun intended). When allowing for students 

looking for work, joblessness is not as much of a problem, not even for 

youths, as the media (and politicians) suggest. 

Labour markets on the mend 


To conclude, the good news is that labour markets seem to be over the worst, 

with most indicators pointing in the right direction. Therefore, we expect 

employment at least to remain stable in the near term. However, growth in 

average hours worked has been depressed, which is why a more pronounced 

upturn could take some time. As investment growth picks up steam and 

developments in more labour-intensive industries such as construction and 

retail also progress, we should nonetheless see a more substantial 

improvement in both employment and the unemployment rate but we expect 

this to take place mainly next year. In numerical terms, we estimate that 

employment will hardly grow in 2013 and grow by more than 1% y/y in 

2014. This should be enough to keep the unemployment rate stable above 

8.5% for the better part of this year and see it recede below 8% over the 

course of 2014. However, in our view, the large number of unemployed and 

people returning from outside the labour force will keep unemployment rates 

at elevated levels for a long time, even beyond the forecast horizon. 

No place like home 

Household confidence is improving, after reaching a nadir during the winter 

months. Not only was the general risk sentiment very low in anticipation of a 

number of decisive international events but notices of layoffs also shot up 

and the Riksbank seemed intent on driving down housing wealth. In 

response, households increased their savings further, from already very high 

levels. Now, as downward forces have receded, we expect stronger 

household consumption growth near term but the lack of swift progress in 

employment will probably keep any pent-up demand at bay for some time 

yet. Nonetheless, the stronger SEK is already proving to have an impact, as 

travel and consumption abroad have picked up and there is anecdotal 

evidence of improved pricing in – exempli gratia – clothing and shoes 

producing stronger volume growth. 

Consumed by a stronger exchange rate 


Next year we expect a more solid improvement in household consumption, as 

increased employment and slightly higher wages lift disposable incomes. In 

addition, we expect some decrease in precautionary savings. However, wise 

16 | June 2013 



from the experiences of recent years, we have chosen not to revise this 

variable much. Overall, we expect household consumption growth to surpass 

the historical average of 2% y/y in both 2013 and 2014. 

Resource utilisation and inflation 

In the preceding text, we have touched on the main components involved 

when compiling GDP. Our lingering impression is one of an improving 

economic environment. However, it is a recovery that is bleak by any 

historical comparison and one that is still laden with large downside risks, 

ready to push the world economy and the export-dependent Swedish 

economy into the doldrums without much notice. Nevertheless, and despite 

apparent downside risks, for the first time in many years, we are also able to 

identify upside risks in the nexus of very strong liquidity, rising asset prices 

and a more pronounced shift in sentiment. 

To sum up, we expect GDP growth to accelerate in 2013 and 2014 and we 

have chosen to keep our optimistic forecasts in place. In 2013, we estimate 

GDP will grow by 1.7% y/y (previously 1.7% y/y). For 2014, we have made 

a small revision and now expect GDP growth of 2.1% y/y versus 2.0% y/y in 

our previous forecast. 

Optimistic in comparison with other forecasters we may be but, from a 

historical perspective, this is a meagre outcome for a recovery phase. 

However, we believe that the great recession has altered the structure of the 

world economy and, hence, also of the Swedish economy. The most obvious 

change is an ongoing, fundamentally warranted, strengthening of the Swedish 

krona that still has some way to go. The stronger SEK pushes low value 

added export companies into dire straits and some of them will probably be 

put out of business or be forced to relocate production to other economies. 

Still, having a rather rigid labour market, the effects on the Swedish economy 

are already visible – stubbornly high unemployment rates. Eventually, we 

might see more decisive political measures to address this problem but given 

the highly sensitive ideological nature of the resolutions on offer, we suspect 

this will take a long time. In the meantime, estimates on potential growth 

should recede and we have ‘guesstimated’ – with the use mainly of 

demographical projections – long-term GDP growth at no higher than 1.5% 

y/y. Beware, though, that given the very limited time series at hand, the 

effects on potential estimates are difficult to assess quantitatively and are also 

very sensitive to specifications. 

Weak potential growth will mean that even the feeble growth rates expected 

over the next couple of years should be able to reduce slack – increase 

resource utilisation – and give way to increasing inflationary pressures. Make 

no mistake about it though, current levels of resource utilisation are very low 

and this has been a restraining factor in the wage negotiations over the spring. 

In our view, the deflationary impact of low wage growth will, to some extent, 

be balanced by low productivity growth keeping cost pressures – measured in 

terms of unit labour costs (ULC) – around 1.5% y/y over the forecast 

horizon, a level deemed sufficient to pull inflation slowly from the current 

deflationary territory and towards the inflation target (2%). However, the 

structural strengthening of the SEK works in the other direction, which is 

why we will probably need to move beyond 2014 to see the operational 

Productivity growth weak in a historical 

perspective 


Inflationary pressures are non-existent 


Interest rate costs included in CPI, make the 

Riksbank chase its own tail 

Source: SCB, Riksbank, Macrobond, Danske Bank calculations 

17 | June 2013 



inflation target, CPIF (CPI excluding the impact of interest costs), being 

attained. 

Riksbank rolling 

From our perspective, it should all be so simple. Contrary to many of its 

peers, the Riksbank successfully managed to exit all non-standard measures 

at the height of the financial crisis and there is no need to support fiscal 

policy, which is why the discussion on fiscal dominance heard elsewhere has 

not even started in Sweden. This should make it possible for the Riksbank to 

focus more squarely on the inflation target. 

Riksbank to hike earlier but more slowly 

The above situation should be the envy of most central banks, which have 

increased non-standard measures and run the risk of losing confidence, 

letting the inflation genie out of its bottle again, should they be found 

financing significant fiscal deficits. 

However, the Riksbank has chosen to create its own, rather unique, policy 

dilemma in adding financial stability considerations into its discussions on 

monetary policy, labelling it macro prudence. According to the Riksbank, the 

lack of adequate instruments to control high and rising household 

indebtedness might to no little extent be balanced by a higher policy rate. 

This thinking has led to one of the most public and heated debates on the 

current stabilisation policy regime Sweden has seen in a very long time, as it 

is seen as expanding the Riksbank’s powers and obfuscating any evaluation 

of the Riksbank’s performance. 

Source: Riksbank, Macrobond, Danske Bank calculations 

We do not enter that debate here; suffice to say that it has altered the 

monetary policy reaction function in a macro prudential direction but has 

unfortunately also become a major source of uncertainty regarding future 

monetary policy measures. After being once bitten, twice shy on expecting a 

more punitive Riksbank during the spring, we have pusillanimously pushed 

our expectations on a first hike deep into 2014 and a projected hiking cycle, 

which can undoubtedly be labelled cautious, thenceforth. By year-end 2014, 

the repo rate is still below 2%. 

18 | June 2013 



Sweden: Forecast at a glance 

2011 2011 2012 2013 2014 

SEK bn 

Vol growth in % 

Private consumption 1672.9 2.1 1.5 2.7 2.1 

Government consumption 926.0 1.1 0.7 1.0 0.8 

Fixed gross cap formation 646.0 6.4 3.2 -2.7 3.3 

Stocks* 40.5 0.4 -1.1 0.2 0.2 

Domestic demand 3245.0 2.7 1.6 1.1 2.0 

Exports 1748.8 7.1 0.8 -0.8 3.9 

Aggregate demand 3285.2 3.2 0.4 1.3 2.2 

Imports 1531.5 6.3 0.0 -2.2 4.6 

Net exports* 217.0 0.6 0.4 0.5 -0.1 

GDP 3502.5 3.7 0.7 1.7 2.0 

- GDP, Calendar adjusted 3.7 1.1 1.7 2.1 

* contribution to GDP growth 

2011 2012 2013 2014 

Trade balance, SEK bn 91 91 116 135 

in % of GDP 2.6 2.6 3.2 3.5 

Current Account, SEK bn 257 238 286 318 

in % of GDP 7.3 6.7 7.8 8.3 

Public sector savings, SEK bn -3 -21 -41 -34 

in % of GDP -0.1 -0.6 -1.1 -0.9 

Public debt ratio, % of GDP* 38.4 37.7 37.7 37.8 

Unemployment, % of labour force 7.8 8.0 8.6 8.4 

Hourly wages, % y/y 3.2 2.7 2.7 3.0 

Consumer prices, % y/y 3.0 0.9 0.1 1.5 

House prices, % y/y 0.8 -1.4 -2.5 -5.0 

* Maastricht definition 

25/06/13 + 3 mths + 6 mths + 12 mths 

Repo-rate 1.00 1.00 1.00 1.00 

2-yr swap yield 1.55 1.35 1.40 1.60 

10-yr swap yield 2.74 1.75 1.95 2.20 

SEK/EUR 8.84 8.40 8.30 8.20 

SEK/USD 6.72 6.46 6.54 6.51 

Source: Danske Bank 

19 | June 2013 



Norway 

Growth pause 

 

 

 

Lower growth in oil investment, tighter credit policies and weak 

global growth have led to slower growth in the Norwegian economy. 

Household saving is rising despite low interest rates, rapidly rising 

house prices and limited unemployment. Together with tougher 

capital requirements for banks, this is reducing the risk of a housing 

bubble, and house prices have now slowed. 

On the other hand, a weaker krone and higher inflation are lowering 

the chances of further interest rate cuts. 

Temporary dip in economic growth 

 

Persistently high oil prices, more relaxed credit policies and better 

global prospects are paving the way for growth to pick up again in 

H2. 

A growth pause, not a downturn 

Source: Reuters EcoWin, Danske Bank Markets 

The Norwegian economy has so far come through the European debt crisis 

relatively unscathed. Oil investment has increased considerably and made a 

big contribution to growth in the Norwegian economy – both directly through 

increased activity and indirectly through strong income growth. Mainland 

growth was 0.8% in Q1 (adjusted for power production), driven by private 

consumption and net exports. Now, however, there are signs that these 

growth impulses are beginning to wane. Norges Bank’s regional network 

survey indicates that growth in the Norwegian economy will slow to around 

2% annualised, which is well below the trend rate. The slowdown seems to 

be broad-based, with growth forecasts being revised down in most industries. 

In the previous edition of Nordic Outlook, we noted three factors that could 

contribute to lower growth. First, oil companies had revised down their 

investment forecasts for this year, which we argued would undermine growth 

in the supply industry. Second, the upcoming introduction of tougher capital 

requirements had prompted Norwegian banks to tighten their credit policies, 

which has had noticeable effects, especially on commercial construction. 

Third, the global economic downturn was eroding growth via exports. The 

reason why we expect this to be a growth pause and not the beginning of a 

lasting downturn is that we believe these factors are now reversing. Oil 

companies have revised their investment forecasts back up, banks have 

finished adjusting to the new capital requirements, and global growth is 

recovering. The slowdown in Norway will nevertheless give Norges Bank 

room to leave its policy rate unchanged well into next year. The krone has 

now weakened so far that the risk of a rebound is mounting. 

20 | June 2013 



From headwinds to tailwinds 

Strong growth impulses from the oil sector have helped shield the Norwegian 

economy from a period of weaker global activity. Norwegian activity levels 

are more or less normal, and growth has been above trend, so capacity 

utilisation has increased. However, there are now signs that these growth 

impulses are beginning to wane. The reason seems to be a combination of 

weaker growth in oil-related industries and the impact of tighter credit 

policies at Norwegian banks. 

Norges Bank’s regional network survey is now indicating growth of around 

0.5% q/q in Q2 and Q3, which is a fair way below the trend rate (around 

0.7%) and suggests that capacity utilisation in the Norwegian economy is on 

the way down. The survey reveals that the slowdown is broad-based, with 

most industries signalling slower growth. 

On the other hand, incoming data have been somewhat better than the 

regional network survey would indicate. In particular, industrial production 

has been climbing strongly, up 6% y/y in April. Given the problems in the 

global manufacturing sector, one has to assume that the upswing in 

Norwegian industrial production is due to further high levels of activity in 

oil-related industries. The PMI data for May also point to faster growth. 

Oil investment will make a substantial contribution to growth once again in 

2013, albeit not to the same degree as in 2012. Statistics Norway’s latest 

investment survey also suggests that oil investment will continue to grow in 

2014, albeit rather more slowly. However, there is nothing in the data to 

suggest a significant downturn in activity in oil-related industries in the near 

future. The survey finds that oil investment will rise by almost 15% in current 

prices in 2013 and around 7% in 2014. 

There is little to suggest that price or demand forecasts in the global oil 

market have changed significantly since the previous investment survey in 

February. On the other hand, we know that several major contracts have been 

awarded to foreign suppliers, which could be a reflection of capacity 

constraints in the Norwegian supply industry. But unless this ‘outsourcing’ is 

due to permanent cost disadvantages in the Norwegian supply industry, this 

should simply mean a postponement of growth impulses from the oil 

business to the mainland economy. 

Slowdown in GDP growth 

Source: Reuters EcoWin, Norges Bank 

Oil investment growing at a strong rate 

Source: Reuters EcoWin 

The other important drag on growth has been Norwegian banks’ tighter credit 

policies. The upcoming tightening of capital requirements for banks 

prompted both the repricing of loans and, not least, a reduced appetite for 

new projects. This seems to have hit the property market in particular since 

last summer, with finance for both commercial and residential developments 

becoming much harder to come by. 

Investment activity in industry slowed as a result. New commercial property 

starts, for example, fell sharply from last summer through to the end of the 

year. Interestingly, much of the deterioration in the Norwegian economy 

since last summer appears to have its origins in the construction sector. So far 

this year, half of all job losses and bankruptcies have been in this sector, even 

though it accounts for just 6% of output and 8% of employment in 

21 | June 2013 



Norwegian industry. By way of comparison, joblessness in manufacturing 

has been down on the same period last year. 

It is therefore very interesting that there are now signs of this trend beginning 

to turn. After bottoming out in January, commercial property starts have now 

risen for three months in a row. Despite a drop in homebuilding during the 

period, overall construction activity seems to have increased. This may mean 

that the worst is over and that the rise in unemployment among construction 

workers is coming to an end. 

It is important to note in this context that Norwegian banks generally looked 

likely to comply with the new capital requirements late last year or early this 

year. The rules may perhaps also have proved slightly less exacting than 

feared. Together with anecdotal evidence, this leads us to believe that the 

worst of the balance sheet adjustments are over and that it will now be 

somewhat easier for Norwegian businesses to source finance. In this case, the 

strongest headwind buffeting the Norwegian economy over the past six 

months will gradually reverse into a gentle tailwind in the coming quarters. 

Construction activity rebounding 


We therefore reckon that the worst is now over in terms of both the 

slowdown in oil-related industries and banks’ credit policies. As global 

growth also appears to be picking up, we also expect the negative 

contribution to growth from net exports to improve. 

Disappointing consumer spending 

Norwegian consumers remain upbeat, albeit not to the same degree as last 

year, yet growth in consumer spending has been lower than expected so far in 

2013. The year got off to a good start, but spending fell in March and April. 

We still expect real household disposable income to rise by 3.5-4.0% again 

this year. With real wage growth around 2% and employment growth around 

1%, the big question for consumer spending is whether the savings rate will 

continue to climb. We assumed previously that it would level off somewhat, 

but are now more uncertain. 

The increase in saving from 2009 to 2012 came despite low unemployment, 

low interest rates, high house prices and expansionary fiscal policy. This may 

have been due partly to greater uncertainty about economic growth in 

neighbouring countries, and partly to a sharper focus on the need to step up 

pension savings in connection with the retirement reforms. Either way, the 

result is that the household sector’s financial position is far stronger than in 

the years before the financial crisis. Financial saving is actually increasing 

despite rapid growth in debt. So we see no signs of the rise in saving in 

Norway being driven by a need to correct imbalances in households’ 

underlying finances. 

Disappointing consumer spending 


Developments in the housing market were probably the main reason for the 

authorities tightening capital requirements for banks. Coupled with high price 

levels, this would seem to be having the intended effect. House prices have 

slowed and anecdotal evidence suggests that the market is cooling. Average 

time to sell has not increased, and stock-to-sales ratios are still low, but 

reports from estate agents in April and May indicate fewer viewings and that 

bid-based sales are becoming more normal. 

22 | June 2013 



However, we do not expect the rule changes to cause the housing market to 

collapse. While wage growth looks set to be around 3.50-3.75% again this 

year, mortgage rates are likely to be 4.00-4.25%, in other words still very low 

in real terms. We hope and believe, therefore, that the new rules will help 

keep growth in house prices slightly below income growth (in other words 

below 4-5%) for a few years so that real prices can drop back to 2008 levels. 

After a decade of continuous increases in house prices and debt levels, 

households’ financial position has to be seen as a risk factor. Norway is one 

of few Western countries where households are more heavily indebted 

(measured as the ratio of debt to disposable income) than they were before 

the financial crisis in 2007-08. Nominal house prices have also risen 

considerably and are now 25% above their previous peak in 2007. However, 

as mentioned above, household financial saving has continued to grow in 

recent years. The hope is that the tougher new capital requirements will put a 

damper on growth in house prices and household debt so that a housing and 

debt bubble can be avoided. 

Growth in house prices set to slow 


Just how weak is the labour market? 

The labour market appears to be deteriorating as growth slows. According to 

Statistics Norway’s labour force survey (LFS), unemployment has climbed to 

3.7% and employment growth has dropped below 0.5% y/y. 

On the other hand, the figures for gross unemployment (unemployed plus job 

creation schemes) from the Norwegian Labour and Welfare Administration 

(NAV) indicate a jobless rate of just 3.2%, in other words a far more 

moderate increase than the LFS would suggest. The difference between the 

two sources is that the LFS is a sample-based survey, while the NAV data 

cover those registered as unemployed at its offices. In previous periods when 

LFS unemployment has been higher than NAV unemployment, this has been 

due to a rise in the number of people who are out of work but are not entitled 

to unemployment benefits and so do not register with the NAV, which 

probably mainly means young people. 

Meanwhile, the quarterly national accounts (QNA) show employment growth 

of 1.4% over the past year, compared with less than 0.5% in the LFS. The 

difference between these two sources is that the LFS data are measured from 

the employee side and cover only those resident in Norway, whereas the 

QNA data are measured from the employer side and cover all employees 

whatever their home country. The QNA figures therefore indicate that 

demand for labour is higher than the LFS would suggest, but that this demand 

is being met increasingly by imports of (temporary) labour from abroad. 

Diverging unemployment measures 


All in all, the data suggest that the labour market has deteriorated somewhat, 

but far less than the LFS would have one believe. The increase in imported 

labour is coming at the expense of workers who are resident in Norway but 

have limited work experience. 

23 | June 2013 



Lower wage growth but higher inflation 

This year’s national pay settlements were more moderate than expected. 

Allowing for overhang and drift, the results would seem to point to wage 

growth of around 3.50-3.75% this year, which is slightly less than we 

predicted in the previous edition of Nordic Outlook. The main reason for 

these more moderate settlements was the need to avoid higher cost inflation 

than abroad, which would hit the export industry twice. However, 

unemployment has risen and employment growth has slowed since the new 

year, which may also have played a role. Lower wage growth means slightly 

lower growth in household income, but this is unlikely to have any major 

bearing on growth in spending. 

On the other hand, core inflation has, for once, come out slightly above 

expectations. It was around 0.4pp higher than expected in both April and 

May, fuelled by transport costs, food prices and rents. While the first two 

factors are notoriously volatile and will probably reverse in the coming 

months, the increase in rents is more permanent. A gradual increase in the 

rent component of the CPI means that the downside risk to core inflation as a 

whole is now smaller. On the other hand, we think that a persistently strong 

krone, low external price pressures and strong competition in the retail trade 

will ensure that inflation does not rise too quickly. 

Inflation is rising 


Weaker krone and low interest rates 

As we wrote in the previous edition of Nordic Outlook, much of the 

appreciation of the krone last autumn was driven by safe haven flows, and 

much of this capital has now returned home as global risk appetite has 

improved. The effect on the krone has been exacerbated by slightly lower oil 

prices and a general increase in uncertainty about the outlook for the 

Norwegian economy. However, we do not believe that this is the start of a 

long-term decline in the krone. The relative economic situation still indicates 

that the krone will remain fairly strong for the next couple of years. 

As expected, Norges Bank once again left interest rates unchanged at its ratesetting 

meeting in June. However, in its monetary policy report, the central 

bank signalled a 50% probability of the policy rate being cut at the 

September meeting. Thereafter, the policy rate would remain unchanged until 

‘late 2014’ and then rise gradually to between 2.5% and 3.0% by the end of 

2015. Higher inflation and a weaker krone are pulling in the direction of 

higher interest rates, while weaker output growth and lower wage growth are 

pulling in the other direction. The need to rein in growth in house prices and 

debt would so far seem to have been met through macro-regulatory measures, 

but there is considerable uncertainty about the effects of such measures. The 

Norwegian krone weakened 3% after the policy meeting and if it remains 

roughly at current levels further rate cuts would be highly unlikely. 

Currency weakening likely to prevent rate cuts 

Source: Bloomberg, Norges Bank, Danske Bank Markets 

24 | June 2013 



Norway: Forecast at a glance 

National accounts 2011(2010-prices) 2011 2012 2013 2014 

NOK bn 

Vol growth in % 

Private consumption 1149.8 2.5 2.9 3.0 3.5 

Public consumption 580.7 1.8 2.1 2.7 2.2 

Gross fixed investment 560.7 7.6 8.1 6.5 4.7 

Petroleum activities 162.0 14.1 14.4 8.4 8.2 

Mainland Norway 383.0 8.5 3.9 2.8 3.3 

Dwellings 128.2 21.9 7.4 6.8 1.6 

Enterprises 170.3 3.5 2.7 -0.6 3.3 

General government 84.5 2.2 1.4 3.8 5.9 

Mainland demand 2113.6 3.3 2.9 2.8 3.3 

Growth contribution from stockbuilding -0.5 -0.1 

Exports 1033.6 -1.8 2.2 -3.1 1.1 

Crude oil and natural gas 446.0 -6.2 0.9 -4.0 1.0 

Traditional goods 307.1 0.0 2.6 0.7 3.2 

Total demand 3435.8 1.8 3.2 1.0 2.7 

Imports 779.0 3.8 3.3 1.8 3.9 

Traditional goods 460.5 3.6 2.1 1.5 4.1 

Growth contribution from net exports -2.1 0.0 -1.7 -0.7 

GDP 2656.8 1.2 3.2 2.0 2.7 

GDP Mainland Norway 2108.1 2.5 3.5 2.7 3.0 

Other posts 2011 2012 2013 2014 

Employment, % y/y 1.3 2.2 1.2 1.5 

Labour force, % y/y 1.1 1.8 1.3 1.5 

Unemployment (LFS), % 3.3 3.2 3.3 3.3 

Annual wages, % y/y 4.2 4.0 3.7 4.0 

Consumer prices, % y/y 1.2 0.8 1.7 1.8 

Core inflation 0.9 1.2 1.3 1.6 

Financial figures 25/06/13 + 3 mths + 6 mths + 12 mths 

Deposit rate 1.50 1.50 1.50 1.50 

2y swap rate. % 1.99 2.10 2.20 2.35 

10y swap rate, % 3.32 3.20 3.30 3.45 

EUR/NOK 8.03 7.45 7.40 7.35 

USD/NOK 6.10 5.73 5.83 5.83 


25 | June 2013 



Finland 

Second year of misery 

 

 

 

 

 

 

Finnish GDP contracted by 2.1% y/y in Q1 13. Domestic demand 

slipped (especially within construction) and exports suffered from the 

euro crisis. Consumption also fell given a high comparison number. 

We have revised down our outlook for Finland for 2013 to take into 

account the weak Q1 13 figures, falling construction and business 

surveys. We now forecast GDP to fall 0.4% in 2013. 

Finnish exports continue to underperform the growth in global trade. 

There are a number of reasons for this including a high weight in 

investment goods, poor competitiveness and structural change in the 

export sector away from Nokia and forest industries towards new 

fields. 

The new norm in private consumption means modest growth figures 

in the future. Real wages are staying fairly flat and a relatively low 

savings ratio does not allow much additional room for spending. 

The housing market looks relatively stable. Prices are expected to 

remain close to current levels. This would be a third consecutive year 

of decline in real housing prices even if nominal prices inch up 

slightly. Tax hikes and higher loan margins dampen the near-term 

outlook while low interest rates and shortage of housing construction 

support the price level especially in the Helsinki Metropolitan Area. 

We expect the unemployment rate to rise towards 8.5% at the end of 

2013 before economic growth and shrinking labour supply result in a 

fall in the unemployment rate in 2014. Inflation and wage growth 

continue to decline in the current business cycle. 

Changes relative to previous forecast 

FINLAND 

Current forecast 

Previous forecast 

2013 2014 2013 2014 

GDP, % -0.4 1.5 0.3 2.0 

Unemployment 8.4 8.3 8.3 8.0 

rate, % 

Inflation, % 1.4 1.7 2.0 2.0 

Earnings, % 2.2 1.7 2.6 2.2 

Housing prices, % 0.5 2.0 0.5 2.5 

Current account, -1.5 -1.2 -1.0 -0.7 

% of GDP 

Public debt, 57.0 58.5 56.0 57.0 

% of GDP 


Recession proves longer than expected 

Gross domestic product fell sequentially for the fourth consecutive quarter in 

January-March. GDP was 2.1% smaller than a year earlier, resulting in a poor 

start for 2013. Finland is in a recession and conditions for a speedy recovery 

look weak. We expect net exports to bring GDP back to a positive trend later 

this year, while domestic demand is set to continue to crawl slowly (at best) 

in 2013 and 2014. 

The underlying figures were not as grim. Exports were down by 4% y/y but 

recorded a small 0.9% growth from Q4 12. Private consumption was very 

strong in Q1 12 but the second quarter will have a much smaller comparison 

figure. Unfortunately monthly statistics do not provide much positive 

guidance into the second quarter. 

OECD leading indicator shows improvement in H2 

Source: Macrobond 

Finnish industrial output decreased by 9.7% y/y in April, mainly because 

European export markets remain weak, especially in metals. The real decline 

was not so bad, as Easter fell in different months in 2012 and 2013. New 

manufacturing orders decreased by 2% y/y in April. Metals was the weakest 

26 | June 2013 



industry, while orders for paper and textiles actually rose. The numbers are 

consistent with zero to negative growth in Q2 13. 

Leading indicators are weak across the board, although manufacturing 

confidence has improved slightly. Construction confidence is very weak. The 

OECD’s leading indicator, which has been a fairly robust indicator in recent 

years, continued to improve in April and supports our view that Finland 

could pull out of the recession in the next few months. 

Confidence indicators remain in low levels 

We have lowered our outlook estimate for 2013 and expect GDP to fall by 

0.4% (previously 0.3% growth) as we see weakness in both exports and 

domestic demand. Assuming the US leads a global recovery, we expect 

Finland to reach 1.5% growth in 2014. Obviously, a continued recession in 

other parts of the euro area would not leave the Finnish economy untouched. 

Consumer appetite exhausted 

Consumer buying power has been more or less flat since 2012, while 

consumption had grown substantially in 2010 and 2011 on the back of low 

interest rates and rising real wages. In Q1 13, private consumption grew by 

0.3% q/q but decreased by 0.5% y/y when one-off salary payments and tax 

changes still supported private consumption. 

The short-term outlook is weak as consumer confidence remains at low 

levels. Retail sales rose slightly in April 2013 and car registrations, still at 

weak levels, have started to rise year on year. Yet, the full-year outlook is 

challenging for retail sales because the increase in purchasing power is 

expected to come to a halt. Over the forecast period, wage growth will be 

marginally higher than inflation at a time when tax increases take their toll as 

well. We also expect consumer confidence to remain at low levels as 

employment figures continue to weaken in H2 13. Low interest rates and a 

reasonably steady (relatively speaking) employment level should help sustain 

private activity but past growth figures are not realistic nor are they 

sustainable. The outlook further into 2014 is also restrained with only modest 

wage growth and an already low savings rate giving little additional room to 

boost spending. We expect private consumption to grow by 0.3% in 2013 and 

0.8% in 2014. Accounting rules also play a role: starting this year Finnish 

households begin to pay a head tax to support national broadcasting instead 

of a fee based on TV ownership, thus shifting a significant portion of 

consumption from private to public. 

Inflationary pressures are modest because of the recession. Inflation was 

1.6% in May 2013 largely due to higher food prices and tax hikes. Despite a 

full percentage point hike in VAT, inflation has remained below 2%. We 

expect annual average inflation of 1.4% in 2013 and 1.7% 2014. 


Inflation and wage growth continue to decline 


Exports continue to struggle 

The volume of exports fell by 4% y/y in January-March 2013. Compared 

with a weak Q4 12, exports rose slightly due to increasing exports of goods. 

Finnish exports of goods continue to suffer from the decline of Nokia – the 

value of exports of electronic devices fell by 75% q/q in Q1 13. Nokia finally 

completely shut down the manufacturing of mobile phones in Finland last 

year, which has had a sizable impact on exports. 

27 | June 2013 



The outlook for the main Finnish export markets in Germany, Russia and 

Sweden has remained relatively stable. Exports to Russia have risen 

somewhat less than expected but Russia might retake its position as the 

largest export destination in 2013. Timid capex in even Germany and Sweden 

affects the Finnish export sector given the large weight of cyclical forest and 

metal industries. One reason for the poor development is also the lost 

competitiveness compared with Germany and some other countries but 

generally Finnish export industries should still be able to compete on 

reasonable terms. A strong SEK exchange rate has helped Finnish companies 

compared with Sweden. Nevertheless, a fairly widespread drive to preserve a 

strong manufacturing base in Finland calls for a minimal wage rise in the 

medium term. Poor manufacturing confidence and low order book levels 

suggest that exports are likely to perform poorly until the latter part of 2013. 

Assuming a mild recovery in the euro area in late 2013 and a better global 

outlook next year, we expect exports to decline by 1% in 2013 before a slow 

recovery of 3% in 2014. 

Order book level low, expectations decent 


Finland had a current account surplus from 1994 to 2010 but fell with trade 

balance into a small deficit in 2011. The CA deficit deepened to 1.9% of 

GDP in 2012. We expect a current account deficit also in 2013-14 driven by 

weak exports and large net transfers. The deficit is forecast to improve to 

1.5% of GDP this year and 1.2% in 2014 due to weakness in imports. The 

deficit does not pose a major threat in the near future but policy actions to 

turn the deficit towards balance are expected. 

Construction sector calls for stimulus 

Investments fell by 5.5% y/y in January-March. Despite a slight increase 

from the previous quarter, investments are headed for a bleak year in 2013. 

The main factor behind the decline in Q1 13 was construction, which fell by 

over 8% y/y. Building starts measured by cubic volume in Q1 13 were at 

their lowest level since 1997. Building permits granted are also low by 

historical standards, suggesting that construction is not likely to recover in 

the near term. The volume of investments in machinery, equipment and 

transport equipment on the other hand rose both year on year and sequentially 

but the outlook for the latter part of the year is gloomy. 

Calls for the government to support the construction sector have increased in 

Finland in recent months. Although the current environment might be ideal 

for infrastructure projects and renovating public buildings, we do not expect 

the six-party coalition government to change its current policy markedly. 

Weak business confidence, persistent decline in building permits and starts as 

well as low manufacturing capex reported by business surveys point to a 

continued fall in investments in 2013. We forecast the decline for 2013 to be 

around 4%. After two poor years it is expected that postponed investment 

needs will pick up, while low interest rates still support construction and 

capex. Thus we forecast investments to turn to a decent 2.5% growth in 2014. 

Housing market: nominal prices up, real prices down 

The housing market has been fairly stable since 2011. Nominal prices have 

increased slightly, last year by 1.7%, but real prices have actually declined in 

the past two years in the whole country and even in the Helsinki Metropolitan 

Area. According to the preliminary statistics, this trend has continued in the 

28 | June 2013 



first part of 2013. Recent developments include the increased transfer tax in 

March, decrease in interest rate tax deductibility and the Finnish FSA is 

pushing for a loan-to-value limit in housing loans. This has all led the 

housing market to cool accordingly and selling times have increased slightly. 

In April the prices of old dwellings in block of flats and terraced houses fell 

by 0.2% m/m. Prices went up 0.3% in Greater Helsinki whereas in the rest of 

Finland they fell 0.6%. Housing loan stock growth has also declined in the 

first months of 2013. This points to a sluggish development in 2013. The 

main factors in this development can be seen from the demand side as 

consumer intentions on house purchases are relatively cautious and from the 

supply side as banks have started to tighten lending procedures. Banks have 

increased margins on typical variable Euribor rate loans from 87bp at the end 

of 2011 to 154bp in March 2013 according to the Bank of Finland. 

Despite some of the abovementioned headwinds, there are also factors acting 

in the other direction. The interest rate burden has stayed at record low levels 

despite increases in bank lending margins. The debt to income ratio of 

Finnish households, although it has been rising, is still well below that of 

other Nordic countries. Finnish households are still able to amortise debt as 

the exceptionally low interest rate transmits effectively in the Finnish housing 

market due to high percentage of variable rate loans. Also the chronic lack of 

supply in growth centres, especially in the Helsinki Metropolitan Area, 

supports the price level. The supervisors’ vigilance should be seen as a 

precautionary measure which can be seen as a stabilising factor in the long 

term. Thus we do not expect dramatic market movements in the coming 

years. 

Real prices do not signal a major housing bubble 


We expect nominal prices to rise only 0.5% in 2013 which would mean a 

third consecutive year when real prices in the housing market decline. Next 

year we forecast housing prices to increase but only by 2%. Despite the past 

rise in prices, we do not see a major risk of a bubble because prices have 

generally risen in line with earnings. A major decline in housing prices could 

be initiated only by much higher long-term unemployment or surging interest 

rates, which both look unlikely. 

Debt level rising, still relatively low 

The six-party coalition government has increased taxes on alcohol, tobacco, 

sugar, gasoline and motor vehicles. Also VAT was raised by one percentage 

point. Some savings have been implemented, ranging from forestation 

subsidies to defence expenditure. Total net savings, or austerity, total over 

EUR5bn over 2013-15 or approximately 3% of GDP. Approximately half of 

this will be achieved by increasing VAT, consumption taxes and taxes on 

income. The other half will come from spending cuts from all areas of the 

government. These measures will narrow the budget deficit considerably and 

the main focus should now be the long-term solutions, such as increasing the 

labour force participation rate via increased retirement age, that take into 

account future liability of the ageing population. There is however a 

possibility of added austerity in 2014-15 as the government has committed to 

get the national debt level down and to keep Finland’s triple-A rating. 

29 | June 2013 



Despite the austerity measures, public debt to GDP has been rising in the 

absence of economic growth. This is true for 2013 and 2014 as well. The 

general government debt reached 53% of GDP by the end of 2012. We 

forecast the ratio to hover around 57% in 2013 and by the end of 2014 to 

stabilise at 58.5% of GDP. 

Central government to remain in deficit 

Public consumption increased by 0.8% in 2012. Tight budgets are likely to 

keep growth in public spending in the coming years well below 1%. Room 

for expansionary fiscal policy is tight, even if Finland is one of the least 

indebted euro area countries. The remaining space for fiscal expansion is 

reserved as a buffer against major shocks and future demographic changes. 

Within the euro area, the Republic of Finland continues to enjoy one of the 

lowest risk premiums compared with Germany. The triple-A rating might 

come under review but the effects from possible downgrade are likely to be 

limited. We expect the fairly low level of public debt, excellent track record 

and policy decisions to continue to keep Finnish risk premium low, interest 

rates low and credit ratings high. 

Unemployment continues to rise mildly 

The labour market has remained surprisingly stable despite the weak growth 

figures. The unemployment rate has risen from the beginning of last year by 

only 0.7 percentage points. Layoffs have continued and, according to surveys, 

firms’ intentions of hiring new workers are low in almost all industries. In 

April the number of unemployed was 239,000, which was 13,000 more than 

a year earlier. The seasonally adjusted unemployment rate stayed at 8.2%. 

The employment rate was unchanged at 68.7%. New vacancies at 

employment offices stood at 46,000 in April which is 2,000 less than a year 

ago. The ageing trend will limit the supply of labour in the coming years. 

We forecast the unemployment rate to increase until the first part of 2014 as 

the economic downturn weighs on the labour market. The average 

unemployment rate is expected to rise to 8.4% in 2013 before economic 

growth and ageing trend brings it down to 8.3% in 2014. The number of 

employed persons is likely to continue to fall slightly towards the end of 

2013, while the labour supply stops growing, thus keeping the unemployment 

rate under control. Lost manufacturing jobs will largely be replaced by jobs 

in services sectors. The natural rate of unemployment is likely to be around 

6-7% given that unemployment rates are stubbornly high in some rural parts 

of Eastern Finland and Lapland. 


Unemployment rate to rise above 8% 


30 | June 2013 



Finland: Forecast at a glance 

National accounts 2010 2011 2012 2013 2014 

Volume, y-o-y % 

GDP 3.3 2.8 -0.2 -0.4 1.5 

Imports 6.9 6.1 -3.7 -2.0 2.0 

Exports 7.5 2.9 -1.4 -1.0 3.0 

Consumption 2.1 1.8 1.4 0.4 0.4 

- Private 3.3 2.3 1.6 0.3 0.8 

- Public -0.3 0.4 0.8 0.5 0.2 

Investments 1.9 7.1 -2.9 -4.0 2.5 

Key Performance Indicators 2010 2011 2012 2013 2014 

Unemployment rate, % 8.4 7.8 7.7 8.4 8.3 

Earnings, % 2.6 2.7 3.5 2.2 1.7 

Inflation, % 1.2 3.4 2.8 1.4 1.7 

Current account, Bn, EUR 2.7 -2.9 -3.6 -3.0 -2.5 

Current account/GDP, % 1.5 -1.5 -1.9 -1.5 -1.2 

Public deficit/GDP, % -2.5 -0.8 -1.9 -2.0 -1.5 

Public debt/GDP, % 48.6 49.0 53.0 57.0 58.5 

Financial figures 25/06/13 + 3 mths + 6 mths + 12 mths 

Repo rate, % 0.50 0.50 0.50 0.50 

2 year swap rate 0.70 0.55 0.00 0.00 

10 year swap rate 2.10 1.75 1.90 2.10 

EUR/USD 1.31 1.30 1.27 1.26 

Source: Danske Bank * Forecasts: Sampo Bank/Economists 

31 | June 2013 



Global overview 

Bumpy global recovery 

 

 

 

The global economy continues its bumpy ride with somewhat 

divergent developments across regions. 

The US economy is still working its way through a soft patch 

while there are signs that Europe is finally escaping from 

recession. The weak spot is China where growth has disappointed. 

We look for soft global growth in the short term but a 

strengthening global recovery in 2014, as US fiscal tightening 

eases and the euro area continues to recover. 

Divergence 

China is the weakest spot at the moment as activity data have continued to 

weaken contrary to expectations and financial stress in the money market is 

adding to the downbeat picture. The Chinese weakness in combination with 

the news of the Fed expecting to taper its asset purchases later this year has 

triggered substantial declines in Emerging Markets’ assets, which threaten to 

reinforce the slowdown in these economies. 

Global outlook 

2013 2014 

% y/y Danske Bank Consensus Danske Bank Consensus 

USA 2.0 1.9 3.1 2.7 

Euro area -0.6 -0.6 1.0 1.0 

Japan 2.0 1.7 1.4 1.5 

China 7.9 7.8 8.0 7.8 

Global 3.5 3.4 4.0 3.8 


Euro area showing signs of recovery 

For once the good macro news has come out of Europe where survey data as 

well as industrial production suggest that Europe is finally on its way out of 

recession. For example, euro area industrial production in the beginning of 

2013 has risen at the fastest pace in more than two years. It underpins the 

expectation of a recovery this year, albeit a slow one. There are increasing 

signs that the domestic economy is improving as confidence is gradually on 

the rise in southern Europe. We have launched a new monitor of 

developments in the so-called peripheral countries called ‘Periphery Business 

Cycle Monitor’. 

5 

3 

1 

-1 

-3 

-5 

-7 

-9 

-11 

% q/q > 

1.50 

1.00 

0.50 

0.00 

-0.50 

-1.00 

-1.50 

-2.00 

-2.50 

-3.00 

We expect the US economy to gradually improve in the second half of 2013 

and see quite robust growth rates in 2014 and 2015 of above 3%. The US has 

worked its way through the hangover from the housing bubble and financial 

crisis and will be well positioned for strong growth in 2014 as a) the housing 

market is recovering from low levels, b) the banking sector is easing credit 

standards, c) the private sector’s deleveraging is coming to an end and d) 

fiscal tightening will broadly end this year. Pent-up demand, a positive oil 

‘shock’ (shale oil) and easy monetary policy are adding to the more positive 

outlook for the US economy. 

The main risk to the global economy is currently coming from China. Growth 

has been disappointingly weak and financial stress has picked up without any 

response from authorities. Some of the stress is likely due to seasonal factors 

but it bears watching as the Chinese system is generally very opaque. We no 

longer expect to see a rise in growth in H2 but instead expect unchanged 

moderate growth around 7.5%. 

China the weak spot in the global economy 

65 Index Index 

60 

55 

50 

45 

40 

35 

China PMI new orders 

04 05 06 07 08 09 10 11 12 13 


65 

60 

55 

50 

45 

40 

35 

32 | June 2013 



Economic forecast 

Macro forecast, Scandinavia 

Year GDP 1 cons. 1 

Private 

Public 

cons. 1 

Fixed 

inv. 1 

Stock 

build. 2 

Exports 

1 

Imports 

1 

Inflation 

1 

Unemploym. 

3 

Public 

budget 4 

Public 

debt 4 

Current 

acc. 4 

Denmark 2012 -0.5 0.6 0.2 0.0 -0.4 0.9 1.8 2.4 6.1 -4.0 45.8 5.8 

2013 0.1 0.4 0.8 1.7 0.3 -0.8 1.9 0.8 5.9 -1.9 45.0 4.6 

2014 1.5 1.2 0.5 1.8 -0.2 3.5 2.4 1.7 5.9 -1.1 43.4 5.1 

Sweden 2012 0.7 1.5 0.7 3.2 -1.1 0.8 0.0 0.9 8.0 -0.6 37.7 6.7 

2013 1.7 2.7 1.0 -2.7 0.2 -0.8 -2.2 0.1 8.6 -1.1 37.7 7.8 

2014 2.0 2.1 0.8 3.3 0.2 3.9 4.6 1.5 8.4 -0.9 37.8 8.3 

Norway 2012 3.5 2.9 2.1 8.1 2.2 3.3 0.8 3.2 - - - 

2013 2.7 3.0 2.7 6.5 -0.5 -3.1 1.8 1.7 3.3 - - - 

2014 3.0 3.5 2.2 4.7 -0.1 1.1 3.9 1.8 3.3 - - - 

Macro forecast, Euroland 

Year GDP 1 cons. 1 

Private 

Public 

cons. 1 

Fixed 

inv. 1 

Stock 

build. 2 

Exports 

1 

Imports 

1 

Inflation 

1 

Unemploym. 

3 

Public 

budget 4 

Public 

debt 4 

Current 

acc. 4 

Euroland 2012 -0.5 -1.2 -0.1 -3.9 -0.7 2.9 -0.9 2.5 11.4 -3.5 93.1 1.4 

2013 -0.6 -0.7 -0.4 -4.5 -0.1 2.0 -0.2 1.7 12.1 -3.1 95.5 2.4 

2014 1.0 0.1 -0.2 1.0 0.1 4.4 2.8 1.6 12.2 -2.9 95.8 2.5 

Germany 2012 0.9 0.6 1.4 -4.9 0.0 4.3 2.2 2.0 5.5 0.1 82.4 6.3 

2013 0.5 0.5 0.8 -1.2 0.0 2.6 2.5 1.5 5.2 -0.2 81.1 6.0 

2014 2.3 1.4 0.9 4.9 0.0 4.8 4.5 1.6 4.9 0.0 79.0 5.6 

France 2012 0.0 0.0 1.4 0.0 1.4 2.3 -0.3 2.1 10.2 -4.7 90.8 -1.9 

2013 -0.4 0.2 0.6 -1.0 -0.4 1.8 1.1 0.9 11.2 -4.0 94.2 -1.6 

2014 0.7 1.1 0.0 1.4 0.0 4.4 4.3 1.3 11.5 -4.2 96.4 -1.8 

Italy 2012 -2.2 -4.2 -1.0 -9.2 -0.4 1.9 -7.4 3.0 10.6 -2.4 124.2 -0.7 

2013 -1.6 -1.9 -0.5 -4.7 0.0 3.0 1.6 1.4 12.0 -3.2 130.9 0.6 

2014 1.1 1.1 -0.4 2.0 0.0 4.0 4.1 1.2 12.3 -2.6 132.0 0.8 

Spain 2012 -1.4 -2.2 -3.7 -8.7 0.5 3.1 -5.0 1.9 24.9 -6.7 88.4 -1.9 

2013 -1.6 -2.8 -3.6 -7.8 0.0 5.8 -0.8 1.8 27.2 -6.5 96.0 1.0 

2014 -0.6 -0.7 -2.0 -2.0 0.0 4.8 3.5 0.9 27.6 -6.9 102.0 2.5 

Finland 2012 -0.2 1.6 0.8 -2.9 - -1.4 -3.7 2.8 7.7 -1.9 53.0 -1.9 

2013 -0.4 0.3 0.5 -4.0 - -1.0 -2.0 1.4 8.4 -2.0 57.0 -1.5 

2014 1.5 0.8 0.2 2.5 - 3.0 2.0 1.7 8.3 -1.5 58.5 -1.2 

Macro forecast, Global 

Year 

GDP 1 

Private 

cons. 1 

Public 

cons. 1 

Fixed 

inv. 1 

Stock 

build. 2 

Exports 

1 

Imports 

1 

Inflation 

1 

Unemploym. 

3 

Public 

budget 4 

Public 

debt 4 

Current 

acc. 4 

USA 2012 2.2 1.9 -1.7 8.7 0.1 3.4 2.4 2.1 8.1 -7.0 100.0 -3.0 

2013 2.0 2.2 -2.4 6.4 0.0 3.3 2.6 1.6 7.6 -5.3 101.8 -3.1 

2014 3.1 2.5 -0.8 10.4 0.2 7.4 7.4 1.6 6.8 -3.7 100.9 -3.2 

Japan 2012 2.0 2.2 2.7 4.2 0.0 -0.1 5.5 -0.1 4.4 -7.9 229.7 1.0 

2013 2.0 1.6 1.6 3.6 0.0 1.6 1.8 0.2 4.2 9.3 238.6 0.9 

2014 1.4 0.5 0.6 1.0 0.0 7.5 3.5 2.1 4.1 -8.4 245.0 1.6 

China 2012 7.8 - - - - - - 2.7 4.3 -1.3 22.2 2.3 

2013 7.9 - - - - - - 2.7 4.3 -1.9 19.6 2.9 

2014 8.0 - - - - - - 3.1 4.1 -1.7 17.2 3.4 

UK 2012 0.0 0.8 2.7 -0.4 -0.3 -0.1 2.3 2.8 8.0 -5.2 90.5 -3.5 

2013 0.6 0.6 0.3 1.5 -0.1 2.0 1.7 2.7 8.1 -6.2 93.5 -2.9 

2014 1.4 0.9 -0.5 4.8 0.0 4.5 3.4 2.6 8.2 -5.2 96.2 -2.9 

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP. 

33 | June 2013 



Financial forecast 

Bond and money markets 


Currency 

vs USD 

Currency 

vs DKK 

USD 25-Jun 0.25 

0.28 

0.57 

2.74 

131.5 

- 567.3 

+3m 0.25 

0.30 

0.45 

2.20 

130 

- 574 

+6m 0.25 

0.35 

0.65 

2.45 

127 

- 587 

+12m 0.25 

0.40 

0.90 

2.85 

126 

- 592 

EUR 25-Jun 0.50 

0.22 

0.70 

2.10 

- 

131.5 745.9 

+3m 0.50 

0.22 

0.55 

1.75 

- 

130 746.0 

+6m 0.50 

0.25 

0.70 

1.90 

- 

127 746.0 

+12m 0.50 

0.40 

0.85 

2.10 

- 

126 746.0 

JPY 25-Jun 0.10 

0.16 

0.28 

1.04 

128.3 

97.6 5.81 

+3m 0.10 

0.20 

0.35 

1.05 

131 

101 5.69 

+6m 0.10 

0.20 

0.40 

1.25 

133 

105 5.61 

+12m 0.10 

0.20 

0.50 

1.45 

139 

110 5.37 

GBP 25-Jun 0.50 

0.51 

0.94 

2.67 

85.1 

154.6 876.8 

+3m 0.50 

0.50 

0.80 

2.15 

86.0 

151 867 

+6m 0.50 

0.55 

0.95 

2.35 

87.0 

146 857 

+12m 0.50 

0.70 

1.10 

2.65 

84.0 

150 888 

CHF 25-Jun 0.00 

0.02 

0.28 

1.59 

122.6 

93.3 608.4 

+3m 0.00 

0.05 

0.15 

1.10 

124 

95 602 

+6m 0.00 

0.05 

0.15 

1.20 

124 

98 602 

+12m 0.00 

0.05 

0.20 

1.35 

124 

98 602 

DKK 25-Jun 0.20 

0.27 

0.88 

2.30 

745.9 

567.3 - 

+3m 0.20 

0.25 

0.70 

1.90 

746 

574 - 

+6m 0.20 

0.35 

0.85 

2.05 

746 

587 - 

+12m 0.30 

0.50 

1.00 

2.25 

746 

592 - 

SEK 25-Jun 1.00 

1.23 

1.55 

2.74 

884.7 

672.8 84.3 

+3m 1.00 

1.25 

1.35 

2.05 

840 

646 88.8 

+6m 1.00 

1.25 

1.40 

2.25 

830 

654 89.9 

+12m 1.00 

1.30 

1.60 

2.50 

820 

651 91.0 

NOK 25-Jun 1.50 

1.69 

1.99 

3.32 

803.0 

610.8 92.9 

+3m 1.50 

1.82 

2.10 

3.20 

745 

573 100.1 

+6m 1.50 

1.82 

2.20 

3.30 

740 

583 100.8 

+12m 1.50 

1.85 

2.35 

3.45 

735 

583 101.5 

Equity Markets 

Regional 

Risk profile 

3 mth. 

Price trend 

3 mth. 

Price trend 

12 mth. 

Regional recommendations 

USA Corporate earnings surprise Medium -2.5 to +2.5% 5%-10% Underweight/Neutral 

Emerging markets (USD) Uncertainty has hit Asia Medium -2.5 to +2.5% 5%-10% Neutral 

Europe (ex. Nordics) (EUR) Weak economy, attractive valuation Medium -2.5 to +2.5% 5%-10% Neutral 

Nordics Strong cyclical profile Medium -2.5 to +2.5% 5%-10% Overweight 

Commodities 

Key int. 

rate 

3m interest rate 

2-yr swap yield 

10-yr swap yield 

Currency 

vs EUR 

2013 

2014 

Average 

25-Jun Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 

NYMEX WTI 95 94 93 93 91 90 90 90 90 93 90 

ICE Brent 101 113 103 105 102 100 99 98 97 106 99 

Copper 6,670 7,958 7,300 7,500 7,475 7,460 7,445 7,435 7,425 7,558 7,441 

Zinc 1,824 2,054 1,900 1,950 1,935 1,925 1,915 1,905 1,895 1,960 1,910 

Nickel 13,635 17,376 15,000 16,000 15,700 15,500 15,300 15,100 14,900 16,019 15,200 

Aluminium 1,772 2,041 1,900 1,925 1,895 1,870 1,845 1,825 1,805 1,940 1,836 

Gold 1,282 1,631 1,425 1,375 1,325 1,275 1,225 1,200 1,175 1,439 1,219 

Matif Mill Wheat 197 245 233 233 241 242 244 246 247 238 245 

CBOT Wheat 683 737 700 705 710 715 720 725 730 713 723 

CBOT Corn 657 715 600 605 610 615 620 625 630 632 623 

CBOT Soybeans 1,510 1,449 1,425 1,435 1,445 1,455 1,465 1,475 1,485 1,438 1,470 

34 | June 2013 



Disclosure 

This research report has been prepared by Danske Bank Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory 

Authority. 

Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence. 

These procedures are documented in the Danske Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any request that 

might impair the objectivity and independence of research shall be referred to Research Management and to the Compliance Officer. Danske Bank Research departments are 

organised independently from and do not report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all profitability of Danske 

Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. 

Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’ Ethical rules and the Recommendations of the Danish 

Securities Dealers Association. 

Financial models and/or methodology used in this research report 

Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual 

security, issuer and/or country. Documentation can be obtained from the authors upon request. 

Risk warning 

Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. 

Expected updates 

Nordic Outlook is a quarterly forecast, but new statistical data may give rise to changes in our views on individual economies. 

First date of publication 

Please see the front page of this research report. 

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This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part 

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subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. 

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35 | June 2013 


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