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Nordic Outlook 2019: Markets face downside risks but recession will be avoided

Publication Date: 23 Jan 2019 - By ReachX Team By ReachX T.

Macro Thematic Environmental, Social & Governance Investment Strategies Multi Asset EU


Global financial markets face a range of downside risks, the effects of which would vary across the Nordic and Baltic nations, but a regional recession could well be avoided, according to a new industry outlook report. 

In a note to clients, Nordic Bank SEB opined that it expects a housing driven deceleration in Sweden and slowdown in the Baltics, while Norway’s economy will see a rebound. The bank puts global GDP growth around the 3.5% mark, a tenth of a percentage lower than its previous forecast. 

“An ageing economic cycle is encountering downside risks due to labour market bottlenecks and volatile financial markets while trade-related and other political uncertainties persist, but these decelerating forces are not strong enough to trigger a recession,” it said. 

While nervous global markets will create downside risks in late-cyclical phase, SEB predicts the impact of any turmoil on the real economy will be weathered. Subdued inflation will also give global central banks room to ease their pace of normalisation, the banks added. Nonetheless, the Nordic and Baltic economies will be affected in varying degrees by a potential eurozone deceleration in 2019. 

“In Sweden, the growth outlook has dimmed, with worrying signals from both the domestic economy and exporters thus weakening the forces that can offset the decline in home construction that is now under way. Yet expansionary economic policy is providing some support, and growth will rebound in 2020,” SEB noted. 

Sweden’s GDP is now projected to increase by 1.6% this year, well below the bank’s earlier forecast, followed by 1.9% in 2020.

“Low inflation is one reason why Sweden’s Riksbank will be satisfied with one interest rate hike per year, bringing its key rate to 0.25% by the end of 2020. The krona will appreciate only slowly to 9.70 per euro at year-end 2020.”

Norway is showing “resilience” to the slowdown in other countries and to lower oil prices, SEB said. “Capital spending in the petroleum sector will now increase markedly, adding to demand in the rest of the Norwegian economy. Together with a housing market rebound and solid private consumption, this will help GDP growth in the mainland economy (excluding oil, gas and shipping) accelerate to 2.5% this year, with 2.2% growth in 2020.”

Overall GDP growth will surge to nearly 3% in 2019 and 2.5% in 2020, and the Norges Bank can thus keep pursuing its plan to hike the key rate twice yearly in 2019 and 2020, SEB added. 

Finland and Denmark will also enjoy some support from domestic strengths, such as robust labour markets, high capacity utilisation and a positive GDP growth contribution from housing construction. The Finnish economy has slowed down after its earlier acceleration, but growth will still reach about 2% both this year and next. Temporary effects contributed to weak Danish economic growth in 2018: an underlying slowdown will gradually slow GDP growth to 2.0% in 2019 and 1.7% in 2020.”
Finally, the fast-growing Baltic economies will also decelerate somewhat after a strong 12-months, driven by lower export demand and by certain supply side restrictions, SEB said. In Estonia and Lithuania, GDP growth will be nearly 3% in 2019 and around 2.5% in 2020. GDP growth in the Latvia will reach 3.5% this year and 3.2% in 2020, the bank concluded.


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