economic outlook nordics, nordea bank, june 11, 2013. "out of breeze"

7/23/2019 Economic Outlook Nordics, Nordea Bank, June 11, 2013. "Out of breeze".

1/14

Overview

1 ECONOMIC OUTLOOK NORDICS JUNE 2013 NORDEA MARKETS

Out of breeze

Overview 02OUT OF BREEZE

Sweden 03CASH-RICH HOUSEHOLDS THE ENGINE OF THE ECONOMY

Norway 05SLIGHTLY WEAKER ECONOMY, BUT NO DOWNTURN

Denmark07THE LONG INTERMISSION

Finland09STILL TRUDGING ONKey figures11

FORECASTS FOR THE GLOBAL ECONOMY

ECONOMICOUTLOOK

NORDICS

J U N E 2 0 1 3


2/14

Overview


Out of breeze

As the Nordic countries are all small, open economiesvulnerable to the weak international economic trends, wehave had to revise down our 2013 and 2014 growth fore-

casts for Finland and Denmark. We largely maintain ourforecasts for Sweden relative to our March forecasts, but

expect weaker trends in Norway next year than previouslyassumed.

Although the world economy is recovering, the healingprocess is very slow, and at the moment there is very little

tailwind to help it along. Notably Europe has in light ofthe (necessary) tight fiscal policy and recently initiatedstructural reforms found it hard to get economic growthoff the ground, and we have had to lower our 2013 and2014 growth estimates for the Euro zone quite sharply by

0.4% point in both years. The crisis in Europe has also af-fected China, which is currently taking a double whammy

on the export front. On the one hand, Chinese exports arehurt by the weak market in Europe, and on the other handChinas competitiveness is challenged. The reasons arehigh wage growth and the strengthening of the renminbi,

not least versus the Japanese yen in the wake of the an-nouncement of new, significant monetary policy easing in

Japan. That is why we have lowered our expectations forthe Chinese economy this year, while we stick to ourforecast for Japan so far. This is also the case for the US,although the economy has shown signs of weakness lately

due to fiscal policy tightening. This development was ex-pected, and we consider the downturn to be temporary.

The US economy should be back on the growth track asearly as H2 2013 to the benefit of the rest of the world.

Against this background, we have revised down our 2013

and 2014 forecasts for the global economy by about %point. We now look for growth in 2013 of 3.2%, acceler-ating to 4.0% in 2014 (see the table).

Note that we have changed our calculation methodology for global economic growth to matchthe IMFs methodology. Consequently, the growth forecasts in this issue of Economic Outlook

are not comparable to those in earlier versions.

The Swedish economy stagnated at end-2012. AlthoughGDP recovered in Q1 2013, it contained signs of weak-ness such as rising inventories. Private consumption is

seen as the main driving force this year as well as nextyear, as households benefit from rising wages, low infla-

tion and tax cuts. Exports fell in 2012 mainly as an effectof the slowdown of the European economies. However,exports have leveled out and will pick up in H2 2013 inthe wake of stronger global demand. Investment is ex-

pected to decrease in 2013, but rise next year along with

production. Employment continues to grow, but not

enough to prevent unemployment remaining at elevatedlevels. The Riksbank watches household indebtedness andwill not cut rates despite low inflation and high unem-

ployment. The next move will be a rate hike in 2014.In line with expectations GDP growth in Norways main-land economy picked up nicely in Q1, supporting our be-lief that the dent in growth in Q4 was temporary. Still, de-spite the pick-up in growth in Q1 unemployment has in-creased and wage growth looks set to be slightly lower

than expected. We have therefore marginally reviseddown our forecast for consumption growth. In addition,business investment growth has slightly undershot expec-tations. All in all, the growth outlook for Norway is there-fore slightly weaker than assumed in our March forecasts.

Given lower growth in production and wages and some-what higher unemployment, we do not expect a rate hike

until late in 2014. The NOK will remain at the current,relatively strong levels, but weaken towards the end of theforecast period when markets start to discount rate hikesby other central banks.

The Danish economy is struggling with the effects of analmost 4-year long intermission with activity growtharound zero. However, we expect this sideways trend tobe replaced by moderately accelerating growth later thisyear and especially into 2014. The pick-up will be mainly

driven by rising domestic demand, with higher consumerspending and mounting investment activity. Consequent-ly, we maintain our forecast of accelerating economic

growth in Denmark, but revise down the levels slightlycompared to our March forecast. A key factor behind ourdownward revision is the waning activity in the neigh-

bouring German, Swedish and UK markets that has putDanish exports under pressure. However, the decline inexports coincides with a strengthening of underlyingcompetitiveness. This means that the Danish economy istoday better positioned to take advantage of a global up-swing when international economic trends again bring

milder winds over the slightly ailing Danish economy.

The short-term outlook for the Finnish economy is weak-ened by the lack of both international and domestic de-

mand. Aggregate demand in the economy does not in-crease at all in 2013. Foreign trade volumes and invest-ment are predicted to fall from the year earlier, and stag-nant purchasing power only allows households to increaseconsumption moderately. The labour market is expectedto deteriorate throughout the year. Towards the end of

2013, exports are expected to recover following a pick-upin world trade volumes. In 2014, exports, investment andprivate consumption alike should gradually gather moremomentum.

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

Real GDP growth, % 2010 2011 2012 2013E 2014E

World 5,2 3,9 3,2 3,2 4,0

Nordics 3,7 2,7 1,0 1,2 2,0

- Denmark 1,6 1,1 -0,5 0,3 1,3

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

- Norway 1,7 2,5 3,4 2,6 2,2

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


3/14

Sweden


Cash-rich households the engine of the economy

Improved demand lifts GDP growth

Election budget stimulates economy

Riksbank sidelined

SEK strengthening against EUR

Improvement in sight

The Swedish economy is emerging from the soft patch

that it has been in for the past year or so. Consumerspending is the key driver. In addition, exports have fi-nally flattened out after the extended decline. Investmentactivity is dropping this year, but this is a consequence oflower capacity utilisation last year rather than current de-velopments.

It will be a quarter or two before GDP growth picks up.GDP did expand surprisingly sharply in Q1, but the mixwas unfavourable with for instance increased inventories.Several indicators also suggest a subdued performancenear term. Next year GDP growth will pick up driven by

consumer spending, the key growth engine, and an im-provement in exports as well as higher investment activi-ty and public spending.

The labour market situation is worrisome. Combinedwith persistent low inflation, this puts pressure on the

Riksbank to cut rates. However, the central bank arguesthat its monetary policy line is already expansionary.

Further rate cuts are therefore not likely. Next year therepo rate will be hiked on the back of the improvementsin the domestic economy.

Foreign trade picking up

This year market growth for Swedish exports is at the

lowest level in 20 years, apart from the exceptionalplunge in 2009. Looking at the full year 2013, Swedishexports will contract. However, this decline stems from

the low level at the beginning of the year. Exports willimprove slightly later this year and then gain further

momentum next year as demand from international mar-kets picks up more decisively. Despite the projected re-covery, exports of goods will, however, peak at the samelevel as in 2011 and 2008, reflecting a 6-year period ofstagnation. This illustrates the difficult environmentfaced by the export industry in recent years.

Households powering ahead, loose fiscal policy

Conditions for households are favourable. Rising wagesand low inflation have boosted households purchasing

power. This year and next year real incomes will rise by

around 3% annually. Moreover, household wealth hasimproved on the back of stock market gains and risinghouse prices. Household savings are high, suggestingsignificant scope for further consumption.

2014 is an election year. Among other things, it is likelythat income taxes will be lowered, giving a boost to

household spending power. This year unfunded reformsamount to SEK 25bn, or around 0.7% of GDP. We lookfor additional reforms of the same magnitude next year.Fiscal policy thus stimulates the economy, but generates

a budget deficit of around 1,5% of GDP in both 2013 and2014.

With the expansionary fiscal policy, public spending andto some extent also government investment will increase.However, business investment will decline sharply across

the board this year, as the economic slowdown has re-duced the need for expansion. One exception is residen-

Sweden: Macroeconomic indicators (% annual real changes unless otherwise noted)2009 (SEKbn) 2010 2011 2012 2013E 2014E

Private consumption 1,533 4.0 2.1 1.5 2.4 2.7

Government consumption 860 2.1 1.1 0.7 0.9 1.4

Fixed investment 559 7.2 6.4 3.2 -4.1 2.8

- industry 74 2.7 11.4 7.5 -10.6 2.6

- residential investment 92 15.7 14.7 -8.2 -1.8 5.1Stockbuilding* -46 2.2 0.5 -1.1 0.3 0.0

Exports 1,489 11.4 7.1 0.8 -1.2 4.0

Imports 1,288 12.0 6.3 0.0 -2.8 4.0

GDP 6.6 3.7 0.7 1.5 2.5

Nominal GDP (SEKbn) 3,106 3,338 3,500 3,562 3,660 3,798

Unemployment rate, % 8.6 7.8 8.0 8.3 8.3

Employment grow th 0.6 2.3 0.7 0.6 0.5

Consumer prices, % y/y 1.2 3.0 0.9 0.0 1.4

Underlying inflation (CPIF), % y/y 2.0 1.4 1.0 0.9 1.3

Hourly earnings, % y/y 1.1 2.7 3.3 3.1 2.8

Current account (SEKbn) 228 246 246 271 281

- % of GDP 6.8 7.0 6.9 7.4 7.4

Trade balance, % of GDP 2.6 2.6 2.6 2.6 2.6

General govt budget balance (SEKbn) 0 1 -22 -49 -58

- % of GDP 0.0 0.0 -0.6 -1.3 -1.5Gross public debt, % of GDP 37.7 42.1 38.0 40.7 41.4

* Contribution to GDP growth (% points)


4/14

Sweden


tial construction, which bottomed last year and looks setto increase gradually this year. As production regainsmomentum and capacity utilisation starts to rise, total in-vestment will recover gradually next year.

The Riksbanks challenges

Employment has surprised on the upside, picking up overthe last year despite the slow pace of economic growth.Absence levels have increased sharply, though, during

the same period, and the number of persons actually go-ing to work has dropped instead. The higher absencerates are reflected in the number of hours worked, whichhas stagnated over the past year. It is likely that unem-ployment, currently at just over 8%, will edge higher inthe near term. High unemployment, modest wage growth

and a steady decline in import prices support the viewthat inflation will remain well below the 2% target over

the foreseeable future.

The Riksbank is weighing low resource utilisation andlow inflation against a domestic economy that shows fa-

vourable trends in important areas. In addition to a goodtrend in consumption, house prices are likely to continue

higher. Household credit growth is showing signs ofpicking up, and with the fall in mortgage rates in recentmonths it should continue to rise. In weighing these fac-tors, the Riksbank is likely to place most emphasis on

trends in the domestic economy and is therefore not like-ly to lower the repo rate further from the current 1.0%.

The Riksbank will hike rates next year to halt the debtbuild-up of households and as signs of growing resourceutilisation start to emerge. But the future monetary policy

line is uncertain. If the bank instead gives more weight tothe weak economic setting, rates may be lowered thisyear.

SEK undervalued against EUR

Recent years SEK appreciation is a result of the relative-ly strong economy. This has led to a wider yield spread

versus the rest of Europe and a stronger exchange ratenotably versus the EUR. A continued comparativelyhealthy economic performance by Sweden speaks in fa-vour of the SEK maintaining its strength against theEUR. The deviation of the real exchange rate from itslong-term average indicates continued SEK appreciation.

By contrast, the SEK is set to weaken slightly versus theUSD in step with the recovery of the US economy.

Torbjrn [email protected] +46 614 8859

Exports stabilising

Rising credit growth

Fewer people going to work

SEK strengthening versus EUR


5/14

Norway


Slightly weaker economy, but no downturn

Slightly weaker economy

No rate hike until end-2014

NOK to remain relatively strong

In line with expectations GDP growth in the mainlandeconomy picked up nicely in Q1, supporting our beliefthat the dent in growth in Q4 was temporary and that theeconomy will grow at a relatively healthy clip going for-

ward. Still, despite the pick-up in growth in Q1 unem-ployment has increased and wage growth looks set to be

slightly lower than expected. We have therefore margin-ally revised down our forecast for consumption growth.In addition, business investment growth has slightly un-dershot expectations, making the outlook for growth in

the Norwegian economy a tad weaker than assumed in

our March forecasts.

Subdued business investment

Business investment in mainland Norway declined q/q inQ4 2012 and Q1 2013, and a weak trend in commercial

construction starts suggests no rapid reversal. Since end-2011 banks have tightened their lending standards forcorporate credits and especially commercial mortgages.Still, a low propensity to invest among businesses isprobably the key factor behind the weak trend.

Investment activity was strong prior to the financial cri-sis, and a high level of capital stock is probably the main

reason why investment as a proportion of output has re-mained low since 2009. With sustained relatively stronggrowth in the mainland economy, investment needsshould gradually pick up. Consequently, we see moderate

investment growth as early as next year.

Purchasing power growth at a low

After two years of strong household income growth, realwage growth will hit a post-2010 low as a result of the

moderate outcome of the spring pay talks and higher in-flation. Next year household income should improveagain thanks to higher wage growth and lower inflation.We expect household spending growth this year and nextyear to be slightly lower than in 2012. The householdsavings ratio will likely stabilise at a high level.

Housing starts have risen sharply, pointing to relativelystrong growth in housing investment this year. However,residential construction is already at a high level, and welook for a stabilisation that will cause housing investmentgrowth to recede to almost zero in 2014.

Healthy growth in mainland economy

Judging from the oil companies investment plans, 2013should be a year of very strong oil investment growth.Coupled with strong housing investment growth and

good growth in consumer spending, this is the key reasonwhy overall growth in the mainland economy looks set to

be high this year. But the decline in mainland businessinvestment and weak export growth will act as a drag.Next year we see a marked slowdown in oil and housinginvestment growth. But with a pick-up in activity interna-

tionally, export growth should accelerate slightly. We al-so see a moderate reversal in business investment, and as

consumption growth also seems to stay at a moderatelevel, we expect mainland economic growth to remain

relatively high also next year. But it will slow this yearrelative to 2012 and slow even further in 2014.

Temporary labour market weakening

We now see clear signs of labour market weakening. Thepick-up in employment has come to a halt amid sustained


Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)2009 (NOKbn) 2010 2011 2012 2013E 2014E

Private consumption 1,028 3.8 2.5 3.0 2.8 2.8

Government consumption 531 1.3 1.8 1.8 2.3 2.0

Fixed investment 516 -8.0 7.6 8.0 5.7 2.4

- gross investment, mainland 349 -4.5 8.5 3.7 3.1 1.7

- gross investment, oil 144 -14.8 9.8 19.1 12.0 4.0Stockbuilding* 14 3.5 0.1 -0.2 -0.2 0.0

Exports 929 0.4 -1.8 1.8 -1.2 1.0

- crude oil and natural gas 416 -6.9 -6.2 0.9 -4.5 0.0

- other goods 277 3.4 0.0 2.6 1.2 2.0

Imports 660 9.0 3.8 2.4 3.2 2.9

GDP 2,357 0.5 1.2 3.1 1.3 1.7

GDP, mainland 1,876 1.7 2.5 3.4 2.6 2.2



Core inflation, % y/y 1.4 0.9 1.2 1.4 1.6

Annual wages (incl. pension costs), % y/y 3.6 4.2 4.0 3.6 4.0

Current account (NOKbn) 303.2 351.0 413.2 330.9 391.1

- % of GDP 11.9 12.8 14.2 11.1 12.3

Trade balance, % of GDP 11.9 13.3 13.2 10.3 11.4

General govt budget balance (NOKbn) 282.5 373.6 417.7 340.0 400.0- % of GDP 11.1 13.6 14.3 11.5 12.6


6/14

Norway


labour supply growth. Notably groups not entitled to un-employment benefits are hit, for example students look-ing for part-time jobs. But unemployment in the con-struction sector is also heading higher. With growth ofsome 2% this year and 2% next year, demand for la-

bour should rise, while labour supply growth fades. Con-

sequently, the rise in unemployment should level out.

Wage growth and inflation to remain low

The pay rises agreed at the centralised pay talks this yearwere lower than expected, and the labour market hasweakened, suggesting decelerating wage growth. How-ever, with good capacity to pay wages in parts of thebusiness sector and competition for qualified labour insome sectors, wage growth should remain fairly elevated.

Core inflation might rise in the years ahead, notably be-cause the effect on import prices of the latest NOK ap-

preciation will fade.

Interest rates to remain low for a long timeDespite a marginal uptick in coming years, core inflation

looks set to stay well below the 2% target. Wagegrowth will be lower than the level compatible with theinflation target, economic growth will be moderate andunemployment higher than in the past couple of years.

This could justify a rate cut by Norges Bank, but fears ofrenewed strong growth in house prices and household in-

debtedness suggest that the bank will keep rates on hold.Towards end-2014 a rate hike may be on the cards. Bythat time interest rate expectations internationally willhave risen considerably, and the NOK should have

weakened somewhat.

Over the past months the NOK, though still relativelystrong, has weakened. We expect the NOK to stay rela-tively strong in the years ahead, although with time itwill weaken from current levels. Should the NOKstrengthen markedly, it will trigger speculation about arate cut, which suggests that the strengthening will bebrief. Conversely, should it weaken markedly, it might

prompt Norges Bank to hike rates.

Labour market trends lead to uncertainty

Our forecast of a relatively stable NOK this year and

most of next year is based on the view that nothing in thedomestic economy points to any major changes in the in-

terest rate level. At this juncture, the biggest uncertaintygoing forward is the labour market. If labour immigrationcontinues unabated, unemployment could rise further. Agrowing mismatch between supply and demand for la-

bour might also push unemployment higher. In the eventof sharply rising unemployment from current levels Nor-ges Bank will choose a more expansionary monetary pol-icy line. This scenario implies somewhat lower interestrates and a weaker NOK.

Erik [email protected] +47 2248 4449

Katrine Godding [email protected] +47 2248 7977

Subdued business investment almost everywhere

Modest spending growth due to low income growth

Weaker labour market

Sustained NOK strength

Source: Nordea Markets and Reuters Ecowin

07 08 09 10 11 12 13

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5 % of the labour force

Employment

Unemployment, rhs

% y/y

Labour force


11 12 13

1.0

1.2

1.4

1.6

1.8

2.07.1

7.3

7.5

7.7

7.9

8.1 EURNOK % points

Spread Norwegian and Euro 2y rate,reversed rhs

EURNOK


7/14

Denmark


The long intermission

Growth to slowly return

Export engine without fuel

Toeing the line between growth and confidence

Late labour market turnaround

The Danish economy is struggling with the effects of analmost 4-year long intermission with activity growtharound zero. However, we expect this sideways trend tobe replaced by moderately accelerating growth later thisyear and especially into 2014. The pick-up will be mainly

driven by rising domestic demand, with higher consumerspending and mounting investment activity. Consequent-ly, we maintain our forecast of accelerating economicgrowth in Denmark, but revise down the levels slightly

compared to our March forecast. We now see growth at0.3% this year, rising to 1.3% in 2014.

Export engine without fuel

A key factor behind our downward revision is the waningactivity in the neighbouring German, Swedish and UK

markets that has put Danish exports under pressure. Forthe past three consecutive quarters exports have declinedin volume terms. Since the turn of the millennium thishas only happened twice: in 2001 and during the bigglobal recession in 2008. But the cyclical downturn inexports coincides with a strengthening of underlying

Danish competitiveness via markedly lower wage growth

than that recorded by key trading partners and throughstructural reforms aimed at improving the conditions ofDanish businesses. This means that the Danish economyis today better positioned to take advantage of a globalupswing when international economic trends again bring

milder winds over the slightly ailing Danish economy.

Toeing the line between growth and confidence

The easy fiscal policy is drawing to a close. The govern-ment estimates that initiatives taken over the past few

years combined will boost growth by 0.3% point thisyear, but have a slightly contractionary effect on theeconomy next year.

In a situation with stagnation the question is whether fis-cal policy should be eased further to provide a temporary

boost to activity. However, such steps could jeopardiseconfidence in the Danish economy and prompt a relativeincrease in Danish interest rates. For instance, the effecton economic activity of a permanent increase in publicconsumption by DKK 10bn would, all else equal, be neu-tralised by a pick-up in 10-year government yields by

0.70% point.

Obviously, it is not possible to say beforehand thatweaker public finances alone will lead to upward pres-sure on Danish yields. But in the current situation thegains of further fiscal policy easing do not in our opinion

outweigh the potential risks.

Late labour market turnaround

As a result of the current low economic activity employ-

ment has been declining slightly over the past two years.It may seem a paradox that the number of employed peo-

ple has not dropped even further given the past years ofzero growth in the Danish economy. However, the reason

is rapidly declining productivity growth. This means thatinstead of fully adapting headcounts, many Danish busi-

nesses have been willing to accept weakening productivi-ty. It also means that it may take some time for employ-

ment to respond to rising growth, once it materialises.Against this backdrop and given the prospect of a later

Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)2009 (DKKbn) 2010 2011 2012 2013E 2014E

Private consumption 822 1.7 -0.5 0.6 0.4 1.6

Government consumption 496 0.4 -1.5 0.2 0.6 0.9

Fixed investment 304 -2.4 2.8 0.0 1.9 2.0

- government investment 32 8.9 4.2 7.4 -6.5 1.4- residential investment 71 -0.6 14.6 -9.5 -1.8 4.8

- business fixed investment 201 -4.9 -1.6 2.4 5.0 1.2

Stockbuilding* -22 1.0 0.5 -0.4 0.5 0.0

Exports 793 3.0 6.5 0.9 -0.5 2.6

Imports 728 3.2 5.6 1.8 1.1 3.0

GDP 1.6 1.1 -0.5 0.3 1.3

Nominal GDP (DKKbn) 1,665 1,761 1,792 1,820 1,850 1,904


Gross unemployment level, '000 persons 163.4 159.7 161.7 158.3 160.9


Hourly earnings, % y/y 2.3 1.8 1.6 1.5 1.9

Nominal house prices, one-family, % y/y 2.8 -2.8 -3.3 1.3 2.0

Current account (DKKbn) 103.6 101.2 100.3 85.3 67.3

- % of GDP 5.9 5.6 5.5 4.6 3.5

General govt. budget balance (DKKbn) -47.4 -34.9 -77.5 -25.0 -31.0

- % of GDP -2.7 -2.0 -4.3 -1.4 -1.6Gross public debt, % of GDP 42.9 46.6 45.5 44.5 43.0



8/14

Denmark


turnaround than originally anticipated, we have reviseddown our forecast for employment growth. Now, we donot expect employment to pick up in earnest until mid-2014.

Harbingers of spring in a fragile housing market

Developments in the housing market have recently givengrounds for some optimism. Especially the market forowner-occupied flats in the major cities has shown signs

of improvement with prices up and a moderate pick-up inthe turnover rate. With prospects of slightly higher mo-mentum in the Danish economy and sustained very lowinterest rates we expect this burgeoning optimism togradually spread to the rest of the housing market. How-ever, major regional differences will remain, with pro-

gress mainly seen in areas where demand is held up bydemographic movement.

Despite a tentative recovery in prices, residential con-

struction activity remains at a very low level. And alt-hough the government with its reintroduction of tax de-

ductibility of home repairs and improvements tries tobreathe life into the construction sector, housing invest-

ment is still far from contributing positively to growth.Still, we expect the cocktail of temporary tax allowances,significant pent-up demand and low interest rates to drivehousing investment slightly higher over the forecast peri-

od.

Households shaken by confidence crisis

The housing market crisis is the main reason why con-

sumer spending remains subdued despite the tax cuts in-

troduced at the beginning of the year and the surge inhousehold financial wealth to a record-high level.

Going forward, however, there is hope that rising dispos-able incomes and a gradual pick-up in economic activityglobally will get Danish household consumption out ofthe doldrums. But hope is not certainty. If the increase in

household purchasing power is to translate into risingconsumer spending, the savings ratio must not increasecorrespondingly. In this context the housing market willplay a key role in households choice between spendingand saving.

Helge J. [email protected] +45 33333126

Jan Strup [email protected] +45 33333171

Slightly higher growth ahead

Increased purchasing power to boost spending

Slow labour market turnaround

Exports peter out temporarily


0 2 4 6 8 10 12 14 16 18 20 22

98

100

102

104

106

108

110

112

114

116

118

98

100

102

104

106

108

110

112

114

116

118

1991 Q1

2000 Q1

GDP-GrowthIndex Index

2010 Q1

Note: Number of quarters


94 96 98 00 02 04 06 08 10 12 14

140

150

160

170

180

190

200

210

220

140

150

160

170

180

190

200

210

220 2005-DKKbn

Model based ondisposable income

Household

consumption

2005-DKKbn


03 04 05 06 07 08 09 10 11 12 13 14

50

75

100

125

150

175

200

225

2.70

2.75

2.80

2.85

2.90

2.95

3.00

Employment

mio. persons

Gross unemployment, rhs

'000 full-time unemployed


00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

120

140

160

180

200

220

240

260

120

140

160

180

200

220

240

260 2005-DKKbn

Imports

Exports

2005-DKKbn


9/14

Finland


Still trudging on

Slower than expected growth

Exports will not recover until 2014

Investment will decrease

Weaker employment weighs on consumption

Slower than expected growth

The short-term outlook of the Finnish economy has

turned weaker due to the lack of both international anddomestic demand. In addition, the global economy hasrecovered slower than expected and global trade growthhas remained sluggish. It is problematic for Finnish ex-ports that the most important export areas are facing dif-ficulties. The recession in the euro area is lasting longer

than expected, economic growth in Russia is clearly

slower and 2013 has so far been a letdown also in China.There is no domestic growth driver, either.

Based on preliminary data, total production contracted0.1% in Q1 from the previous quarter and over 2% com-

pared to one year ago. With this in mind, we estimategrowth to remain slow for another few quarters. Accord-ingly, we have decreased our growth forecast to -0.5%for 2013 (from 0.5%) and to 1.5% for 2014 (from 2.2%).The growth estimates of all components of GDP havebeen revised down. Exports, imports and investment will

continue the downward trend from last year and con-sumption will only grow feebly. In our view, total pro-

duction will not grow at all this year in quantitativeterms. Due to non-existent economic growth, the unem-ployment rate is expected to settle at 8.3% on averageboth in 2013 and 2014.

Exports will not recover until 2014

We estimated in our March forecast that Finnish exports

would get more steam from increased internationaldemand in H2 2013. We have been forced to revise thisview, as the pick-up in exports does not seem likely until

closer to the end of this year.

Exports have remained subdued this year. Goods exportscontracted close to 5% in JanuaryMarch compared tothe same period last year, and few industries were able toincrease their exports. One reason for this drop is theexport of communication devices, which collapsed by awhopping 75%. The proportion of this industry used to

be significant, but it has now shrunk to a meagre 1%. Theworking-day adjusted production of the manufacturingindustry was a good 5% smaller than one year ago, andthe capacity utilisation rate was lower than usual. Thereis no quick pick-up of exports on horizon, as new orders

of the manufacturing industry are still soft.

Certain indicators, such as the global PMI and OECD's

leading indicator, have continued to rise in the past fewmonths. This trend supports the idea of a moderaterecovery in global trade. On the back of this, we do notexpect Finnish exports, driven by investment goods, raw

materials and production supplies, to pick upsignificantly more pace before late this year. As a whole,

export volumes will remain slightly smaller than lastyear.

Investment will decrease

Exports and new manufacturing orders are fairly goodindicators of the trend in machinery and equipmentinvestment for a couple of quarters forward. The recentperformance of the two and current expectations do not

indicate an upturn in machinery and equipmentinvestment before 2014. New building permits and

Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)2009 (EURbn) 2010 2011 2012 2013E 2014E

Private consumption 94 3.3 2.3 1.6 0.5 0.9

Government consumption 43 -0.3 0.4 0.8 0.5 0.5

Fixed investment 34 1.9 7.1 -2.9 -3.3 2.7

Stockbuilding* -2 0.8 1.3 -1.7 0.0 0.0Exports 64 7.5 2.9 -1.4 -0.3 4.3

Imports 62 6.9 6.1 -3.7 -0.8 4.1

GDP 3.3 2.8 -0.2 -0.5 1.5

Nominal GDP (EURbn) 172 179 189 194 198 205


Industrial production, % y/y 8.3 1.0 -1.8 -4.0 2.0


Hourly w ages, % y/y 2.6 2.7 3.2 2.0 1.6

Current account (EURbn) 2.9 -2.4 -3.0 -2.9 -2.8

- % of GDP 1.6 -1.3 -1.6 -1.5 -1.4

Trade balance (EURbn) 2.6 -1.2 0.3 0.1 0.3

- % of GDP 1.4 -0.6 0.1 0.1 0.2

General govt budget balance (EURbn) -4.5 -1.5 -3.7 -3.8 -3.2

- % of GDP -2.5 -0.8 -1.9 -1.9 -1.6

Gross public debt (EURbn) 87.0 92.8 103.1 110.1 116.0- % of GDP 48.6 49.0 53.0 55.6 56.7



10/14

Finland


initiated projects suggest that new construction will alsodecrease this year. Reconstruction will, however,moderate the decline in construction.

Employment will continue to weaken

The economic recession will weaken employment with a

lag. Seasonally adjusted unemployment rate rose to 8.2%on average in JanuaryApril from 7.6% in the sameperiod last year. With economic activity low, we expect

the labour market to continue to weaken for the rest ofthe year and the unemployment rate to increase to 8.5%in the coming autumn.

Consumer price growth to slow down

Consumer prices rose clearly less than expected inJanuaryApril 2013. The price rise is curbed by theeconomic recession, weaker employment, significantslowdown in producer and wholesale price growth andthe passed peak in housing prices. We have decreased

our consumer price rise forecast for 2013 to 1.6%. In2014 we estimate the rise in consumer prices to be 2%.

Drive from consumption to abate clearly

The purchasing power of households will not increase atall this year even though the consumer price rise has

stabilised. Employment will weaken more than expected,income level will rise less than last year and taxation willbe tightened. Our forecast also assumes that householdswill continue to save less. Consumption growth will

remain subdued in 2014 too. Moreover, we believe therise in wages to be justifiably moderate, pensions to rise

less than last year and income taxation to be tightened.

Many municipalities will decide to raise the tax rate, andit has been preliminarily decided that there will be nousual inflation adjustments in the income tax brackets

next year either.

Trade balance still in small surplus

The trade balance again showed a small surplus last year

after a deficit in 2011 for the first time in two decades. Inthe forecast period, the trade balance will continue to

show a small surplus, as weak domestic demand willweigh on goods exports. The current account will,however, continue to show a clear deficit.

Public finances will not change direction withoutaction

The public sector deficit will not decrease much in theforecast period without special action. The government's

borrowing need will continue to be significant, and thepublic debt to GDP ratio is approaching the 60% mark ata steady pace.

Pasi [email protected] +358 9 165 59942

First signs of a pick-up in world trade volumes

suggesting gradually stronger Finnish exports

Unemployment has started to increase

Consumer price pressures have eased


98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-25

-20

-15

-10

-50

5

10

15

20

25

30

35

40

45

50

55

60

65 % y/y

World trade volume, 3M mov. avg.

Index

Global PMI, export orders3M mov. avg., advanced 3M


96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-40

-30

-20

-10

0

10

20

30

-40

-30

-20

-10

0

10

20

30 % y/y

World trade volume

% y/y

Volume of Finnish goods exports

Note: 3M mov. avg.


99 00 01 02 03 04 05 06 07 08 09 10 11 12

5

6

7

8

9

10

11

12

13

14

5

6

7

8

9

10

11

12

13

14 %

Unemployment rateFinland, non-SA

Unemployment rate, Euro area, SA

%

Unemployment rate, Finland, SA


96 98 00 02 04 06 08 10 12

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5 % y/yConsumerprices (CPI)

Wholesale prices

Producer prices (manufacturing)

% y/y


11/14

Key figures


rowt , n at on,2010 2011 2012 2013E 2014E 2010 2011 2012 2013E 2014E

World1) 5.2 3.9 3.2 3.2 4.0 World1) 3.7 4.9 4.0 3.7 3.9

USA 2.4 1.8 2.2 1.9 2.8 USA 1.6 3.1 2.1 1.6 2.4

Euro area 2.0 1.4 -0.5 -0.8 1.0 Euro area 1.6 2.7 2.5 1.4 1.5

China 10.4 9.3 7.8 7.8 8.2 China 3.3 5.4 2.6 4.0 4.2

Japan 4.7 -0.5 2.0 1.4 1.1 Japan -0.7 -0.3 0.0 0.4 0.8

Denmark 1.6 1.1 -0.5 0.3 1.3 Denmark 2.3 2.8 2.4 0.9 1.4

Norw ay 1.7 2.5 3.4 2.6 2.2 Norw ay 2.5 1.2 0.8 1.9 1.4

Sw eden 6.6 3.7 0.7 1.5 2.5 Sw eden 1.2 3.0 0.9 0.0 1.4

UK 1.8 0.9 0.2 0.6 1.5 UK 3.3 4.5 2.8 2.2 2.0

Germany 4.0 3.1 0.9 0.2 1.6 Germany 1.2 2.5 2.1 1.4 1.5

France 1.7 1.7 0.0 -0.2 1.0 France 1.5 2.1 2.0 1.2 1.6

Italy 1.7 0.4 -2.4 -1.5 0.6 Italy 1.6 2.9 3.3 1.5 1.5

Spain -0.3 0.4 -1.4 -1.6 0.8 Spain 2.0 3.1 2.4 1.8 1.2

Finland 3.3 2.8 -0.2 -0.5 1.5 Finland 1.2 3.4 2.8 1.6 2.0

Estonia 3.3 8.3 3.2 3.2 3.8 Estonia 3.0 5.0 3.9 3.5 3.3

Poland 3.9 4.3 2.0 1.8 2.8 Poland 2.6 4.3 3.7 1.6 2.5

Russia 4.5 4.3 3.4 3.5 3.6 Russia 8.8 6.1 6.6 6.4 5.9

Latvia -0.9 5.5 5.6 3.7 4.4 Latvia -1.1 4.4 2.3 1.6 2.7

Lithuania 1.5 5.9 3.6 4.0 4.2 Lithuania 3.8 3.4 2.8 3.0 3.4

India 9.8 7.3 5.1 5.9 6.6 India 9.6 9.5 7.5 6.8 6.7

Brazil 7.6 2.7 1.5 3.5 4.2 Brazil 5.0 6.6 5.2 5.6 5.8

Rest of World 5.7 4.5 3.5 3.5 4.0 Rest of World 5.4 6.8 6.4 5.7 5.5

u c nances, o urrent account, o2010 2011 2012 2013E 2014E 2010 2011 2012 2013E 2014E

USA -9.0 -8.7 -7.0 -5.1 -3.6 USA -3.0 -3.1 -3.0 -3.2 -3.5

Euro area -6.2 -4.1 -3.7 -2.9 -2.7 Euro area 0.2 0.3 1.8 2.5 2.7China -1.7 -1.1 -1.6 -2.3 -1.9 China 4.0 2.8 2.3 2.2 1.5

Japan -9.5 -10.0 -10.2 -9.8 -9.3 Japan 3.7 2.0 1.6 2.0 2.1

Denmark -2.7 -2.0 -4.3 -1.4 -1.6 Denmark 5.9 5.6 5.5 4.6 3.5

Norw ay 11.1 13.6 14.3 11.5 12.6 Norw ay 11.9 12.8 14.2 11.1 12.3

Sw eden 0.0 0.0 -0.6 -1.3 -1.5 Sw eden 6.2 6.2 6.2 6.7 6.7

UK -10.2 -7.8 -6.5 -6.5 -5.0 UK -2.5 -1.3 -3.7 -3.0 -1.8

Germany -4.1 -0.8 0.1 -0.5 0.5 Germany 6.1 5.6 6.3 6.0 5.6

France -7.1 -5.2 -4.6 -3.8 -4.1 France -2.0 -2.6 -1.9 -1.6 -1.8

Italy -4.3 -3.8 -2.8 -2.0 -1.9 Italy -3.5 -3.3 -0.7 0.6 0.8

Spain -9.7 -9.4 -10.2 -6.7 -7.2 Spain -4.4 -3.7 -1.9 1.0 2.5

Finland -2.5 -0.8 -1.9 -1.9 -1.6 Finland 1.6 -1.3 -1.6 -1.5 -1.4

Estonia 0.2 1.1 -0.2 -0.3 -0.1 Estonia 3.2 2.1 -1.5 -2.1 -2.2

Poland -7.8 -5.0 -3.5 -3.8 -3.2 Poland -5.1 -4.9 -3.5 -2.5 -3.1

Russia -3.9 0.8 -0.2 0.3 0.2 Russia 5.0 5.4 4.3 3.0 2.5

Latvia -8.2 -3.5 -1.5 -1.2 -1.0 Latvia 3.0 -2.2 -1.7 -2.3 -3.0

Lithuania -7.2 -5.5 -3.0 -2.8 -3.0 Lithuania 0.1 -3.7 -0.9 -2.5 -3.0

India -4.0 -7.2 -5.8 -5.3 -5.5 India -3.2 -3.4 -4.0 -4.5 -5.0

Brazil -2.7 -2.6 -2.1 -2.1 -2.0 Brazil -2.2 -2.1 -2.6 -2.7 -2.6

1) Weighted average of 184 countries. Weights f or all co untri es and dat a for R est of Wor ld are fro m the most recent W orld Economic Outloo k, by the IMF. The weights are calculated fro m PPP-

adjusted GDP-levels


12/14

Key figures


Monetary policy rates Monetary policy rate spreads vs Euro area10.6.13 3M 31.12.13 30.06.14 31.12.14 10.6.13 3M 31.12.13 30.6.14 31.12.14

US 0,25 0,25 0,25 0,25 0,25 US -0,25 -0,25 -0,25 -0,25 -0,25

Japan 0,10 0,10 0,10 0,10 0,10 Japan1 -0,15 -0,15 -0,15 -0,15 -0,15

Euro area 0,50 0,50 0,50 0,50 0,50 Euro area - - - - -

Denmark 0,20 0,20 0,20 0,35 0,50 Denmark -0,30 -0,30 -0,30 -0,15 0,00

Sw eden 1,00 1,00 1,00 1,25 1,50 Sw eden 0,50 0,50 0,50 0,75 1,00

Norw ay 1,50 1,50 1,50 1,50 1,75 Norw ay 1,00 1,00 1,00 1,00 1,25UK 0,50 0,50 0,50 0,50 0,50 UK 0,00 0,00 0,00 0,00 0,00

Sw itzerland 0,00 0,00 0,00 0,00 0,00 Sw itzerland -0,50 -0,50 -0,50 -0,50 -0,50

Poland 3,00 2,75 2,75 2,75 3,50 Poland 2,50 2,25 2,25 2,25 3,00

Russia 8,25 8,25 8,00 8,00 8,00 Russia 7,75 7,75 7,50 7,50 7,50

China 6,00 6,00 6,25 6,50 6,50 China 5,50 5,50 5,75 6,00 6,00

India 7,25 7,00 7,00 7,00 7,25 India 6,75 6,50 6,50 6,50 6,75

Brazil 8,00 8,25 8,50 8,75 9,50 Brazil 7,50 7,75 8,00 8,25 9,00

3-month rates 3-month spreads vs Euro area

10.6.13 3M 31.12.13 30.6.14 31.12.14 10.6.13 3M 31.12.13 30.6.14 31.12.14

US 0,28 0,30 0,35 0,35 0,60 US 0,07 0,10 0,15 0,05 0,20


Denmark 0,26 0,30 0,35 0,45 0,55 Denmark 0,05 0,10 0,15 0,15 0,15

Sw eden 1,22 1,25 1,25 1,75 1,85 Sw eden 1,01 1,05 1,05 1,45 1,45

Norw ay 1,78 1,70 1,70 1,70 1,95 Norw ay 1,58 1,50 1,50 1,40 1,55

UK 0,51 0,60 0,60 0,60 0,65 UK 0,30 0,40 0,40 0,30 0,25

Poland 2,76 2,75 2,85 3,00 3,75 Poland 2,56 2,55 2,65 2,70 3,35

Russia 7,09 7,20 7,00 7,00 7,00 Russia 6,89 7,00 6,80 6,70 6,60

Latvia 0,39 0,45 0,20 0,30 0,40 Latvia 0,19 0,25 0,00 0,00 0,00

Lithuania 0,73 0,50 0,50 0,50 0,75 Lithuania 0,53 0,30 0,30 0,20 0,35

10-year government benchmark yields 10-year yield spreads vs Euro area10.6.13 3M 31.12.13 30.6.14 31.12.14 10.6.13 3M 31.12.13 30.6.14 31.12.14

US 2,17 2,00 2,65 2,80 3,25 US 0,62 0,70 0,75 0,70 0,85


Denmark 1,63 1,40 2,00 2,20 2,50 Denmark 0,09 0,10 0,10 0,10 0,10

Sw eden 1,94 1,80 2,40 2,85 3,05 Sw eden 0,40 0,50 0,50 0,75 0,65

Norw ay 2,24 2,03 2,69 2,94 3,18 Norw ay 0,70 0,73 0,79 0,84 0,78

UK 2,10 2,05 2,40 2,55 2,85 UK 0,55 0,75 0,50 0,45 0,45

Poland 3,80 3,20 3,30 3,50 3,80 Poland 2,25 1,90 1,40 1,40 1,40

Exchange rates vs EUR Exchange rates vs USD10.6.13 3M 31.12.13 30.6.14 31.12.14 10.6.13 3M 31.12.13 30.6.14 31.12.14

EUR/USD 1,32 1,32 1,25 1,20 1,15 -

EUR/JPY 130,6 132,0 125,0 126,0 126,5 USD/JPY 98,7 100,0 100,0 105,0 110,0

EUR/DKK 7,46 7,46 7,46 7,46 7,46 USD/DKK 5,64 5,65 5,96 6,21 6,48

EUR/SEK 8,71 8,45 8,45 8,20 8,20 USD/SEK 6,59 6,40 6,76 6,83 7,13

EUR/NOK 7,62 7,55 7,50 7,50 7,70 USD/NOK 5,76 5,72 6,00 6,25 6,70

EUR/GBP 0,85 0,85 0,87 0,83 0,80 GBP/USD 1,55 1,56 1,44 1,45 1,44

EUR/CHF 1,24 1,25 1,25 1,25 1,30 USD/CHF 0,94 0,95 1,00 1,04 1,13

EUR/PLN 4,26 4,05 3,95 3,90 3,85 USD/PLN 3,22 3,1 3,2 3,3 3,3

EUR/RUB 42,7 40,9 37,5 35,4 33,4 USD/RUB 32,3 31,0 30,0 29,5 29,0

EUR/LVL 0,70 0,70 0,70 0,70 0,70 USD/LVL 0,53 0,53 0,56 0,59 0,61

EUR/LTL 3,45 3,45 3,45 3,45 3,45 USD/LTL 2,61 2,62 2,76 2,88 3,00

EUR/CNY 8,11 8,05 7,56 7,08 6,56 USD/CNY 6,13 6,10 6,05 5,90 5,70

EUR/INR 76,6 72,6 68,1 63,6 57,5 USD/INR 57,9 55,0 54,5 53,0 50,0

EUR/BRL 2,83 2,55 2,34 2,22 2,01 USD/BRL 2,14 1,93 1,87 1,85 1,75


13/14


Sweden:

Annika Winsth, Chief Economist [email protected], +46 8 614 8608

Torbjrn Isaksson, Chief [email protected], +46 8 614 8859

Andreas Jonsson, Senior [email protected],+46 8 534 910 88

Bengt Rostrm, Senior [email protected], +46 8 614 8378

Lena Sellgren, Senior [email protected], +46 8 614 88 62

Linus Lauri,Assistant Analyst

[email protected], +46 8 614 80 03Siri Pettersson,Assistant [email protected], +46 8 614 80 03

Rickard Bredeby,Assistant [email protected], +46 8 614 80 03

Estonia:

Tnu Palm, Chief Economist [email protected], +372 628 3345

Latvia:

Andris Strazds, Chief Economist [email protected], +371 67 096 096

Lithuania:

Zygimantas Mauricas, Chief Economist [email protected], +370 5 2657 198

Russia:

Dmitry A. Savchenko, Chief Economist [email protected], +7 495 777 34 77 4194

Dmitry S. Fedenkov, [email protected], +7 495 777 34 77 3368

Poland:

Piotr Bujak, Chief Economist Poland

Economic Research Nordea

Denmark:

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

Johnny Bo Jakobsen, Chief [email protected], +45 3333 6178

Anders Svendsen, Chief [email protected], +45 3333 3951

Holger Sandte, Chief [email protected], +45 3333 1191

Jan Strup Nielsen, Senior [email protected], +45 3333 3171

Amy Yuan Zhuang, Senior Analyst

[email protected], +45 3333 5607Aurelija Augulyte, Senior [email protected], +45 3333 6437

Heidi stergaard,Assistant [email protected], +45 3333 6102

Henrik Lorin Rasmussen,Assistant [email protected], +45 3333 4007

Daniel Freyr Gustafsson,Assistant [email protected], +45 3333 5115

Finland:

Roger Wessman, Chief Economist [email protected], +358 9 165 59930

Pasi Sorjonen, Chief [email protected], +358 9 1655 9942

Annika Lindblad,[email protected], +358 9 1655 9940

Norway:

Steinar Juel, Chief Economist [email protected], +47 2248 6130

Erik Bruce, Chief [email protected], +47 2248 4449

Thina M. Saltvedt, Chief [email protected], +47 2248 7993

Katrine Godding Boye, Senior [email protected], +47 2248 7977

Bjrnar Tonhaugen, Senior [email protected], +47 2248 7959


14/14


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The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or saleof any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient.Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of fu-ture results.

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This document may not be reproduced, distributed or published for any purpose withoutthe prior written consent from Nordea Markets.

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economic outlook nordics, nordea bank, june 11, 2013. "out of breeze"

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