Sweden’s economy will more likely “tread water” than fall into a severe recession, Danske Bank A/S forecast, downgrading its projections for the biggest Nordic country.
(Bloomberg) — Sweden’s economy will more likely “tread water” than fall into a severe recession, Danske Bank A/S forecast, downgrading its projections for the biggest Nordic country.
The economy is beset by a “shaky growth outlook” but supported by a strong labor market, the bank said on Tuesday, estimating this year will bring stagnation rather than the 0.5% expansion previously projected. Next year, Sweden will probably clock in the fastest growth rate among the four biggest Nordic nations.
Housing prices have already bottomed out after a slide that weighed on Sweden through 2022, the bank said, joining rival Svenska Handelsbanken AB that was the first to forecast no further decline. There’s a “good chance of inflation dropping back at a rate consistent with the Riksbank’s forecast,” Danske said, penciling in one more interest-rate hike for the central bank this month, to 4%. It also needs to keep rates near the European Central Bank’s to protect the krona.
Norway is facing a “kind of stagflation” scenario, with growth showing clear signs of slowing while there is a risk of inflation “embedding at high levels and becoming self-perpetuating through price-wage spirals,” Danske said. Still, Norges Bank’s key rate hikes are “beginning to bite” and the krone has performed largely as expected, suggesting that policymakers will stop tightening after an expected quarter point hike to 4.25% later this month, it said.
While Danske raised its 2023 GDP forecast for Denmark to 1.7% from 1.5%, it warned that growth is largely driven by Novo Nordisk A/S and its pharmaceutical peers, with large parts of the economy facing stagnation or recession.
“A number of construction companies are feeling the pinch, and bankruptcy numbers are approaching financial crisis levels,” Danske said, adding that industrial production excluding the pharma companies is falling.
Building activity is also a headache for the Finnish economy, with the European Union’s highest share of variable-rate mortgages, at more than 95%. Housing construction is set to remain weak “long into 2024” with the impacts felt beyond builders, the bank said.
–With assistance from Leo Laikola.
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