Despite the challenges posed by the Covid-19 pandemic, the Nordics have demonstrated resilience and economic stability in recent years. However, the region is now facing the impact of geopolitical instabilities in Europe and rising inflation, which are influencing consumer behavior. Nevertheless, when compared to similar markets, the Nordics continue to maintain a strong position.

As mentioned in our previous economic outlook (Related, 2023), the Nordic economies have been less damaged by the Covid-19 crisis and recovered quickly, putting government finances in good shape. After the first few months of 2023, the Danish, Swedish, and Norwegian economies are performing better than anticipated, while the Finnish economy is expected to pick up in 2024 (Danske Bank, 2023; SEB, 2023b).  

When investigating the Nordic economies and comparing them to other countries in Europe, it becomes clear that the Nordics are in a good position. The GDP per capita (PPP) is well above average in the EU, as seen in the table below:

Denmark	Sweden	Norway	Finland	EU Average
64,651	59,324	79,201	55,013	48,480

Table 1: GDP per capita, PPP (current international $) (International Comparison Program, World Bank | World Development Indicators database, World Bank | Eurostat-OECD PPP Programme)

Denmark

The Danish economy continues to prove resilient, surprising economists at SEB Group and Danske Bank (Danske Bank, 2023; SEB, 2023b). While a mild recession is anticipated in 2023, the economy is looking really well, as GDP growth looks better than expected, and Danske Bank (2023) now expects an increase in GDP of 0.5%, compared to the 0.1% growth expected in 2023 last fall (OECD, 2022a).

Consumer spending is now stabilizing (Danske Bank, 2023; SEB, 2023b), despite being challenged by inflation. Danish households are well-cushioned, and consumption is now seeing modest growth (Danske Bank, 2023), which is sooner than anticipated by SEB in early 2023 (SEB, 2023a).

According to Statistics Denmark (2023), unemployment rates are still at a record low, consequently benefitting the Danish economy. In the past months, the continuing low unemployment rates have been a positive surprise, and it is anticipated that these very low unemployment rates will continue in 2023 (SEB, 2023b), as labor shortages are seen in some industries. The labor market in Denmark continues to be strong.

The Danish government continues to focus on stabilizing the economy and has done so with success. The government recently stated it would continue to try to control inflation and consider the pressure in the economy by making use of a tight fiscal policy (Danish Ministry of Finance, 2023).

Sweden

The Swedish economy remains resilient (SEB, 2023), with a strong start in 2023. Despite still expecting a fall in GDP for the rest of 2023, SEB and Danske Bank have adjusted their forecast from -1.2% to -1.0%. This is due to the fact that the Swedish economy has performed better than anticipated in the first months of 2023.

With Swedish households being squeezed by inflation and shrinking savings (SEB, 2023b), consumer spending is anticipated to weaken over the course of 2023. However, there are signs in the Swedish economy, that inflation will ease, which will lessen the hit on consumption.

While the labor market remains strong, there is a risk that a prolonged economic downturn will weaken the labor market (SEB, 2023b). Despite worrying signs, e.g., consumers increasingly being worried about unemployment, there are still major labor shortages (Danske Bank, 2023). A continuation of a strong labor market is crucial for growth and consumption in Sweden, consequently, we might see consumer spending to be less hurt, if the labor market remains strong as now.

As mentioned in our previous Economic Outlook, Sweden got a new government with a goal to ease the economic pressure on the population. This continues to be the case, as SEK 25 billion will help Swedish households through tax cuts and higher transfers, as part of an announced expansionary measures for 2023 (SEB, 2023).

Norway

While a recession was expected, the Norwegian economy has performed better than anticipated (Danske Bank, 2023; SEB, 2023b). Now, the growth in GDP is expected to be 1.0% (Danske Bank, 2023) and is set higher than previously. Overall, the economic growth has been stronger than expected and we see a clear turning point with lower inflation.

Consumer spending has been held up by household savings, however, it is unclear if these savings can continue to benefit the economy through consumption (SEB, 2023b). Danske Bank (2023) expects real wage growth in Norway to be around 0% in 2023, and with household savings shrinking, consumer spending is expected to slow in the coming months.   

The labor market remains strong, with unemployment rates being more or less unchanged for the past 8 months. However, there are signs that the labor market is about to cool, as the number of new job openings is falling, although they are still considered to be very high (Danske Bank, 2023). Thus, unemployment rates are expected to increase in 2023, yet still remain low (Danske Bank, 2023; SEB, 2023b; Statistics Norway, 2023).

As seen in other Nordic countries, Norway’s current economic policies are put in place to safeguard household finances by bringing inflation under control. The government does not plan large expenditure cuts to cover expenses for the Ukrainian War, or the increase in pensions or other social security benefits, however, it will continue to strengthen incentives to work (Norwegian Ministry of Finance, 2023). Furthermore, the Norwegian government is planning a redistribution of taxes to benefit the nation (Norwegian Ministry of Finance, 2022).

Finland

Finland’s economy continues in a downward spiral in the first half of 2023 but is set to bounce back in the second half (SEB, 2023b). However, the GDP will decrease slightly before picking up in 2024 (Danske Bank, 2023; OECD, 2022b) Consequently, the GDP growth in 2023 is expected to be -0.1%-0.2% (Danske Bank, 2023; SEB, 2023b).

We see increased consumer confidence, yet it is still weak, affecting consumer spending now and for the rest of 2023 (Danske Bank, 2023; SEB, 2023b; Statistics Finland, 2023). Household savings have contributed to consumer spending not decreasing as much as feared, however, the savings cannot continue to do so.

Employment grew in Q1 of 2023, benefitting the Finnish economy. The labor market has been in good health in recent years, yet the unemployment rate is expected to increase in 2023 (SEB, 2023b). However, it is evident that the unemployment rate is expected to increase less than anticipated in Q1 of 2023, and now looks very stable (Danske Bank, 2023).

Finland recently held a parliamentary election, and the economy was a key theme of the election. Especially the increase in inflation and high energy prices has contributed to discussions ahead of the election. The new government is set to combat inflation.