The economic outlook document provides the following key points in 3 sentences: 1) Global economic growth is expected to moderate in the coming years from the strong rebound in 2010, with risks including further slowdowns in the US and China and potential commodity price shocks. 2) The Nordic economies have shifted into higher gear after a slow start in 2010, supported by improving exports and domestic demand, with healthy public finances reducing the need for fiscal austerity. 3) While the Eurozone recovery continues, led by Germany, growth is expected to slow in the second half of 2010 as fiscal tightening takes effect across countries and the US economic leadership in driving global growth may weaken.

1. Economic Outlook
September 2010

2. Contents
Data overview OVERVIEW
Autumn mood ................................................................................................. 4
Key figures ............................. 6
Interest rates .......................... 7
Nordic economies
Exchange rates...................... 7
DENMARK
Economy back on the growth track ................................................................................. 8
SWEDEN
Editor Swift recovery................................................................................................ 10
Helge J. Pedersen,
Head of Economic Research NORWAY
Consumer spending disappoints ................................................................... 12
helge.pedersen@nordea.com
Tel +45 3333 3126 FINLAND
Recovery at fluctuating speed ....................................................................... 14
Major economies
Editorial deadline USA
24 August 2010 Weak growth, but no new recession............................................................... 16
EURO AREA
Recovery continues as sovereign debt crisis smoulders................................ 18
UK
Visit us at: Economy is losing steam ............................................................................... 20
www.nordea.com/e-Markets
Emerging Markets
Data sources: POLAND
Bright economic outlook, but less so ............................................................. 21
Data sources are Reuters EcoWin,
national statistical bureaus and RUSSIA
own calculations unless otherwise Growth returning but public finances strained ............................................... 23
noted. ESTONIA
Recovery gaining strength ............................................................................. 25
LATVIA
Towards brighter times .................................................................................. 26
LITHUANIA
Gradual economic recovery ........................................................................... 27
HUNGARY
Considerable uncertainty ............................................................................... 28
CZECH REPUBLIC
A good start for the new government ............................................................. 29
CHINA
Economic activity is slowing as intended by the authorities........................... 30
INDIA
Healthier - but not healthy - outlook for public finances ................................. 32
BRAZIL
Overheating fears abating .............................................................................. 33
TURKEY
Amazing recovery .......................................................................................... 34
Commodities
OIL
Risk appetite back in the limelight ................................................................. 35
METALS AND PULP
Only temporary price dips ............................................................................. 36
3 September 2010 Economic Outlook

3. Overview
Autumn mood
Since the May issue of Economic Outlook we have seen are back at the levels that prevailed before Lehman
increasing signs of growth having peaked this time Brothers’ collapse in September 2008, which triggered
around. Especially in the US and China there are clear the Great Recession. But this trend is largely driven by
signs of a slowdown. The Euro area, on the other hand, is the Emerging Markets, especially the Asian economies.
still steaming ahead. The main reason is that the German The old continents still have a long way to go to restore
growth engine has finally shifted into a higher gear sup- their economies to former levels of activity, and one of
ported by the sharp EUR weakening earlier this year. the key questions at present is whether a permanent
Normally, when the US economy slows down, the Euro- structural shift has taken place. The Great Recession may
pean economy will also slow down after a few quarters. have speeded up the deindustrialisation process in the
Therefore, we expect Euro-area growth to slow towards Western world.
the end of 2010 when the individual countries’ an-
nounced fiscal policy tightening takes effect. Last, but not least, the best piece of news this summer –
that the Euro area emerged unscathed from the sovereign
No new global recession debt crisis – supports our baseline scenario. If the debt
Our baseline scenario therefore factors in relatively mo- crisis had escalated into a new financial meltdown, the
dest global growth over the coming year. But we do not risk of a new global recession would have been much
believe that the world economy is heading for a new re- higher. The EU’s and IMF’s joint EUR 750bn rescue
cession. package ensures that no country in the Euro area will end
up having to suspend its payments, and the stress test of
First, for quite some time it has been clear that the US re- the major European banks has also contributed to easing
covery, which proved very strong towards the end of fears. The ECB's efforts to get the money and capital
2009, would lose momentum. The reason is that the up- markets working satisfactorily and to restore confidence
swing in the manufacturing sector was mainly driven by among the financial players should also not be underes-
inventory restocking. And the trend in final demand has timated. The bank has pursued an extremely loose mone-
not been convincing. Capacity utilisation and, in turn, the tary policy with historically low interest rates, unlimited
labour market remain weak, which put a damper on con- supply of liquidity and purchases of government bonds.
sumer confidence and housing market activity. Govern-
ments are also beginning to phase out their lenient fiscal The ECB is facing huge challenges
policies and this will also contribute to lower economic But the ECB is still facing huge challenges. The dual
activity in the coming year. Against this backdrop, the structure of the Euro-area growth pattern, with high
risk of the US economy sliding into a new recession growth in the northern part and low growth in the south-
should not be underestimated. President Obama’s scope ern part, poses great challenges to the ECB when formu-
for manoeuvre in terms of launching new fiscal policy lating its monetary policy. So far the ECB has taken a ve-
measures to stimulate the economy is restricted by the ry pragmatic line, focusing on financial stability and
huge US budget deficit, but ultimately depends on the growth. Its rhetoric towards politicians, meanwhile, has
outcome of the mid-term elections in November and any been increasingly harsh as the bank has demanded fiscal
resulting shifts in the political balance in Congress. discipline and structural reforms. The need for the latter
Meanwhile, which is the good news, US households have is most prominent in the southern European countries
consolidated their finances over the past years and there- where a tough, but not unsolvable, task lies ahead. In this
fore, on a slightly longer-term horizon, they may again context it should be noted that up to now the IMF’s regu-
contribute strongly to growth. But we will probably have lar statements on Greece’s austerity programme have
to wait until 2012 for that to happen. been very positive.
Second, we are not overly concerned about the slowdown Most likely, any ultimate tightening of the extremely loo-
in China because it is controlled by the government’s se monetary policies in the Euro area and the US is not
economic policy. Particularly fears of an overheating going to be sanctioned over the next 12 months or so.
housing market have prompted the recent tightening of Capacity is still abundant and uncertainties about the up-
credit standards, which in turn has been a key factor be- swing are rife. Against this backdrop, the US Federal Re-
hind the current growth slowdown. But we believe that serve recently announced that it will continue to purchase
the Chinese authorities will attempt to counter any sig- Treasuries for quite a while, and we do not expect the
nificant slowdown by new fiscal policy measures, so Fed to hike rates until Q4 2011. Consequently, the ECB
over the forecast period (the years through 2012) growth is not likely to hike rates until around that time either, to
should remain robust at just under 9%. Meanwhile, avoid excessive EUR strengthening, which could stifle
growth in the other BRIC countries (Brazil, Russia and the recovery. From mid-2011 the US will again take the
India) will also remain at a high level. In this context it is lead in terms of economic growth. The USD will
noteworthy how the global growth pattern changes these strengthen again versus the EUR and throughout 2012
years. Global manufacturing production and global trade the Fed will hike rates slightly more aggressively than
4 September 2010 Economic Outlook

4. Overview
the ECB. As a result, we see the USD appreciating ver- improvement of the housing market with increasing trad-
sus the EUR, bringing the EUR/USD cross to around ing activity and rising prices underpinned by the low
1.15 by the end of the forecast period. level of interest rates.
The expected monetary policy tightening will also cause After a slow start in 2010, the Finnish economy began to
long yields to rise, although not until late in the forecast gain momentum in the spring. Also, the outlook for the
period and probably not sharply. The low rate of inflation rest of the year is favourable. Next year, growth will
will continue to put a lid on interest rates, but we may begin to slow down relative to the brisk figures of H2
still see wide yield spreads between the individual Euro- 2010. In 2011, average GDP growth will be a little
area countries going forward. Specifically, we expect slower than this year. On the whole, the trend will be
both US and Euro-area long yields to remain around cur- reasonably favourable in the next few years. Despite the
rent levels in the coming 3-6 months when uncertainties broadness of the past recession, its impact has been fairly
about the economy will likely be rife. Then, when risk mild. GDP growth fell sharply, but the level of
aversion declines, yields should edge up towards 3.50- unemployment remained much lower than feared.
3.75%, probably with the biggest increase in the US. Moreover, the general government deficit probably
stayed below the EU’s 3% target, and next year the
Risk of new commodity shock general government finances will again be close to
The trend in commodity prices poses a risk to the growth balancing.
and inflation outlook. The surge in commodity prices
since last year and especially the sharp rise in oil prices In the May issue of Economic Outlook we revised down
have markedly lifted consumer price inflation, which, our forecast for growth in the Norwegian economy in
admittedly, is still below 2% in most countries. Recently, 2010, and now we have to do it again. The main reason is
the forest fires in Russia have caused wheat prices to rise that the Norwegian consumers seem to have been more
sharply, and this trend could spread to other food prices. prone to save rather than spend than we thought. Our
Still, we are not overly concerned. Unlike a few years view on the economy in 2011 is only marginally
back when the labour market situation was different, the changed, and we still expect a modest upswing. The
risk of consumer price rises leading to higher wage smaller-than expected pick-up in interest rates and
growth, triggering a price-wage spiral, is now very low. higher-than-expected oil investment will to a great extent
Late in the forecast period we see oil prices rising compensate for the more cautious-than-expected
sharply to around USD 110/barrel, but even at this time consumer behaviour. In 2012 we see growth accelerating
we do not see a major risk of higher wage growth on ac- sharply driven by stronger global growth and higher oil
count of the pick-up in oil prices. However, there is cer- prices. With weaker growth in 2010 and prospects of
tainly a risk that such oil price rises could choke off the interest rates outside Norway remaining low for a long
recovery. Historically, this has almost always been the time, any pick-up in Norwegian interest rates should be
case when oil prices have risen to such heights measured very modest. But Norwegian interest rates will begin to
in terms of current prices. head higher before their Euro-area equivalents, and this
should underpin a stronger NOK.
Healthy Nordic finances
After a relatively slow start the Nordic economies have The Swedish economy started to recover in mid-2009
finally shifted into a higher gear. And there is a good and gained further momentum in 2010. GDP is seen
chance that the ongoing economic upswing is sustainable growing by more than 4%. The export industry has bene-
because of the good starting point for public finances in fitted from the improvement of global trade. Even if the
all the Nordic countries ahead of the Great Recession. international economy slows down, domestic demand
This means that the need for radical fiscal policy auster- will contribute to sustaining growth. Industrial produc-
ity measures is much smaller here than in most other tion is rising and the order inflow indicates that the up-
countries. swing will continue. The labour market is improving, and
public finances have strengthened along with rising em-
The Danish economy has returned to the growth path. ployment and is heading for balance already this year.
The improvement has been aided by consumers now The household sector is in good shape and car sales have
emerging from the shadow of the financial crisis and surged. Inflation is subdued, but should pick up slightly
starting to loosen their purse strings again after being in the next few years. The Riksbank started to hike the
bolstered by income tax cuts and record-low interest ra- repo rate in July and further hikes are in the pipeline. We
tes. Moreover, exporters have finally started to benefit expect the repo rate to reach 1.25% at the end of 2010
from the decent global upswing. And public spending, and 3% in two years’ time
while still making a positive contribution to growth, is
passing the “growth baton” to the private sector. We ha- Global Chief Economist Helge J. Pedersen
ve seen a clear improvement of the labour market situa- helge.pedersen@nordea.com
+45 3333 3126
tion in 2010, but we do not expect the unemployment
curve to finally break until early 2011. We see a modest
5 September 2010 Economic Outlook

5. Overview
Growth, % Inflation, %
2008 2009 2010E 2011E 2012E 2008 2009 2010E 2011E 2012E
World1) 2.3 -1.0 4.1 3.5 4.1 World 4.7 0.7 2.5 2.2 2.1
BIG-3 2) 0.0 -3.5 2.1 1.8 2.4 BIG-3 3.3 -0.3 1.1 1.1 1.3
USA 0.0 -2.6 2.5 2.0 3.0 USA 3.8 -0.3 1.6 1.4 1.3
Japan 3) -1.2 -5.2 2.4 1.8 2.0 Japan3) 1.4 -1.4 -1.4 -0.5 0.1
Euro area 0.4 -4.1 1.6 1.4 1.8 Euro area 3.3 0.3 1.5 1.5 1.6
Germany 0.7 -4.7 3.0 1.8 2.2 Germany 2.8 0.3 1.2 1.4 1.6
France 0.1 -2.5 1.6 1.5 1.8 France 3.2 0.1 1.6 1.4 1.7
Italy -1.3 -5.1 1.0 1.1 1.5 Italy 3.5 0.6 1.6 1.7 1.6
Spain 0.9 -3.6 -0.6 0.0 0.8 Spain 4.2 -0.3 1.8 1.3 1.0
Netherlands 1.9 -3.9 2.0 1.8 2.2 Netherlands 2.2 1.0 1.2 1.5 1.6
Belgium 1.0 -2.8 1.8 1.6 2.0 Belgium 4.5 0.0 2.0 1.7 1.6
Austria 2.2 -3.4 1.6 1.8 2.1 Austria 3.2 0.4 1.5 1.5 1.6
Portugal 0.0 -2.6 0.8 0.7 1.0 Portugal 2.7 -0.9 0.9 1.1 1.2
Greece 2.0 -2.0 -4.5 -2.6 1.0 Greece 4.3 1.3 4.4 1.3 1.0
Finland 0.9 -8.0 3.5 3.0 3.5 Finland 4.1 0.0 0.8 2.0 2.5
Ireland -3.0 -7.1 -0.5 1.0 2.5 Ireland 3.1 -1.7 -1.6 0.1 1.0
Denmark -0.9 -4.7 1.4 1.8 2.0 Denmark 3.4 1.3 2.2 1.8 2.0
Sweden -0.4 -5.1 4.2 2.8 3.1 Sweden 3.4 -0.3 1.1 2.0 2.9
Norway 1.8 -1.4 1.5 2.3 3.2 Norway 3.8 2.1 2.3 1.3 2.1
3) 3)
Iceland 1.0 -6.5 -3.0 2.3 2.4 Iceland 12.4 12.0 6.2 3.8 3.3
UK -0.1 -4.9 1.5 1.5 2.0 UK 3.6 2.2 3.0 2.5 1.5
Switzerland3) 1.8 -1.5 1.5 1.8 1.8 Switzerland 3) 2.4 -0.4 0.7 1.0 1.0
Russia 5.6 -7.9 5.7 4.8 5.2 Russia 14.1 11.7 6.7 6.9 7.3
Poland 5.1 1.8 3.4 3.0 3.7 Poland 4.4 3.8 2.7 3.1 2.3
Estonia -3.6 -14.1 1.8 4.2 4.5 Estonia 10.6 -0.1 2.6 3.0 2.7
Latvia -4.6 -18.0 -1.8 3.0 4.3 Latvia 15.3 3.6 -0.8 2.2 3.0
Lithuania 2.8 -14.9 0.9 3.2 4.0 Lithuania 11.1 4.2 1.2 2.0 2.8
China 9.6 9.1 9.8 8.6 8.9 China 6.0 -0.7 3.3 3.0 3.0
India 5.1 7.7 9.1 8.8 9.6 India 9.1 2.1 9.0 5.0 4.0
Brazil 5.1 -0.2 7.6 4.6 5.1 Brazil 5.7 4.9 5.4 4.8 4.5
1) W eighted average of countries in this table. Accounts for 70.5% of world GDP. Weights calculated using PPP adjusted GDP levels for 2007 according to the IMF's World Economic Outlook
2) US, Japan and the Euro area
3) Source: IIMF W E O April 2010
Public finances, % of GDP Current account, % of GDP
2008 2009 2010E 2011E 2012E 2008 2009 2010E 2011E 2012E
BIG-3 -2.9 -8.7 -8.2 -7.2 -5.6 BIG-3 - - - - -
USA -3.2 -10.0 -9.5 -8.5 -6.2 USA -4.7 -2.7 -3.0 -2.5 -2.5
Japan 3) -4.2 -10.3 -9.8 -9.1 -8.5 Japan3) 3.2 2.8 2.8 2.4 2.1
Euro area -2.0 -6.3 -5.8 -4.7 -3.5 Euro area -1.7 -0.8 -0.5 -0.2 -0.1
Germany 0.0 -3.3 -4.3 -3.3 -2.3 Germany 6.6 5.0 6.1 6.5 7.0
France -3.3 -7.5 -7.9 -6.5 -5.8 France -2.3 -2.0 -1.9 -1.8 -1.6
Italy -2.7 -5.3 -4.9 -3.5 -2.7 Italy -3.4 -3.2 -3.0 -2.9 -2.7
Finland 4.2 -2.5 -2.5 -0.5 0.0 Finland 3.1 1.3 1.6 2.0 2.0
Denmark 3.4 -2.8 -4.9 -4.6 -3.7 Denmark 2.0 4.0 3.5 2.8 2.8
Sweden 2.2 -1.0 0.0 0.5 1.1 Sweden 8.8 7.2 6.4 6.6 6.8
Norway 19.3 9.9 12.4 14.6 18.0 Norway 17.7 14.2 15.3 15.7 19.0
3) 3)
Iceland -0.5 -12.4 -9.4 -5.3 N/A Iceland -15.8 3.8 5.4 1.8 1.6
UK -4.9 -11.5 -10.5 -8.0 -6.0 UK -1.5 -1.3 -1.1 -1.0 -0.5
Switzerland3) 0.8 1.4 -1.0 -0.9 -0.9 Switzerland 3) 2.4 8.7 9.5 9.6 9.8
Russia 4.1 -5.3 -5.2 -3.5 -2.8 Russia 6.2 3.9 5.0 4.5 3.0
Poland -3.7 -7.1 -6.0 -5.0 -3.5 Poland -5.0 -1.6 -2.2 -1.6 -0.6
Estonia -2.7 -1.7 -2.2 -1.9 -1.5 Estonia -9.1 4.6 4.0 2.0 0.8
Latvia -4.1 -9.0 -7.2 -5.8 -3.0 Latvia -13.0 9.4 7.0 4.0 3.3
Lithuania -3.2 -8.9 -7.8 -6.0 -3.0 Lithuania -11.9 3.8 3.0 2.5 1.5
China -0.4 -2.1 -3.0 -2.2 -1.8 China 9.6 6.1 4.5 4.1 3.7
India -6.0 -6.5 -5.5 -5.0 -4.5 India -2.2 -2.1 -2.2 -2.0 -2.3
Brazil -1.6 -3.2 -2.7 -2.0 -1.8 Brazil -1.8 -1.5 -2.5 -3.0 -3.0
6 September 2010 Economic Outlook

6. Overview
Monetary policy rates Monetary policy rate spreads vs Euro area
24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M
US 0.25 0.25 0.25 0.25 2.00 US -0.75 -0.75 -0.75 -0.75 0.00
1
Japan 0.10 0.10 0.10 0.10 0.50 Japan -0.15 -0.15 -0.15 -0.15 -1.50
Euro area 1.00 1.00 1.00 1.00 2.00 Euro area - - - - -
Denmark 1.05 1.05 1.05 1.05 2.25 Denmark 0.05 0.05 0.05 0.05 0.25
Sweden 0.50 1.00 1.25 1.75 3.00 Sweden -0.50 0.00 0.25 0.75 1.00
Norway 2.00 2.00 2.00 2.25 3.50 Norway 1.00 1.00 1.00 1.25 1.50
UK 0.50 0.50 0.50 0.50 2.00 UK -0.50 -0.50 -0.50 -0.50 0.00
Switzerland 0.25 0.25 0.25 0.50 1.00 Switzerland -0.75 -0.75 -0.75 -0.50 -1.00
Poland 3.50 3.50 3.75 4.25 4.75 Poland 2.50 2.50 2.75 3.25 2.75
Czech Rep. 0.75 0.75 0.75 1.00 2.00 Czech Rep. -0.25 -0.25 -0.25 0.00 0.00
Hungary 5.25 5.25 5.25 5.75 6.50 Hungary 4.25 4.25 4.25 4.75 4.50
Turkey 7.00 7.00 7.00 8.00 8.50 Turkey 6.00 6.00 6.00 7.00 6.50
Russia 7.75 7.75 7.75 8.25 9.00 Russia 6.75 6.75 6.75 7.25 6.75
China 5.31 5.31 5.31 5.31 5.31 China 4.31 4.31 4.31 4.31 3.31
India 5.75 6.00 6.25 6.50 6.50 India 4.75 5.00 5.25 5.50 4.50
Brazil 10.75 11.75 11.75 11.75 11.75 Brazil 9.75 10.75 10.75 10.75 9.75
1) Spread vs US
3-month rates 3-month spreads vs Euro area
24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M
US 0.32 0.40 0.50 0.80 2.35 US -0.57 -0.50 -0.50 -0.40 0.10
Euro area 0.89 0.90 1.00 1.20 2.25 Euro area - - - - -
Denmark 1.14 1.25 1.35 1.70 2.60 Denmark 0.25 0.35 0.35 0.50 0.35
Sweden 1.03 1.45 1.65 2.05 3.15 Sweden 0.14 0.55 0.65 0.85 0.90
Norway 2.64 2.55 2.55 2.79 3.80 Norway 1.75 1.65 1.55 1.59 1.55
UK 0.72 0.75 0.75 0.80 2.30 UK -0.17 -0.15 -0.25 -0.40 0.05
Poland 3.81 3.90 4.25 4.75 5.25 Poland 2.92 3.00 3.25 3.55 3.00
Czech Republic 1.24 1.25 1.25 1.60 2.50 Czech Republic 0.35 0.35 0.25 0.40 0.25
Hungary 5.34 5.30 5.60 6.25 7.00 Hungary 4.45 4.40 4.60 5.05 4.75
Russia 3.75 3.80 4.00 4.50 6.00 Russia 2.86 2.90 3.00 3.30 3.75
Estonia 1.18 1.05 1.00 1.20 2.25 Estonia 0.29 0.15 0.00 0.00 0.00
Latvia 1.25 1.10 1.30 1.80 2.00 Latvia 0.36 0.20 0.30 0.60 -0.25
Lithuania 1.70 1.80 2.20 2.50 2.80 Lithuania 0.81 0.90 1.20 1.30 0.55
10-year government benchmark yields 10-year yield spreads vs Euro area
24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M
US 2.52 2.50 2.70 3.20 3.75 US 0.34 0.20 0.05 0.00 0.35
Euro area 2.18 2.30 2.65 3.20 3.40 Euro area - - - - -
Denmark 2.25 2.40 2.75 3.30 3.50 Denmark 0.07 0.10 0.10 0.10 0.10
Sweden 2.32 2.45 2.80 3.35 3.75 Sweden 0.14 0.15 0.15 0.15 0.35
Norway 3.12 3.12 3.38 3.87 4.25 Norway 0.94 0.82 0.73 0.67 0.85
UK 2.88 2.90 3.20 3.75 4.10 UK 0.69 0.60 0.55 0.55 0.70
Poland 5.43 5.50 5.60 5.70 5.75 Poland 3.24 3.20 2.95 2.50 2.35
Czech Rep. 3.47 3.60 3.75 4.25 4.50 Czech Rep. 1.29 1.30 1.10 1.05 1.10
Hungary 6.96 7.10 7.00 7.25 7.50 Hungary 4.78 4.80 4.35 4.05 4.10
Exchange rates vs EUR Exchange rates vs USD
24.8.10 3M 6M 12M 24M 24.8.10 3M 6M 12M 24M
EUR/USD 1.261 1.32 1.27 1.20 1.15 -
EUR/JPY 105.9 114 114 118 127 USD/JPY 84.02 86.0 90.0 98.0 110
EUR/DKK 7.449 7.46 7.46 7.46 7.46 USD/DKK 5.908 5.65 5.87 6.21 6.48
EUR/SEK 9.421 9.45 9.20 9.10 9.10 USD/SEK 7.472 7.16 7.24 7.58 7.91
EUR/NOK 7.953 8.00 7.90 7.70 7.70 USD/NOK 6.307 6.06 6.22 6.42 6.70
EUR/GBP 0.818 0.83 0.82 0.80 0.77 GBP/USD 1.541 1.59 1.55 1.50 1.49
EUR/CHF 1.314 1.34 1.30 1.28 1.28 USD/CHF 1.042 1.02 1.02 1.07 1.11
EUR/PLN 4.020 4.10 3.90 3.90 3.70 USD/PLN 3.189 3.1 3.1 3.3 3.2
EUR/CZK 24.91 25.3 25.0 24.8 24.0 USD/CZK 19.75 19.1 19.7 20.6 20.9
EUR/HUF 285.7 280 270 265 270 USD/HUF 226.6 212 213 221 235
EUR/TRY 1.93 2.00 2.00 2.10 2.10 USD/TRY 1.53 1.59 1.59 1.67 1.67
EUR/RUB 38.97 39.3 37.5 34.3 31.6 USD/RUB 30.91 30.0 29.5 28.6 27.5
EUR/EEK 15.65 15.6 15.6 15.6 15.6 USD/EEK 12.41 11.9 12.3 13.0 13.6
EUR/LVL 0.708 0.71 0.70 0.70 0.70 USD/LVL 0.562 0.54 0.55 0.58 0.61
EUR/LTL 3.453 3.45 3.45 3.45 3.45 USD/LTL 2.738 2.62 2.72 2.88 3.00
EUR/CNY 8.570 8.91 8.51 7.80 6.96 USD/CNY 6.797 6.75 6.70 6.50 6.05
EUR/INR 59.13 59.4 57.2 52.8 51.8 USD/INR 46.90 45.0 45.0 44.0 45.0
EUR/BRL 2.244 2.48 2.39 2.20 2.07 USD/BRL 1.780 1.88 1.88 1.83 1.80
7 September 2010 Economic Outlook

7. Denmark
Economy back on the growth track
• Consumers out of the shadow of the financial crisis Private sector to drive growth in future
The public sector is thus passing the “growth baton” to
• Public sector passing the baton to the private sector the private sector, which is to drive economic growth
• Employment set to grow in 2011 going forward. So far private consumption and exports
have provided the first signs of the private sector being
• Tentative housing market pick-up able to run with the baton. But we have not yet seen posi-
tive growth in business investment and residential
The Danish economy has slowly but steadily returned to construction. Fortunately, the arrow points in the right di-
the growth path. The improvement has been aided by rection for business investment. The manufacturing sec-
consumers now emerging from the shadow of the finan- tor’s order books are starting to fill up again concurrently
cial crisis and starting to loosen their purse strings again with a rise in capacity utilisation. The conditions thus
after being bolstered by income tax cuts and record-low seem in place for an uptick in business investment as ear-
interest rates. Moreover, exporters have finally started to ly as next year. At the same time destocking may stop as
benefit from the decent global upswing. And public early as this year, which may contribute positively to
spending is still making a positive contribution to growth. Residential investment, on the other hand, is un-
growth, albeit on borrowed time. likely to provide any help until 2012. In 2009 housing
starts had plunged to a 59-year low and the number of
Public spending under pressure completed units in 2010 therefore looks set to be the lo-
A sharp increase in public spending and investment du- west in the almost 60 years on record.
ring the crisis has to some degree offset the decline in
private-sector activity. The automatic stabilisers kicked Unemployment curve to break in early 2011
in, with the economic setback leading to shrinking tax re- During the severe economic downturn, labour market
ceipts and rising transfer income expenses. Consequent- trends have been subject to much mystery. At first glance
ly, public budgets have deteriorated sharply. We expect total employment has dropped by just over 180,000 per-
this year’s deficit to reach 4.9% of GDP, which is the sons from its peak, while official unemployment figures
largest deficit in 25 years. With the EU’s covergence have only edged higher by 70,000. The significant devia-
programme as a guideline, the government has initiated a tion is due to the combination of the surge in persons en-
sweeping restoration plan, aiming at low growth in pub- gaged in labour market schemes, a large number of per-
lic spending from 2011 to 2013. However, given the past sons not eligible for unemployment benefits and a
difficulty in reaching long-term goals, we expect the shrinking labour force, with the pool of available labour
election year of 2011 to bring a moderate increase in being reduced by the outflow of foreign labour. Going
public spending of 0.8%, while in 2012 we see a good forward the gross number of unemployed (including
chance of a minor drop once growth in the global eco- people in labour market schemes) is expected to increase
nomy accelerates again. moderately during the autumn. The increase will first and
foremost be triggered by continued low capacity utilisa-
Denmark: Macroeconomic indicators (% annual real changes unless otherwise noted)
2007 (DKKbn) 2008 2009 2010E 2011E 2012E
Private consumption 822 -0.2 -4.6 3.2 2.2 1.7
Government consumption 439 1.6 3.4 1.2 0.8 -0.2
Fixed investment 380 -4.7 -13.0 -6.0 3.7 2.7
- government investment 31 -2.9 12.4 19.3 1.0 -7.6
- residential investment 117 -14.2 -18.1 -8.9 -0.3 1.6
- business fixed investment 231 -0.1 -13.9 -9.0 5.6 5.3
Stockbuilding* 10 0.3 -1.7 0.8 0.3 0.0
Exports 886 2.4 -10.2 3.3 5.1 5.4
Imports 845 3.3 -13.2 5.2 6.6 4.3
GDP -0.9 -4.7 1.4 1.8 2.0
Nominal GDP (DKKbn) 1,691 1,737 1,662 1,714 1,767 1,840
Unemployment rate, % 1.8 3.4 4.4 4.7 4.5
Unemployment level, '000 persons 48.1 92.2 118.2 128.0 122.3
Gross unemployment level, '000 persons 74.2 130.6 170.4 189.5 179.6
Consumer prices, % y/y 3.4 1.3 2.2 1.8 2.0
Hourly earnings, % y/y 4.5 2.9 2.4 2.1 2.2
Nominal house prices, one-family, % y/y -4.5 -13.2 4.0 2.0 2.0
Current account (DKKbn) 35.2 65.9 60.0 50.0 52.0
- % of GDP 2.0 4.0 3.5 2.8 2.8
General govt. budget balance (DKKbn) 59.8 -47.0 -85.0 -81.0 -68.0
- % of GDP 3.4 -2.8 -4.9 -4.6 -3.7
Gross public debt, % of GDP 34.2 41.4 43.5 46.0 48.0
* Contribution to GDP growth (% points)
8 September 2010 Economic Outlook

8. Denmark
tion, enabling businesses to scale up production without Order books no longer shrinking
hiring additional manpower – beneficial for productivity 30 30
% y/y New orders, manufacturing ex. ships, % y/y
but detrimental for unemployment. Moreover, the prospect 25 2Q mov. avg., advanced 1Q 25
20 20
of slightly falling employment in the public sector will re-
15 15
duce the number of job vacancies and job-seekers’ chances
10 10
of finding employment. With the unemployment curve set
5 5
to finally break in early 2011, we expect employment to 0 0
start climbing a bit next year, while unemployment will -5 -5
peak at an average of 128,000 full-time unemployed, or a -10 -10
Gross capital formation,
gross unemployment rate of almost 7%. -15 machines and equipment, -15
-20 2Q mov. avg. -20
Prospect of low wage growth -25 -25
With unemployment set to remain high and only slowly 96 98 99 00 01 02 03 04 05 06 07 08 09 10
declining in the years ahead, wage growth is likely to be Source: Statistics Denmark and own forecasts
very moderate. Not least in the public sector where slug-
gish wage formation has deferred negative adjustments to Easier said than done to manage public spending
4.0 4.0
2011, the stage is set for very weak nominal wage growth % of GDP % of GDP
in the coming years. This will inevitably put pressure on 3.5 Actual government consumption growth 3.5
Planned government consumption growth
real wages and thus mean lower growth in consumers’ 3.0 3.0
real purchasing power. Moreover, consumer spending Nordea
2.5 2.5
forecast
will not be boosted by tax breaks and interest rate cuts to 2.0 2.0
the same extent as this year, and we therefore expect 1.5 1.5
consumer spending to grow at slightly lower rates in
1.0 1.0
2011 and 2012 than this year.
0.5 0.5
Tentative housing market pick-up 0.0 0.0
A good gauge of the health of the Danish economy is the -0.5 -0.5
02 03 04 05 06 07 08 09 10 11 12
trend in the housing market where in particular strong
trading activity has many positive spill-over effects on Source: Statistics Denmark, the Finance Ministry and own forecasts
the rest of the economy. The sharp drops in mortgage
rates seen since end-2008 lent a welcome helping hand to Unemployment curve to peak in early 2011
225 225
the then badly ailing housing market. The combination of Persons ('000) Persons ('000)
200 200
interest rate declines and falling house prices has gener-
175 Gross unemployed 175
ally made it more affordable for first-time buyers and
people upgrading to larger homes – as reflected in mod- 150 150
erately rising trading activity. Prices per square meter 125 125
have also begun to climb, but measured by housing af- 100 100
fordability, it has not become more expensive to buy a
75 75
home, as continued falling long mortgage rates have
50 50
compensated for the higher home prices. The key driver Unemployed
in the Danish housing market has been the Greater Co- 25 25
Forecast
penhagen area – it has the lowest supply of homes for 0 0
00 01 02 03 04 05 06 07 08 09 10 11 12
sale and the highest increase in trading activity and
prices. Going forward we expect house prices to rise Source: Statistics Denmark and own forecasts
moderately. This year and the next, house prices will
Home buyers starting to come back
benefit from continued low interest rates, and growing 120 28
employment may take over when interest rates start to Index % of disp. income
2004=100 27
move up. However, there are still many homes for sale 110
DanBolig house sales, 26
and it is a buyer’s market in large parts of the country, so 12M mov. avg.
there are very slim chances of a nation-wide price surge. 100 25
If house prices should rise sharply, they will most likely 24
90
decline again once interest rates start to move higher. 23
80 22
Troels Theill Eriksen 21
troels.t.eriksen@nordea.com +45 3333 2448 70
20
Housing burden, rhs
60 19
Jan Størup Nielsen 99 00 01 02 03 04 05 06 07 08 09
jan.storup.nielsen@nordea.com +45 3333 3171
Source: Nordea and Danbolig
9 September 2010 Economic Outlook

9. Sweden
Swift recovery
• GDP growth is high, but will slow in 2011 2009. There is much to indicate that private consumption
will remain a key growth driver going forward. Not least
• Rising capacity utilisation the improved labour market situation has resulted in ris-
• Repo rate hike to 2% in 2011 ing household income. In addition, we expect household
tax cuts for some SEK 15bn over the next two years. And
The Swedish economic recovery is taking place at a fast as household savings already are at a high level and con-
pace. Domestic demand started to recover already in sumer confidence is good, we think households will be
mid-2009 and when the export sector shifted into a more inclined to spend the additional income. The trend
higher gear in H1 2010, the recovery gained further mo- in home prices has flattened this year after last year’s in-
mentum. We see GDP growth above 4% this year. The crease. New regulations on loan limits, uncertainty about
global economy is expected to go through a calmer re- the property tax and a Riksbank signalling rate hikes in
covery period in the coming quarters, and this will also the pipeline may have contributed to this. Interest rates
affect the Swedish economy with a time lag. However, will no doubt rise going forward, but as the interest rate
thanks to benign domestic conditions GDP growth may rise will be relatively modest and the conditions for
still remain fairly strong also next year. With rising households are generally very good, the effect on both
global demand we see Swedish GDP growth accelerating home prices and consumption should be limited.
again in 2012.
In contrast to the flattening home prices, residential in-
Increased demand for Swedish exports vestment has rebounded. This shows that households are
Global trade has recovered fast over the past year and still active in the housing market. And rising residential
this has provided a strong boost to Swedish exports. The investment was a key factor behind the upswing in busi-
new orders data continue to improve, which points to ness investment in Q2 2010. The increase was broadly-
sustained strong growth during the remainder of the year. based, with both the manufacturing sector and certain
But gradually the lower global growth momentum will service sectors expanding. The increased investment ac-
likely spill over to Swedish exports. Even so, by mid- tivity reflects rising production, higher corporate earn-
2011 we expect Swedish goods exports to be back at the ings as well as strong business confidence. Investment
levels prevailing before the crisis began two years ago. activity is expected to remain strong going forward.
Longer out, our forecast is fraught with uncertainty. As
notably the US economy is expected to strengthen, global Rapid decline in unemployment
demand should pick up again with positive spill-over ef- As a result of the fast, broadly-based economic upswing,
fects on the Swedish export industry towards the end of demand for labour has increased. The growing number of
the forecast period. vacancies and companies’ very optimistic hiring plans,
suggest that the upswing will continue. So far the rise in
Domestic economy a key growth driver employment has not fed through to the jobless numbers
Households have contributed strongly to the recovery. in earnest. The reason is that the supply of labour has in-
Consumer spending began to pick up already in mid- creased sharply over the past year, and one explanation
Sweden: Macroeconomic indicators (% annual real changes unless otherwise noted)
2007 (SEKbn) 2008 2009 2010E 2011E 2012E
Private consumption 1,460 -0.1 -0.8 3.0 2.5 2.5
Government consumption 797 1.3 1.7 1.1 0.9 0.7
Fixed investment 612 1.7 -16.0 3.8 6.5 7.0
- industry 95 2.7 -22.3 -2.8 12.4 11.3
- residential investment 121 -9.5 -23.4 15.6 9.8 6.3
Stockbuilding* 23 -0.5 -1.5 1.5 0.0 0.0
Exports 1,621 1.4 -12.4 11.4 6.7 6.0
Imports 1,388 2.9 -13.2 12.6 7.2 6.0
GDP -0.4 -5.1 4.2 2.8 3.1
Nominal GDP (SEKbn) 3,126 3,214 3,108 3,264 3,397 3,564
Unemployment rate, % 6.2 8.3 8.4 7.7 7.1
Employment growth 1.2 -2.1 0.9 1.1 1.0
Consumer prices, % y/y 3.4 -0.3 1.1 2.0 2.9
Underlying inflation (CPIF), % y/y 2.7 1.9 1.9 1.4 1.9
Hourly earnings, % y/y 3.9 3.0 2.3 3.0 4.0
Current account (SEKbn) 283 224 210 225 244
- % of GDP 8.8 7.2 6.4 6.6 6.8
Trade balance, % of GDP 3.8 3.5 3.1 3.3 3.5
General govt budget balance (SEKbn) 71 -32 -1 17 40
- % of GDP 2.2 -1.0 0.0 0.5 1.1
Gross public debt, % of GDP 37.6 41.5 38.1 37.6 36.2
* Contribution to GDP growth (% points)
10 September 2010 Economic Outlook

10. Sweden
for this is that the number of persons participating in la- Swedish exports rise in tandem with global trade
bour market schemes has increased. As these schemes 145 350
USDbn SEKbn
are increasingly focused on job finding, both the labour 135 325
supply and unemployment have risen. The in-work tax 125 300
Global trade, advanced
credit and the health insurance reform may also have economies, fixed prices 275
115
helped attracting more people to the labour market. The 250
105
pace of labour supply growth should decline sharply go- 225
95
ing forward as the number of people participating in la- 200
85
bour market schemes stabilises. Hence, the pick-up in 175
Swedish exports
employment will increasingly show through in the job- 75 150
of goods, sa., rhs
less numbers. 65 125
55 Forecast 100
There is significant uncertainty about the long-term equi- 94 96 98 00 02 04 06 08 10 12
librium level for unemployment, but we think that it has
risen over the past years. No doubt, it will take some time
Household income increases
before unemployment is back at the low pre-crisis levels, 6 13
% y/y % af disp. income
but historically a jobless rate of 6-7% has been tanta-
5 12
mount to difficulties for the companies in recruiting staff. Real income
The shortage of labour is increasing and had already Savings ratio, 11
4 rhs
Consumption
reached levels around the historical average in Q2 2010, 10
which might be an indication that the structural unem- 3
9
ployment rate (NAIRU) has risen. 2
8
1
Rising inflation over time 7
The growing labour shortage is a function of the high 0 6
growth and is one of several signs that the Swedish re- Forecast
-1 5
covery is fast. Also the pick-up in investment illustrates 02 03 04 05 06 07 08 09 10 11 12
that capacity utilisation is increasing as the companies
appear already now to feel a need for increased produc-
tion capacity. With rising activity, public finances are Lower unemployment; increased labour shortage
improving and probably balance as early as this year. 4
% Share of companies % of labour force
9.0
Strong public finances point to further fiscal stimulus 9 reporting labour
8.5
shortage (reversed axis)
measures in the years ahead.
14
8.0
19
Inflation pressures are currently modest, but the rising 7.5
capacity utilisation impacts on the outlook for inflation 24
longer out. And the level of inflation will most likely be 7.0
29
very different ahead of the next round of pay talks which 6.5
34
by all accounts will start during the autumn of 2011. We
39 Unemployment,
see much stronger pay rises in 2012 compared to this 6.0
rhs
year’s historically low wage growth. As a result, domes- 44 Forecast 5.5
tic cost pressures will rise. This environment will not 00 01 02 03 04 05 06 07 08 09 10 11 12
make it difficult for the Riksbank to find arguments sup-
porting a repo rate hike from the current very low level.
We see the repo rate at 1.25% at the turn of this year and Inflation will rise over time
5 5
at 2.00% at end-2011. The Riksbank’s rate hikes will % y/y % y/y
CPI
likely cause the SEK to strengthen – bringing the 4 4
EUR/SEK cross to just over 9 over the next 12 months
3 3
The election presents a risk 2 2
The risks to our forecasts are mostly related to the global 1 1
economy. The domestic risks include the upcoming gen- CPIF
eral election. A change of government or an unresolved 0 0
parliamentary situation after the election may trigger -1 -1
SEK weakening in the short term. Also the equity mar- Note: CPIF is a measure of underlying inflation
-2 (CPI with constant mortgage rates) Forecast -2
kets are uncertainties that could hit household finances.
02 03 04 05 06 07 08 09 10 11 12
Torbjörn Isaksson
torbjorn.isaksson@nordea.com +46 8 614 8859
11 September 2010 Economic Outlook

11. Norway
Consumer spending disappoints
• Low growth and inflation – 2012 will be better nomic uncertainty to put a floor under consumer spend-
ing growth. But consumer spending growth remained
• No interest rate hike until well into 2011 weak during the first six months of this year. To some
• NOK to strengthen in 2011 on the back of rate hikes extent we see this as a sign that consumers are more
prone to save than we had assumed. Tighter credit stan-
Growth disappoints – but will improve in 2012 dards for households may also have contributed to
In the May issue of Economic Outlook we revised down dampen consumption growth.
our growth forecast for 2010, and now we have to do it
again, mainly because the Norwegians have been more However, we still stick to our view that consumer spend-
prone to save rather than to spend than we thought. ing growth will gradually pick up. Real disposable in-
come growth is relatively high, the level of unemploy-
But we see no reason to revise down our GDP growth ment is moderate and interest rates are low.
forecast for 2011. The pick-up in interest rates looks set
to become smaller than we expected, which will add Oil sector investment rising
stimulus to consumer spending. Higher oil sector invest- Oil sector investment has fallen somewhat from the high
ment next year than originally assumed will also help level in early 2009, but there is now every indication that
underpinning GDP growth. investment is rising again. Oil companies' investment
plans point to markedly higher investment activity in
For the first time we now publish our forecast for 2012. 2011 than in 2010. This means better times for the oil
We see global growth rising in that year, which will services industry. The improvement is already beginning
boost Norwegian export growth and result in higher oil to show through in current production numbers and cor-
prices and a further increase in oil sector investment. porate surveys. In 2012 we see oil prices moving higher
Corporate profitability will pick up, the labour market again. More projects will become profitable, and oil sec-
will tighten slightly and wage growth will edge higher. tor investment may increase further.
This will underpin consumer spending growth while
Norges Bank accelerates its monetary policy tightening. Also the mainland economy is showing signs of rising
corporate investment. Low interest rates, looser credit
Consumers more cautious standards and brighter prospects for many industries all
The significant rate cuts in 2008 and 2009 sharply point towards rising investment activity. But the already
boosted household income growth. To begin with, con- high investment level suggests that the pick-up will be
sumers chose to save the additional income. When their moderate. Housing investment growth, meanwhile, will
savings had reached a fairly high level, consumers al- likely be stronger. Home prices have increased, and sus-
lowed themselves to spend more of the additional income tained low interest rates and low unemployment point to
in 2009. And consumption rose sharply. We had ex- a sustained, albeit smaller than originally expected, in-
pected the low level of interest rates and reduced eco- crease in home prices during the rest of 2010. In 2011 we
see only a minor, if any, increase in home prices.
Norway: Macroeconomic indicators (% annual real changes unless otherwise noted)
2007 (NOK bn) 2008 2009 2010E 2011E 2012E
Private consumption 940 1.6 0.2 2.3 2.2 3.0
Government consumption 447 4.1 4.7 3.0 2.0 2.0
Fixed investment 504 2.0 -9.1 -2.6 5.6 5.7
- gross investment, mainland 376 -1.4 -11.7 -1.8 3.5 4.3
- gross investment, oil 113 5.5 2.4 -5.0 12.0 10.0
Stockbuilding* 33 -0.3 -2.2 2.0 0.0 0.0
Exports 1,040 1.0 -4.0 -0.4 0.8 1.5
- crude oil and natural gas 480 -2.0 -1.2 -3.2 -0.6 -0.6
- other goods 302 4.2 -8.2 5.0 2.5 4.3
Imports 691 4.3 -11.4 7.8 3.9 3.7
GDP 2,272 0.8 -1.4 0.7 1.7 2.4
GDP, mainland 1,724 1.8 -1.4 1.5 2.3 3.2
Unemployment rate, % 2.6 3.2 3.6 3.9 3.7
Consumer prices, % y/y 3.8 2.1 2.3 1.3 2.1
Core inflation, % y/y 2.6 2.6 1.5 1.5 2.1
Annual wages (incl. pension costs), % y/y 6.0 4.5 3.4 3.8 4.3
Current account (NOKbn) 466.6 337.4 395.5 429.5 582.9
- % of GDP 17.7 14.2 15.3 15.7 19.0
Trade balance, % of GDP 19.1 14.8 15.7 15.7 19.0
General govt budget balance (NOKbn) 484.7 234.7 320.0 400.0 550.0
- % of GDP 19.3 9.9 12.4 14.6 18.0
* Contribution to GDP growth (% points)
12 September 2010 Economic Outlook

12. Norway
Slowing export growth Declining retail sales
Traditional goods exports rose sharply in H2 2009, but 118 118
Index Retail sales Index
there are now clear signs of slowdown in this area. More 2005=100 2005=100
117 117
subdued economic growth in Norway's key trading part-
ners and a continued erosion of competitive power point 116 116
to sustained moderate export growth at least until the 115 115
global economy gains further momentum in 2012.
114 114
Balanced labour market and low inflation 113 113
Trend
There are signs that unemployment has peaked, but with (4M centered mov. avg.)
112 112
our expectation of moderate growth we do not see the la-
bour market situation tighten any time soon. A lower rate 111 111
of increase in public sector employment after the past 07 08 09 10
years’ strong growth points in the same direction.
Corporate investment remains at relatively high level
Despite rising economic growth in 2012 we expect the 200 200
Index Investment mainland Index
drop in joblessness to be fairly modest. Companies were Jan 2001=100 Jan 2001=100
careful not to lay off too many people during the down- 180 180
turn, to limit the need for new hirings once activity picks Firms
up again. Growing labour supply when the economy im- 160 160
proves will also dampen the fall in unemployment.
140 140
Before the financial crisis the labour market was over- 120 120
Dwellings
heated with very high wage growth. But as the labour
market situation became more balanced, wage growth 100 100
slowed. We expect sustained relatively moderate wage
80 80
growth in the coming years, although it may pick up 01 02 03 04 05 06 07 08 09
slightly in 2012. This will contribute to putting a lid on
price increases and keep inflation below the 2.5% target.
But the dampening effect of the NOK’s appreciation over Is the labour market starting to improve?
the past one to two years will fade and cause core infla- 5
% y/y % y/y
5
tion to rise slightly. 4 4
Interest rates to stay low for some time yet 3 3
Despite the expected relatively low GDP growth, stable 2 2
capacity utilisation and moderate inflation level in 2010 Labour supply
and most of 2011, we see interest rates rising slightly in 1 1
2011 and more in 2012. The rate of increase from the 0 0
current low level will accelerate over the forecast period.
We expect Norwegian long yields to largely track Euro- -1 -1
Employment
area equivalents, with no major changes to yield spreads. -2 -2
04 05 06 07 08 09 10
NOK appreciation – over time
Rates hikes or expectations of imminent rate hikes are
not on the cards for 2010, and we see EUR/NOK trading Growth in imported goods prices about to bottom
2.0 12
around 8.00 during the rest of the year. Changes in inter- % y/y % y/y
10
national investors’ risk appetite may periodically result in 1.5
8
relatively wide fluctuations, though. In H1 2011 we ex- 1.0 6
Prices on imported goods, rhs
pect Norges Bank to hike its policy rate while the ECB 0.5 4
signals unchanged interest rates. When the market is con- 2
0.0
vinced that Norges Bank will indeed hike rates, the NOK 0
may strengthen quite sharply. We expect sustained NOK -0.5 -2
strength throughout 2012 despite rate hikes also from the -1.0 -4
ECB. As global economic growth becomes more robust, -6
-1.5 Import weighted NOK
we see rising risk appetite and much higher oil prices, -8
Note: 4M centered mov. avg.
6M advanced
which will underpin a strong NOK -2.0 -10
05 06 07 08 09 10
Erik Bruce
erik.bruce@nordea.com +47 2248 7977
13 September 2010 Economic Outlook

13. Finland
Recovery at fluctuating speed
• Growth will peak during the winter when the impact of the weakened currency starts to
show. This year’s growth leap is proving stronger than
• Speed still reasonably good in the next few years previously expected with the export of base metals and
• Surprisingly low unemployment – sluggish decrease forest industry as the main driver.
• General government close to balance next year Export growth will naturally fade next year, as available
capacity will diminish and the comparison levels will
After a slow start in 2010, the Finnish economy started to have risen substantially. The leading indicators are
pick up in the spring. Based on preliminary data, the total already showing that growth will peak next winter.
production increased more than 4% in Q2 compared to Nevertheless, we forecast that the global economy will
one year ago. Also, the outlook for the rest of the year is grow at a decent speed in the next few years and drive
favourable. Growth will continue to accelerate, and Finnish exports.
towards the end of the year GDP growth may reach 6-
7%. Residential construction growing briskly
In the next few years, the recovery of exports will also be
During the next year, growth will begin to slow down reflected in companies’ machinery and equipment
from the brisk figures of H2 2010. In 2011, GDP will on investments, which will, however, continue to contract
average grow a little slower than this year. On the whole, this year along with office and commercial construction.
the trend will be reasonably favourable in the next few On the other hand, residential construction has grown so
years. much that, on the whole, construction investment is now
growing. Part of the increase in residential construction is
Despite the broadness of the past recession, its impact based on fiscal stimulus, but the demand outlook is
has been fairly mild. GDP took a huge drop, but the level favourable also after the subsidised construction starts to
of unemployment remained much lower than feared. slow down. Consequently, residential construction is,
Moreover, the general government deficit never exceed- after a slump, rising quickly above the previous peak.
ed the EU’s 3% target, and next year general government
finances will again be close to balancing. The reason for The momentum of residential construction is based on
the fairly mild impact is that the sharp drop in GDP was the activity of the housing market, supported by the low
mainly the result of a decrease in capital-intensive interest rate level. When the recession hit Finland, the
exports. The international financial crisis remained housing market stagnated for a while and prices fell, but
distant for households and many Finnish SMEs, and the the turn towards the better already coincided with the
low interest rates and favourable income trend quickly equity market. The momentum will continue to be strong
returned confidence and propensity to consume. next year, as the rise in interest rates will be moderate in
the next few years and the labour market situation is
Moderate export growth after a leap improving. Growth in housing supply will probably curb
Export growth picked up speed in early 2010, and the a price rise but not stop it.
outlook for the rest of the year remains good – especially
Finland: Macroeconomic indicators (% annual real changes unless otherwise noted)
2007 (EURbn) 2008 2009 2010E 2011E 2012E
Private consumption 91 1.7 -1.9 2.4 2.6 3.0
Government consumption 39 2.4 1.2 0.5 0.5 1.0
Fixed investment 38 -0.4 -14.7 0.7 4.1 5.0
Stockbuilding* 3 -0.9 -1.5 0.6 0.0 0.0
Exports 82 6.3 -20.3 10.0 6.9 8.0
Imports 73 6.5 -18.1 7.5 6.3 7.8
GDP 0.9 -8.0 3.5 3.0 3.5
Nominal GDP (EURbn) 179.7 184.6 171.3 179.0 188.3 197.9
Unemployment rate, % 6.4 8.2 8.5 8.1 7.7
Industrial production, % y/y -0.3 -17.8 10.0 5.0 6.0
Consumer prices, % y/y 4.1 0.0 0.8 2.0 2.5
Hourly wages, % y/y 5.5 3.9 2.7 2.3 2.5
Current account (EURbn) 5.8 2.3 2.8 3.8 4.0
- % of GDP 3.1 1.3 1.6 2.0 2.0
Trade balance (EURbn) 6.9 3.5 3.9 4.5 5.0
- % of GDP 3.7 2.0 2.2 2.4 2.5
General govt budget balance (EURbn) 7.7 -4.3 -4.5 -1.0 0.0
- % of GDP 4.2 -2.5 -2.5 -0.5 0.0
Gross public debt (EURbn) 63.0 75.4 85.0 91.0 97.0
- % of GDP 34.1 44.0 47.5 48.3 49.0
* Contribution to GDP growth (% points)
14 September 2010 Economic Outlook