Nordic Nations Make Noticeable Headway in Covid Recovery

The Nordics are starting to make noticeable headway in repairing the damage from the coronavirus crisis, building on a year of remarkable resilience to global economic turmoil.

In Sweden, robust business confidence and improving export prospects this week prompted SEB and the Swedish National Institute of Economic Research to raise growth forecasts for the region’s biggest economy. Bloomberg Economics did so too, and also lifted its outlook for Norway, while Denmark’s most recent growth data was revised higher.

Nordic Nations Make Noticeable Headway in Covid Recovery

Europe’s northeastern corner has stood out for its impressive record in containing the fallout on economic expansion, aided by generous welfare systems, widespread digitalization and a relatively low reliance on tourism. That legacy now looks likely to endure as vaccination programs pick up and global trade recovers.

“Sweden continues to be more like its Nordic peers, losing much less in terms of GDP compared with most economies in the euro area,” SEB analysts Olle Holmgren and Marcus Widen said in a report. “Hence, the recovery will show somewhat lower growth metrics in the next couple of years while at the same time show a GDP level compared with pre-crisis higher than most countries.”

The comparison with much of Europe is stark. While oil-rich Norway ended 2020 with its gross domestic product just 1.4% below the pre-pandemic levels, the euro region suffered an overall contraction of 6.6% by the time the year was over.

Upgrades to Sweden’s outlook have followed a spate of good news from businesses. In March, an index of manufacturing confidence rose to the highest since mid-2018, while Swedbank’s index of factory purchasing managers climbed more than economists expected. Some economists are now reckoning the economy expanded in the first quarter.

Swedish Snapshot2021 GDP ForecastChange
SEB3.5%Upgrade
NIER3.7%Upgrade
Bloomberg Economics3.5%Upgrade

The prospect of a trade pickup helped prompt recent shifts in forecasts, with SEB opting to lift its growth outlook for 2021 by as much as 0.7 percentage point.

“Sweden is among the most open economies and most trading partners registered rebounding business activity” at the start of the year, said Manuel Oliveri, a currency strategist at Credit Agricole. “Asia plays a role.”

In Denmark, statistics officials revised higher their most recent GDP data on Wednesday, for the fourth quarter, with a 0.7% increase sustaining expansion throughout the second half of the year.

What Bloomberg Economics Says...

“As more of the population gets inoculated we expect rising demand at home and abroad to drive a recovery in Sweden and Norway late in the second quarter. By the end of 2021, we forecast output will exceed its pre-pandemic level in both economies.”

---Johanna Jeansson, Nordic region economist

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Norway’s oil riches and reliance on the backing from its sovereign wealth fund, the world’s largest, already made its economy one of the world’s most insulated to growth shocks. Bloomberg Economics has raised its forecast for this year to 3.9% from 3.7%, and now reckons that both it and Sweden will exceed pre-pandemic levels of output sooner than previously anticipated.

Still, the sky isn’t spotless. Sweden on Thursday postponed its vaccination target due to delivery delays, saying it now expects adults to be able to get at least one dose of coronavirus vaccine by Aug. 15. It had earlier planned for the vaccination effort to reach all people older than 18 by mid-year.

The Nordics have shown noticeably similar economic trajectories despite divergent approaches to lockdown restrictions throughout the crisis, with Sweden in particular initially having tried to keep its economy as open to business as possible.

Where they look likely to diverge in future is in monetary policy. Norway’s central bank has flagged the start of interest-rate increases already in the second half of the year to contain inflation and surging house prices. By contrast, Sweden’s NIER institute projects the Riksbank will only raise its benchmark rate in 2024.

©2021 Bloomberg L.P.

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