2 March 2017 Nordic Outlook - Danske Bankdanskeresearch.danskebank.com/link/NordicOutlook280317/$file/... · 28 March 2017 Nordic Outlook ... Las Olsen Chief Economist +45 45 12 85

www.danskeresearch.com

Investment Research

28 March 2017

Nordic OutlookEconomic and financial trends

� Denmark: a peculiar upturn - The fairly strong recovery continues but it is not resulting in much top-line growth for businesses.

� Sweden: changing the narrative on inflation - Increasing employment is not resulting in significantly higher inflation.

� Norway: out of the crisis - Growth is normalising as the oil sector is bottoming out.

� Finland: firing on all engines - Consumption and construction drove growth in 2016; investments and exports are next.

I m p o r ta n t d i s c l o s u r e s a n d c e r t i f i c a t i o n s a r e co n ta i n e d f r o m p a g e 3 3 of th i s r e p o r t .

3 | 28 March 2017 www.danskeresearch.com

No

rdic O

utlo

ok

Nordic Outlook

Analysts

Editorial deadline 27 March 2017 Invest ment Research

Editor-in-Chief:

Las Olsen

Chief Economist

+45 45 12 85 36

[email protected]

Macroeconomics:

Bjørn Tangaa Sillemann Denmark +45 45 12 82 29 [email protected]

Louise Aggerstrøm Hansen Denmark +45 45 12 85 31 [email protected]

Christian Alexander Lilholt Toftager Denmark +45 45 12 81 57 [email protected]

Roger Josefsson Sweden +46 8 568 80558 [email protected]

Frank Jullum Norway +47 85 40 65 40 [email protected]

Pasi Petteri Kuoppamäki Finland +358 10 546 7715 [email protected]

Minna Emilia Kuusisto Finland +358 10 546 7955 [email protected]

This publication can be viewed at www.danskebank.com/danskeresearch

Statistical sources: Thomson Reuters Datastream, Macrobond Financial, OECD, IMF, National Institute of Social and Economic

Research, Statistics Denmark and other national statistical institutes as well as proprietary calculations.

Important disclosures and certifications are contained from page 34 of this report.

http://danskeresearch.danskebank.com/link/GlobalScenarios/$file/GlobalScenarios.pdf


No

rdic O

utlo

ok

Nordic Outlook

Contents

Nordic outlook At a glance – Normalising Nordics 4

Denmark A peculiar upturn 5

Forecast at a glance 10

Sweden Changing the narrative on inflation 11


Norway Out of the crisis 19


Finland Firing on all engines 24


Global overview Recovery set to continue 30

Economic forecast 32

Financial forecast 33

The Nordic Outlook is a quarterly publication that presents Danske Bank’s view on the economic outlook for the Nordic

countries. The semi-annual publication The Big Picture sets out our global economic outlook.


No

rdic O

utlo

ok

Nordic Outlook

At a glance

Normalising Nordics

No longer standing out from the crowd

So far this decade, the Nordic economies have stood out from the European crowd.

Sweden has achieved some of the highest GDP growth rates among rich countries.

Norway has had an oil boom and then an oil-induced setback as other countries

recovered. Finland’s GDP shrank three years in a row. Only Denmark has looked

very much like the European average in terms of growth in recent years.

This is now changing. Swedish growth is still supported by consumption and

housing investment but not to the same extent and the growth rate has more or

less halved since 2015. Norway is poised to recover from its slump, as we are

nearing the bottom for oil investments for now. The Finnish recovery is already

well under way after a surprisingly strong boost from domestic demand finally

lifted growth into recovery territory last year. While the headline disappointed

somewhat in Denmark in 2016, underlying growth is ticking along.

1.5-2.0% growth is recovery now

The result, according to our forecasts, will be GDP growth in the range of

1.5-2.0% in coming years, as also seems to be the norm in so many other

western countries. This is modest from an historical perspective but,

nevertheless, around or above potential growth in most places, as can be

witnessed by rising employment. This means a lack of qualified labour can

become a constraining factor across the Nordics in the coming years. We are

likely to see even more focus on integrating those with a weak attachment to

the labour market. Even so, we do not expect a surge in wage growth.

Employees across the Nordics are showing restraint, reflecting that they are

increasingly part of a global labour market and probably also reflecting lower

inflation expectations after four years of very little price growth, except in

Norway. The most striking restraint is shown in Finland, where there is a de

facto lowering of hourly wages this year.

Policy tightening, not rate hikes

Denmark’s experience in the boom years up to 2008 shows that an economy

can overheat without very high wage growth or consumer price inflation. This

remains a challenge for central banks and policymakers today, with high

growth in house prices a poignant issue in Norway and Sweden and rapidly

rising urban house prices everywhere. We could see more regulation to dampen

house price and credit growth if these continue to increase rapidly in Norway

and Sweden and fiscal policy is also likely to become less accommodative

across the region in 2018. Monetary policy is targeting consumer price inflation

and this means continued low interest rates for a long time yet.

Not so special anymore

Source: National statistics, Danske Bank

Confidence picking up

Note: 3-month moving average


Low wage growth

Source: OECD, Danske Bank

House price growth a different story



No

rdic O

utlo

ok

Nordic Outlook

Denmark

A peculiar upturn

Despite an enduring economic recovery corporate revenue growth

more suggests stagnation.

We expect growth to pick up somewhat, helped by exports, investment

and still decent consumption growth.

Our forecast assumes a larger workforce, which will require greater

labour market participation or immigrant labour.

Inflation is rising but will remain below the norm, so further growth in

real wages will be achievable with modest pay increases.

We expect house prices will continue to appreciate but at a slightly

slower pace.

The Danish economy is clearly far into a recovery. Employment has grown

strongly for four years in a row and we are approaching a situation where there

are no longer any major unused resources in the country. However, corporate

growth in nominal terms is still very limited. Danish corporate revenue liable

to VAT rose 1.9% last year compared to average growth of 3.8% a year over

the past 25 years. Much of corporate Denmark is experiencing the current

situation as a continuing stagnation rather than being close to the peak of an

economic upturn – apart from the greater difficulty in finding qualified labour.

There are several reasons for this apparent paradox. Inflation has fallen from a

norm of around 2% to essentially zero, which is naturally a drag on revenue

growth. Population growth has been high, but very much driven by retirees and

others with weak links to the labour market. Productivity has disappointed both

here in Denmark and abroad. Highly productive industries like oil extraction

have suffered setbacks, while sectors that generate lower revenue per

employee, such as the hotel and restaurant business, have grown.

Economic growth in 2016 was slightly down on our previous forecast, though

that was due to temporary factors connected with government consumption and

inventories, so we have revised our forecast marginally higher for 2017. We

estimate that companies will experience slightly higher revenue growth, mainly

due to increased inflation but also due to slightly better underlying growth.

However, this is during an expansion, so in the longer term we should expect

lower levels of growth to return unless there is a pick-up in productivity or the

size of the labour force.

There are both upside and downside risks to our forecast. A new crisis striking

Denmark’s trading partners would also hit Denmark, as would any measures

from the Trump White House hindering exports to the US. On the other hand,

experience shows that a self-reinforcing expansion can easily become stronger

than expected. Private consumption and investment could potentially grow

significantly – and not just in Denmark.

Changes vs previous forecast

Source: Danske Bank

Many companies not noticing the upswing

Source: Statistics Denmark

% y/y 2017 2018 2017 2018

GDP 1.7 1.7 1.5 1.8

Private consumption 2.0 2.1 1.6 2.0

Public consumption 0.1 0.8 1.0 0.5

Gross fixed investment 4.2 3.5 3.2 3.7

Exports 4.4 2.7 2.2 2.7

Imports 4.8 3.4 3.4 3.4

Gross unemployment (thousands) 113.7 111.9 107.9 103.8

Inflation 1.2 1.5 1.3 1.5

Government balance, % of GDP -1.2 -0.6 -1.3 -0.7

Current account, % of GDP 7.8 7.7 7.3 7.3

Previous forecastCurrent forecast

Denmark


No

rdic O

utlo

ok

Nordic Outlook

Interest rates remain low

Demand for the Danish krone (DKK) rose at the beginning of the year, causing

the central bank, Danmarks Nationalbank, to intervene and buy foreign

currency for DKK4.7bn. Demand for DKK was prompted in part by concerns

ahead of the French presidential election, which once again caused investors to

seek a safe haven in Denmark, as we have seen earlier when even a slight doubt

was expressed about the future of the euro (EUR). Short market rates falling in

Germany have also played a role in the increased demand for DKK. We are

unlikely to have seen the last of the political uncertainty in Europe and further

currency inflows in 2017 are a definite possibility. We expect Danmarks

Nationalbank will counter any inflows through intervention rather than by

cutting interest rates, though the effect of intervention will also be to push

market rates lower in DKK terms. Long yields look set to increase, but not to

a degree that would have any great significance for the Danish economy going

forward to end-2018, in our view.

Uncertain government consumption

New figures and a substantial downward revision of the old figures indicate

falling government consumption in H2 2016. Hence, government consumption

will tend to reduce last year’s overall GDP growth and looks set to do the same

in 2017, even if quarter on quarter growth is very high this year. Pronounced

fluctuations in the data make government consumption a source of significant

uncertainty for growth overall. And that uncertainty will be further

compounded by Statistics Denmark now correcting the figures to a greater

extent for productivity changes in the public sector, though not in connection

with the initial release of the figures, which means consumption growth in 2016

could well be revised up again later. Lower government consumption growth

combined with the positive trend in private sector employment means we are

now more positive on government finances than previously. However, this

improvement is difficult to incorporate into economic policy. In the short term

there is certainly no need to loosen fiscal policy in Denmark, more the reverse.

In the longer term, better government finances could translate into higher

consumption or lower taxes, which could also help boost long-term economic

growth. However, a few quarters’ very uncertain figures on government

consumption are much too weak a base on which to make such decisions.

Labour shortages, but just modest wage growth

We have revised our employment expectations higher. Preliminary figures for

2016 indicate a real fall in productivity, so while business investment is rising

we now expect economic growth will need more labour in the coming years.

This will place considerable requirements on the labour market to integrate

newly arrived refugees and others with low labour market participation rates,

keep older workers employed for longer, reduce the number of students or

attract qualified labour from abroad. If these efforts are unsuccessful, we can

expect lower activity growth and higher wage growth than in our forecast. We

have revised up our unemployment forecast, as the number of jobless looks set

to increase a little this year before declining again in 2018. The adjustment is

due to a political decision that refugees should now generally be considered as

ready for work and therefore be included in the registered unemployment

figures if they are without work.

Government consumption looks set to reduce GDP

growth

Source: Statistics Denmark and Danske Bank

Market rates held down

Source: Nasdaq OMX and Danmarks Nationalbank

Government consumption is still high


Better integration is one path to more growth

Source: Statistics Denmark population projections

http://danskeanalyse.danskebank.dk/abo/ResearchDenmark220217UK/$file/Research_Denmark_220217_UK.pdf

http://danskeanalyse.danskebank.dk/abo/ResearchDenmark220217UK/$file/Research_Denmark_220217_UK.pdf


No

rdic O

utlo

ok

Nordic Outlook

Collective wage agreements have now been finalised for much of the private

sector labour market and indicate wage growth of around 0.4 percentage points

more than we have seen in the past three years (see Research Denmark: New

wage settlement points to higher pay rises). However, the real wage bargaining

is conducted locally at the company level. Those negotiations will play out

against low wage increases in Denmark’s trading partner countries and we

expect that wage growth will also be modest in Denmark despite the tighter

labour market, as wage earners have probably revised their inflation

expectations lower. The past four years have seen the lowest price increases

since 1934, so wage growth of just over 2% would probably be enough to

ensure reasonable real wage growth, also for the next couple of years.

Underlying price pressures remain low

Danish inflation crept above 1% in February for the first time in four years. The

rise comes mostly on the back of increasing oil prices and vegetable shortages

due to poor weather in southern Europe, though the rise was not nearly as high

as in the euro area. Corrected for these factors, inflation remains very low, with

nothing to suggest any significant change in the near future. As mentioned, the

recently negotiated wage agreements pave the way for slightly higher wage

increases going forward, which could push prices marginally up on domestic

services in particular – though this will probably not feed through to consumer

prices until next year. We estimate that inflation will begin to increase modestly

later in the year, with inflation for 2017 coming in at 1.2% overall.

What goes up? House prices continue to climb higher

House prices are again set to climb higher in 2017. We have also noted a recent

increase in housing market activity, with the number of apartment and house

sales rising and more property showings indicating a solid appetite for home

buying going into the spring. This combined with a lower supply of housing

indicates further upward pressure on prices. While house prices rose by 3.8%

in 2016, apartment prices surged 8.6%. Rising prices mostly reflect how cheap

home-purchase financing remains due to very low interest rates. This is also

one reason why we do not see the significant price increases on apartments in

general as indicating an actual price bubble driven by speculation and

expectations of future price rises. However, while we would rule out a bubble,

there remains a risk, albeit probably not in the near future, that apartment prices

could fall substantially from their current high levels. Rising interest rates

would have a particular impact on expensive areas where loans tend to be large,

especially where homeowners have chosen to finance with short-term interest

rates.

We expect the housing market will continue to grow overall, with house prices

rising 3.5% this year and next. Price growth looking set to slow a little

compared to 2016 is due to increasing new home starts and gradually rising

long-term interest rates having a dampening effect.

Inflation set to rise – but not by much

Source: Statistics Denmark and own calculations

Inflation lifted by energy and vegetables, though

more so in Europe

Source: Statistics Denmark and Eurostat.

No sign of apartment prices slowing


Rising sales activity points to still high housing

demand



No

rdic O

utlo

ok

Nordic Outlook

Uncertainty on property taxes going forward does not so far appear to have had

any particular impact on the housing market. Prices continue to rise on owner-

occupier apartments in Copenhagen even though they look set to be hit

relatively hard by a revision of property taxes in line with what the Liberal

government presented in October – due to a major upward revision of land

values. At the same time, the government is paving the way for cuts in property

taxes to be partly financed by reducing the deductibility of interest charges,

which all else being equal will increase the cost of home financing. The lack of

reaction is likely due to nothing yet having been adopted into the legislation

and also that the revision will not unequivocally point up or down for house

prices in the coming years until the new system is implemented. The

consequences will presumably become more apparent for potential home

buyers once a tax model has been adopted and the new property valuations are

published – in 2019 according to the plans.

Private consumption lifts Danish growth

Private consumption finished 2016 on a very strong note, recording its highest

quarterly growth rate since 2007. Growth was due in part to rising energy

consumption and solid car sales, though underlying consumption growth was

still high even after discounting these components. The trend suggests the

Danes’ financial situation has improved, with more money to spend, rising

house prices and labour market growth. The Danes having more money in their

wallets reflects, in particular, how wages have grown faster than prices. This

effect was greatest in 2016 when inflation was extremely low, but will also be

present during our forecast period, as recently concluded wage agreements

indicate wages will again rise faster than prices in 2017 and 2018.

We also expect a modest increase in borrowing to lift consumption in 2017 and

2018. Danes have probably come far with rebalancing their finances after

several years of many using income growth to reduce debt rather than spend

the extra income on consumption. Borrowing can now also be used to finance

some consumption spending, as home equity has been restored in many parts

of the country due to the increases in house prices in recent years.

All in all, we look for a moderate increase in consumption of around 2% both

this year and next. Our forecast has both upside and downside risks, but we see

the bias as being more upside overall. If borrowing increases significantly or

nascent bottlenecks result in higher wage growth than expected, there would

be potential for an even stronger consumption upswing.

Exports returning as growth engine

Exports are picking up. Goods exports had been weak for the past two years

but made a remarkable comeback late last year. After growing modestly during

the year, total exports rose 4.1% in Q4. The shift up in gear appears to have

been partly driven by manufacturing exports, which also sits well with the

growth seen in Danish export markets at the end of last year. However, much

of the growth in Q4 can be explained by Danish companies’ trade with goods

outside the country rather than goods produced in Denmark. This includes both

goods bought and sold abroad (merchanting) and goods sold after processing

abroad. The latter, in particular, comprise an increasing share of Danish goods

exports.

Lowest number of homes for sale in 9 years

Source: House Price Statistics

Despite uneven growth the outlook for private

consumption is good


Kreditgivningen ventes langsomt at understøtte

forbrugsvæksten

Source: Danmarks Nationalbank

Exports picking up



No

rdic O

utlo

ok

Nordic Outlook

Unlike goods exports, service exports looked solid throughout most of last

year. True, shipping had to struggle with falling freight rates and low activity

due to a slowdown in global trade, but demand for other services, such as

engineering support and consultancy services rose, plus shipping got a helping

hand from a strongly appreciating dollar (sea freight is usually paid for in

dollars) and stabilising freight rates in Q4.

We expect exports will continue to perform positively in 2017. Denmark’s

export markets have generally kept growing this year, while sentiment among

Danish manufacturers has clearly improved in recent months, with production

expectations, in particular, higher. Manufacturing could in fact quickly become

rather busy if the expansion in Europe continues. There is still room for

substantial investment in the European expansion, and that is probably also

what is beginning to be seen in Danish companies, where we have noted a much

brighter mood in the investment-heavy machinery industry, for example. That

being said, there is still considerable uncertainty attached to the US

government’s protectionist agenda, which could potentially put a damper on

global trade. With an economy heavily dependent on overseas demand and on

criss-crossing the world’s oceans with goods that have to be transported

between continents, Denmark’s recovery is for better or worse wed to global

developments.

Huge current account surplus slowed slightly by

recovery

Denmark’s current account surplus has been record-high in recent years. While

it fell by 1.1% of GDP to 8.1% last year, that is still one of the highest current

account surpluses in global terms. The trend towards a gradually declining

surplus reversed in Q4 as the dollar strengthened, which was a particular boon

to shipping and thus boosted the services balance. Moreover, 2016 was yet

another year with rising prices on goods exports and falling prices on goods

imports – a source of sustained wealth growth in Denmark over many years

now.

The current account surplus has in recent years been greatly supported by

subdued domestic demand, which has capped imports. However, imports have

begun to pick up lately, due in particular to increasing corporate investment –

a very positive development for the Danish economy.

As the economic expansion progresses, the growing demand for Danish goods

should not be met solely by increasing company payrolls, which is why we

expect investment will continue to rise – and that will naturally lift imports. We

expect this will contribute to keeping the current account surplus slightly lower

in 2017 and 2018.

Trade that never enters Denmark constitutes an

increasing share of exports


Service exports have been strong, though shipping

has suffered from low freight rates


Current account surplus rose again in late 2016

following exports comeback


Sustained positive terms of trade a major

contributor to current account surplus


0

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18

10 11 12 13 14 15 16

Merchanting Goods sold and processed abroad

% of total goods exports% of total goods exports


No

rdic O

utlo

ok

Nordic Outlook

Denmark: forecasts at a glance

Source: Statistics Denmark, Danske Bank

National account 2016 2016 2017 2018

DKK bn (current prices)


Government consumption 528.5 -0.2 0.1 0.8


- Business investment 247.7 3.7 5.6 3.8

- Housing investment 91.6 11.0 3.6 7.2

- Government investment 72.7 0.6 0.0 -2.0

Growth contribution from inventories -0.3 -0.3 0.0 0.0

Exports 1092.6 1.4 4.4 2.7

- Goods exports 698.5 1.1 3.7 2.7

- Service exports 394.2 1.9 5.6 2.8

Imports 953.0 2.4 4.8 3.4

- Goods imports 596.1 1.9 4.5 3.5

- Service imports 357.0 3.2 5.2 3.2

GDP 2064.8 1.1 1.7 1.7

Economic indicators 2016 2017 2018

Current account, DKK bn 167.2 166.5 170.1

- % of GDP 8.1 7.8 7.7

General government balance, DKK bn -18.6 -24.6 -12.3

- % of GDP -0.9 -1.2 -0.6

General government debt, DKK bn 778.2 781.0 771.1

- % of GDP 37.7 36.7 35.1

Employment (annual average, thousands) 2876.6 2916.9 2949.2

Gross unemployment (annual average, thousands) 112.7 113.7 111.9

- % of total work force (DST definition) 4.2 4.3 4.2

Oil price - USD/barrel (annual average) 44 57 61

House prices, % y/y 3.8 3.5 3.5

Private sector wage level, % y/y 1.7 2.0 2.2

Consumer prices, % y/y 0.3 1.2 1.5

Financial figures 27/03/2017 +3 mths +6 mths +12 mths

Lending rate, % p.a. 0.05 0.05 0.05 0.05

Certificates of deposit rate, % p.a. -0.65 -0.65 -0.65 -0.65

2-yr swap yield, % p.a. 0.06 0.05 0.05 0.15

10-yr swap yield, % p.a. 1.08 1.10 1.25 1.55

EUR/DKK 7.44 7.44 7.44 7.44

USD/DKK 6.85 6.89 6.76 6.53

Forecast

% y/y


No

rdic O

utlo

ok

Nordic Outlook

Sweden

Changing the narrative on inflation

In what must be evidence of the accuracy of ‘broken clocks’,

preliminary readings show that GDP growth came in exactly in line

with our long-held expectations of 3% y/y (vol, wda) for 2016. Though

strong from an international standpoint, it was clearly below other

forecasters’ expectations, including the Riksbank’s.

Looking ahead, we expect GDP growth to subside further to 2% y/y

(vol, wda) in both 2017 and 2018. This is in line with our view of a

normalising Swedish economy and as potential GDP growth is

calculated to be around 1½% y/y (vol) it could even be labelled strong.

Labour markets have improved dramatically over the past few years.

That said, even as employment growth has powered on, the

unemployment rate has become stuck at levels which historically

would be considered high. This is explained by an influx of immigrants

and large young aged cohorts entering the labour force.

Given the current high demand for labour, the outlook for companies

accepting inexperienced and unqualified workers has rarely been

better. However, this is only possible to a certain extent, which makes

it hard to assess the employability of the new entrants and thus to

estimate the amount of idle resources.

Wage growth is under any circumstances expected to remain low

throughout the forecast horizon and we foresee no underlying cost

pressures to talk of. This situation is further exacerbated by the

difficulties that companies are having in raising profit margins.

This, nota bene, clashes with the current inflation narrative, where the

Riksbank and market participants have become gradually more

convinced that inflation is sustainably approaching the inflation target.

In our view, the inflation impetus over the past year has mainly been

the result of higher energy costs (mainly oil) and lagged effects from a

previously weak SEK. As these effects pass, we cannot identify any

other apparent drivers of inflation.

We still expect the Riksbank to end its current quantitative easing

programme due to an increasingly strained bond supply situation and

very low market liquidity. This, however, should be balanced by the

Riksbank delaying and lowering the repo rate path, effectively

adhering to the ‘Jansson-rule’ adopted by, inter alia, Mario Draghi and

the ECB.

In short, the Jansson rule implies no contraction of monetary policy

until underlying (wage-driven) inflation measures and expectations are

sustainably at levels consistent with the inflation target. We therefore

expect the first hike to come, at the earliest, in the winter of 2018/19

and consider risks for further unconventional policy measures as very

high.


Source: Danske Bank

Swedish forecast at a glance

Statistics Sweden (SCB), National Institute for Economic Research

(KI) and Riksbank. Danske calculations.

On top of the Riksbank’s mind

Source: SCB, Eurostat, Prospera, Riksbank. Danske calculations.

% y/y 2017 2018 2017 2018

GDP, calendar adjusted 2.0 2.0 2.0 2.0




Exports 3.7 3.6 3.5 4.1

Imports 2.0 3.6 3.4 4.4

Unemployment rate 7.0 6.9 7.2 7.1

Inflation 1.3 1.2 1.3 1.4

Government balance, % of GDP 0.2 0.0 -0.7 -0.5

Current account, % of GDP 5.0 5.0 4.5 4.5

Sweden

Current forecast Previous forecast


No

rdic O

utlo

ok

Nordic Outlook

Swedish exports set to drive GDP growth

According to Danske Bank’s international forecasts, global demand is finally

picking up steam on the back of expansionary policies and receding risks of the

world becoming trapped in ‘secular stagnation’. We expect global growth to

reach 3.4% y/y (vol) in 2017 and 3.7% y/y (vol) in 2018. When weighing the

Swedish exports outlook, global GDP growth is, nonetheless, too crude a

measure to use since we have to take into consideration that both the

geographical dispersion and the sectoral composition of the Swedish export

sector might differ in relation to global aggregates (in addition to the SEK and

other measures on competitiveness). Unfortunately, no complete measure of

the Swedish import content of global demand exists (let alone any forecasts on

such a measure), but to gauge international demand we tend to look at import

growth on Swedish export markets; Swedish world market growth. As Danske

Bank’s forecasts for import growth on typical Swedish export markets suggest

the export industry will finally experience some tailwinds, world market

growth is expected to improve over the forecast horizon, growing 3½% y/y

(vol) in 2017 and 4½% y/y (vol) in 2018.

That said, since the Swedish export industry is heavily reliant on demand for

input and investment goods the outlook is, alas, not all sunshine. Investment

demand in Swedish export markets is indeed increasing, but at a much slower

clip than historical patterns suggest. Thankfully, Danske Bank’s forecasts for

investment growth in Swedish export markets should imply a strong

acceleration of demand also for Swedish investment goods over the coming

two years. All in all, due to very poor developments during the course of 2016,

we expect investment growth in Swedish export markets to be around 0% y/y

(vol) this year but accelerate towards 5% y/y (vol) by the end of 2018.

Another consideration is of course how competitive the Swedish exports sector

is, in which the oft discussed weakness of the SEK is a fundamental element.

However, we must also take into account other important developments

affecting competitiveness, such as labour costs. In the wake of the financial

crisis, Swedish labour costs developed in line with historical cyclical patterns

whereas many of our harder-hit competitors posted only modest, even negative,

labour cost growth. In conjunction with rather weak post-crisis Swedish

productivity growth, the relative cost base of Swedish exporters deteriorated

dramatically, helping to explain why the Swedish exports sector has

experienced a protracted slump in sales.

To sum up, the world economy and Swedish export markets are expected to

improve in tandem over the forecast horizon. The composition of global

demand is still skewed towards consumption, which puts Swedish export

industries at a slight disadvantage, but since investments are expected to swiftly

gain traction this should be less of a problem going forward. And as the

Swedish exports industry is slowly emerging from a weak competitive

situation, we expect another drag on Swedish exports to diminish, even though

the outlook on the SEK is challenging that view. Altogether, we expect exports

growth to rise 4.2% y/y (vol, wda) and net exports to contribute a handsome

0.9 percentage points (pp) (vol, wda) to GDP this year as import growth recedes

on the back of less vigorous domestic demand growth. In 2018, export growth

is expected to be 3.6% y/y (vol, wda) and net exports to contribute a more

modest 0.2pp (vol, wda) to GDP growth.

Imports (IMP) and investments (GFCF) on Swedish

export markets (KIX)

Note: KIX is a trade weighted index of Swedish manufactured goods

and commodities compiled by the Riksbank.

Source: Organisation for Economic Cooperation and Development

(OECD), SCB, KI, Riksbank. Danske Bank calculations.

World market growth (KIX, IMP) and Swedish

exports growth

Source: OECD, SCB, KI, Riksbank. Danske Bank calculations


No

rdic O

utlo

ok

Nordic Outlook

Financial conditions becoming less supportive

When balancing Swedish growth prospects, the external demand situation is of

course vital. Another important area to ponder is the financial outlook. We have

already touched on the outlook for the SEK, which we feel should strengthen

in trend over the coming years, due to strong public finances, external surpluses

and a foreseen cyclical improvement

Low inflation should nonetheless keep short-term interest rates depressed, but

longer-term yields are expected to oscillate in a wide range as the international

and domestic outlooks go through phases. As for equity markets, the Danske

Bank view is that despite impressive rises over the past couple of months,

valuations are still reasonable given that we expect Swedish companies to

capitalise on stronger growth in the surrounding world. However, the room for

further near-term capital gains should be limited as we now need to start to see

some confirmation in hard data and profits before starting another leg upwards

in equity prices.

The Swedish housing market is continuing its ascent, and the tentative signs of

moderation in prices seen in conjunction with the introduction of the forced

amortisation rule are no longer visible. The Danske Bank view continues to be

that Swedish house price valuations are fundamentally strained, but lack of

supply, little speculative demand and strong buffers in both the banking and

household sector pave the way for an orderly correction via decelerating house

price growth and accelerating income growth. As authorities seem sincere in

their quest for reining in the risks attached to increasing household

indebtedness, we expect further measures – such as a debt to disposable income

ceiling – to be introduced, perhaps already early next year.

Turning to fiscal policy, there is little to suggest any major changes in the near

term. The public debt ratio is low, and our previous deficit projections have

proven far too pessimistic from both a cyclical and a structural perspective, due

to a surprisingly strong growth in hours worked. The upcoming spring budget

will not improve the structures of the economy, but will also cause no harm, in

our view. By and large, we believe the government will utilise what little

wiggle room it has to stimulate the economy in a prelude to next year’s general

elections (Sept 2018), pushing the structural balance lower during the coming

years.

A transparent, albeit incomplete, way of sketching the financial backdrop to

our forecasts for the Swedish economy is with a financial conditions index

(FCI). Supposedly, it illustrates the effect on demand from financial variables.

As the graph shows, financial conditions have been expansionary for some time

and are expected to remain so during most of the forecast period.

Fiscal policy stance is far from balanced

Source: SCB, KI. Danske Bank calculations.

Still benign financial conditions

Note: FCI is calculated as the deviation from a filtered trend of short

and long term interest rates, exchange rates, stock market and house

prices (all variables are normalized and adjusted for inflation).

Source: Macrobond Financial. Danske Bank calculations


No

rdic O

utlo

ok

Nordic Outlook

Decelerating investments growth masks tentative

improvements to sentiment

Overall investments growth has been strong for a number of years. However,

the strength has been concentrated among interest rate sensitive housing

investments and, to a lesser extent, public investments. Underlying business

sector investments have instead been weak ever since the financial crisis,

reflecting the fragile sentiment marring the lion’s share of corporate Sweden.

Nonetheless, with financial conditions expected to remain benign, implying

low financing costs, and a long sought after improvement in external demand,

we believe the underpinnings for a positive turn in the investments outlook are

finally present. In all, we believe that investments growth will decelerate from

a housing investments driven 5.5% y/y (vol, wda) in 2016 to a more balanced

2.6% y/y (vol, wda) in 2017. In 2018, as housing investments are expected to

reach a capacity ceiling, we expect business sector investments to help push

overall investments to 2.1% y/y. These investments growth numbers might

come across as weak from a historical perspective but would, nonetheless,

constitute a welcome change of direction for underlying investment demand.

Employment growth is strong, but is outpaced by labour

force growth

The Swedish labour market has posted impressive gains over the past few

years. Employment growth has been averaging 1½% y/y since 2010 and the

unemployment rate has fallen from 9½% to the current range of 6½% to 7%.

Put another way, the labour market gaps are closing. That said, the large cohorts

of young people currently entering the labour force and the influx of

immigrants make it hard to appraise the fundamentals of the Swedish labour

market. Intriguingly, despite very high employment growth, the unemployment

rate has remained still or even increased somewhat recently, as the labour force

is expanding at an ever faster pace. Judging from demographical projections,

this situation will probably remain for at least another one-two years. In our

forecast, we have therefore opted to keep the labour intensity of production

virtually unchanged, which implies that the unemployment rate will continue

to oscillate at current levels throughout the forecast period. Ultimately, this will

probably prove wrong, but for want of better knowledge regarding the quantity

and quality of incoming production factors we use this ratio to anchor our

labour market forecasts.

Under any circumstances, demand for labour is quite strong, especially within

construction and public sectors, implying that employers will need to dig

deeper and deeper into the pool of unused labour. Given the challenges with

both many young inexperienced workers and immigrants needing to familiarise

themselves with the Swedish labour market, the tight labour markets will

undoubtedly provide a helping hand.

To summarise, employment growth has been strong for some time. As the

Swedish economy continues to grow above trend, we expect employment

growth to remain buoyant, growing between 1-1½% y/y during both 2017 and

2018. However, for a host of reasons, the labour force is simultaneously

expanding at a neck-breaking pace, which makes it hard to measure the amount

of free resources. We have simply assumed a stable labour input to production,

which means that the unemployment rate will probably remain at current levels

for some time. It is only towards the very end of the forecast period that a more

Investments growth becoming broader based…


…and, albeit slowly, labour markets will ameliorate

Source: SCB, KI. Danske Bank calculations


No

rdic O

utlo

ok

Nordic Outlook

pronounced improvement becomes visible and the labour market approaches

our unusually-hard-to-pencil-in estimate of ‘non-accelerating-inflation-rate-of-

unemployment’ (NAIRU), id est, circa 6½%.

Income growth subsides and consumption growth

settles at a lower clip

A fair amount of free resources on labour markets and continuously

disappointing sales and profit developments among corporates have slowly fed

through into lower nominal wage growth during the years following the

financial crisis. In our book, this is best explained by poor productivity growth

and a corporate sector consisting of price takers in a low-growth world.

Simultaneously, major tax and interest rate cuts have fuelled domestic demand,

absorbing much of the labour market slack. In a few sectors, mainly

construction related and some tax-financed public services, signs of bottlenecks

are emerging and wages are increasing at a somewhat faster clip in those

sectors. Overall, though, wage growth remains muted at around 2½% y/y, some

distance below historical averages.

Unfortunately, we believe the conditions cited above will persist, as

productivity has only recently and only slightly recovered. As very few sectors

express a want of qualified labour, and even fewer suggest that lack of qualified

labour is a major obstacle to growth, we believe that the wage growth forecasts

that, inter alia, the Riksbank builds inflationary forecasts on are vastly

exaggerated. Conversely, indications from the ongoing centralised wage

negotiation round are for another low agreement, around 2½% y/y, possibly

stretching beyond 2019. To reach the Riksbank’s wage growth forecast, let

alone levels consistent with the inflation target, we thus need to see wage drift

at levels from more than two decades ago; before the industrial sector wage

mark was first introduced.

In short, we expect low and possibly longer wage agreements, as well as very

modest wage drift during 2017 and 2018. In numbers, this boils down to hourly

wage growth of 3.0% y/y in 2017 and 3.1% y/y in 2018 (in SCB’s definition).

Low hourly wage growth, but decent employment growth, means that the wage

sum will continue to expand, albeit at a slow pace. Add to this tax hikes and

rising real interest rates and it should stand clear that disposable income growth

is set to weaken markedly compared to previous years. In relation to this, it is

probably wise to revisit earlier Nordic Outlook discussions on the savings rate,

which has now surpassed 17% of disposable incomes. As economists have yet

to reach any consensus on explaining its continuous ascent, we have simply

assumed it to be stable over the forecast horizon and let it normalise

thenceforth.

To be clear – given our view on disposable incomes – this invariably means

that consumption growth is set to recede markedly. In 2016, consumption

growth was still a handsome 2.2% y/y (vol, wda), but with a clear downward

trend throughout the year. In 2017, we expect consumption growth to continue

its weak spell and increase a meagre 1.3% y/y (vol, wda) and stay low in 2018,

at 1.4% y/y (vol, wda). That said, do keep in mind that these forecasts are

subject to a strong assumption on households savings behaviour.

Disposable incomes in a weak trend


Consumption growth to moderate



No

rdic O

utlo

ok

Nordic Outlook

Changing the narrative on inflation

Summing up the various GDP components discussed above, Danske Bank’s

view on a ‘normalising’ Swedish economy remains intact. After growing 3.0%

y/y (vol, wda) last year, we foresee another downshift to 2.0% y/y (vol, wda)

in both 2017 and 2018. These growth numbers might be low in comparison to

many other forecasters, but beneath a modest surface fundamental

improvements such as a pick-up in exports and business sector investments

(outside of housing) are at long last taking place. Simultaneously, the

unsustainably strong domestic demand growth over the past few years is

expected to subside, producing a more balanced and, importantly, sustainable

Swedish economy. And as the rebalancing process continues over the coming

years, we expect to see higher productivity growth, a harbinger of both higher

profits, higher wages and, eventually, rising inflation. However, since this is a

gradual process, a rapprochement to the inflation target is set to linger past the

forecast horizon.

For the Riksbank, the developments sketched above of course denote a very

challenging environment, especially as interest rates are already deeply

negative and the purchases of government bonds (the Riksbank’s QE-

programme) are reaching sizes that adversely affect the functioning of the bond

market. Taking into account that the European Central Bank (ECB) will

continue its purchases of interest bearing instruments for quite some time, the

situation becomes even more troublesome. Exempli gratia, it could very well

imply the swift strengthening of the SEK that the Riksbank has been obsessing

about over the past two years.

To avoid, inter alia, an excessive strengthening of the SEK, we expect the

Riksbank executive board to fully adopt the ‘Jansson-rule’, and no additional

monetary tightening to take place until underlying inflation and inflation

expectations are sustainably at, or above, the inflation target. In other words, at

upcoming monetary policy meetings, we expect the Riksbank to use its interest

rate forecasts to perform gradual postponements of the first repo rate hike and

paint lower repo rate trajectories.

Only if the business cycle takes an unexpected turn for the worse, or if the SEK

suddenly strengthens dramatically, we believe other, more aggressive,

monetary policy measures such as FX-interventions will come into play.

GDP, hours worked and productivity


Inflation will disappoint the Riksbank

Source: SCB, Riksbank. Danske Bank calculations

No hike in our time

Source: Riksbank, Macrobond Financial. Danske Bank calculations.


No

rdic O

utlo

ok

Nordic Outlook

Sweden: forecasts at a glance

Source: Statistics Sweden, Danske Bank


SEK bn (current prices)


Government consumption 1086.4 3.1 1.3 2.0


Growth contribution from inventories 23.4 0.1 -0.5 0.1

Domestic demand 3982.6 3.4 1.5 1.7

Exports 1906.2 3.4 3.7 3.6

Aggregate demand 5888.8 3.5 0.9 1.8

Imports 1707.7 3.7 2.0 3.6

Growth contribution from net exports 198.5 0.0 0.8 0.2

GDP 4181.1 3.3 1.8 1.9

GDP, calendar adjusted 3.0 2.0 2.0


Trade balance, SEK bn 113.0 103.9 103.3

- % of GDP 2.6 2.3 2.2

Current Account, SEK bn 203.9 224.3 236.2

- % of GDP 4.7 5.0 5.0

Public sector savings, SEK bn 30.7 9.0 0.0

- % of GDP 0.7 0.2 0.0

Public debt ratio, % of GDP* 42.1 39.9 39.3

Unemployment, % of labour force 6.9 7.0 6.9

Hourly wages, % y/y 2.8 3.0 3.1



* Maastricht definition

Financial figures +3 mths +6 mths +12 mths

Repo rate, % p.a. -0.50 -0.50 -0.50 -0.50

2-yr swap yield, % p.a. -0.26 -0.40 -0.40 -0.30

10-yr swap yield, % p.a. 1.15 1.35 1.45 1.60

EUR/SEK 9.53 9.40 9.30 9.20

USD/SEK 8.78 8.70 8.45 8.07

27/03/2017

Forecast

% y/y


No

rdic O

utlo

ok

Nordic Outlook

Norway

Out of the crisis

Growth in the Norwegian economy is picking up and looks set to

normalise over the next couple of quarters.

The headwinds from the oil downturn are easing and non-oil growth is

accelerating.

Activity in the oil sector is bottoming out. Higher oil prices and lower

costs are reducing the downside risk considerably. Orders are

improving and employment seems to be stabilising.

High homebuilding activity and expansionary fiscal policy continue to

stimulate the rest of the economy and business investment has begun

to climb. High inflation has held back consumer spending but the

situation is now improving as expected.

Next year, oil-related headwinds should reverse into a slight tailwind

but the fiscal policy stimulus will also be weaker. Economic growth

should nevertheless be higher due to stronger growth in private

consumption and investment.

Unemployment has begun to fall and employment is rising. Vacancies

are continuing to climb and leading indicators suggest that

employment will rise further during the course of the year.

Inflation has fallen much more quickly than expected, due partly to a

faster pass-through from the krone’s appreciation. Wage growth, on

the other hand, was far weaker than expected last year, and the central

settlements are likely to come out on the low side again this year. Wages

will therefore put less pressure on prices than we previously assumed.

The housing market has become very tight, but there are signs of the

supply side reacting. Together with new credit restrictions, this will

gradually rein in growth in housing prices.

Norges Bank left its policy rate alone in March and was somewhat less

optimistic than we anticipated. Nevertheless, we believe that interest

rates have bottomed but do not expect any rate increases until well into

next year.

Higher oil prices and better growth have brought a stronger krone. We

expect this trend to continue in 2017 although there is still considerable

uncertainty related to oil prices.

Brighter outlook

Growth in the Norwegian economy appears to be picking up, slowly but surely,

with mainland GDP climbing 0.3% q/q in Q4 16. The biggest surprise, perhaps,

was an increase in oil investment from Q3 and while we doubt this means that

oil investment has already bottomed out, it is certainly a sign that stabilisation

is underway. Together with a jump in export-oriented mainland manufacturing,

this means that industrial production is on the up for the first time in more than

three years.


Source: Danske Bank

Stronger growth ahead

Source: Macrobond Financial, Danske Bank Markets estimates

% y/y 2017 2018 2017 2018

GDP (mainland) 1.8 2.2 1.8 2.2




Exports 1.4 1.6 1.3 1.3

Imports 1.2 2.2 1.9 2.3

Unemployment (NAV) 2.8 2.7 3.0 3.0

Inflation 2.3 1.5 2.2 2.1


Norway


No

rdic O

utlo

ok

Nordic Outlook

Norges Bank’s regional network survey suggests that growth will accelerate

further over the next six months. The aggregated output index climbed to 1.02

in February, its highest for almost four years. This points to GDP growth of

just over 0.5% q/q over the next two quarters, which is probably close to trend

growth in the Norwegian economy.

Data from the survey shows that the downturn in oil-related industries at the

beginning of 2017 was much less severe than during 2016. This is presumably

due to a combination of higher oil prices and lower costs. In January, for

example, Statoil signalled that the breakeven price for its Norwegian

investment portfolio had come down from USD41/bbl to less than USD30/bbl

in the past year. Over the same period, oil prices climbed from USD28/bbl to

USD55/bbl. This has naturally made the oil companies’ investments more

robust and reduced the downside risk to both oil investment and the Norwegian

economy in general. This ties in well with our expectation that oil investment

will bottom out during the course of this year after falling since 2013. This

trend was confirmed by the oil investment survey for Q1, where the oil

companies’ estimates for 2016 were revised down slightly as expected, but

revised up for 2017. This means that the decline in oil investment this year will

be somewhat smaller than we previously thought.

Growth outside the oil sector is continuing to accelerate. Firms across the board

report far better growth prospects than in the November survey. The all-

important service sector (35% of GDP) in particular is more positive about the

outlook, but there is also the prospect of much stronger growth in construction

and traditional mainland manufacturing. The danger of second-round effects

from the oil shock sending the Norwegian economy into a deep and protracted

recession is thus fading.

Once again, firms anticipate much higher employment going forward. Here too

we need to go right back to May 2013 to find similarly optimistic expectations.

Firms also expect their profitability to improve faster than at any time since

2012. All in all, the regional network survey signals that the Norwegian

economy is seriously starting to move out of the oil-driven downturn of the past

three years.

Other economic data confirms this picture: industrial production has now

climbed for three consecutive months for the first time since 2014,

manufacturing orders increased for the first time in more than three years in Q4

and the PMI seems to be trending up after taking a quick breather towards the

end of last year.

Brighter growth prospects

Source: Macrobond Financial

Firms expect stronger earnings


Manufacturing activity on the up

Source: Macrobond Financial, Danske Bank Markets


No

rdic O

utlo

ok

Nordic Outlook

Positive contribution from oil investment in 2018

Higher oil prices and heavy cost-cutting in the Norwegian sector means that oil

investment will bottom out during the course of this year and begin to grow

moderately in 2018. The oil downturn’s negative effects on mainland growth

will therefore fade gradually and eventually reverse.

At the same time, we expect inflation to slow further in 2018 as the effect of

the krone’s depreciation turns negative. Together with a substantial

improvement in the labour market, this will lend stronger support to private

consumption. In addition, we now expect much stronger growth in business

investment in 2018, fuelled by greater optimism, stronger profitability and

higher capacity utilisation. We also anticipate a substantial contribution from

investment in the power sector, both in traditional hydroelectric production and

in other types of renewable energy. Although fiscal policy will become less

expansionary in coming years, it would appear that investment in transport will

continue to grow relatively strongly.

On balance, we forecast mainland GDP growth of 2.2% in 2018.

Labour market tightening

The labour market appears to be tightening. Both the LFS and the Norwegian

Labour and Welfare Administration (NAV) are reporting falling

unemployment. The employment picture is slightly more mixed, with the LFS

showing a relatively steep drop in employment and the national accounts a clear

improvement. While the LFS is based on a survey of households and is rather

surprisingly showing a sharp reduction in the labour supply, the national

accounts use data from the employer side. We have far more faith in the latter

and so believe that the drop in unemployment is real.

This is supported by leading employment indicators, which clearly suggest that

employment has risen over the past couple of quarters. Either way, there is a

clear uptrend in employment expectations in the regional network survey, so

we would expect unemployment to fall further. The number of vacancies

reported to NAV is also holding up very well, which suggests that demand for

labour is growing.

Furthermore, the number of redundancies and layoffs reported to NAV has

come down over the past three to four months, which may mean that the

downsizing in oil-related industries is coming to an end.

We still believe that unemployment has peaked, and with no clear signs of

productivity growth picking up or the labour supply growing, this trend is set

to continue.

Purchasing power set to improve


estimates

Employment set to rise



No

rdic O

utlo

ok

Nordic Outlook

Inflation somewhat lower than expected

Inflation has fallen much further than expected over the past three months, with

the core rate down at 1.6% y/y in February. It is mainly imported inflation that

has dropped surprisingly far, probably due to the krone’s appreciation passing

through to import prices more quickly than we anticipated. A number of

extraordinary factors, such as low food prices and cheaper airfares, have

probably also helped pull inflation down, but these will most likely fade and

very possibly reverse slightly in coming months.

At the same time, the underlying inflationary picture seems to be somewhat

weaker than we thought. Wage growth was just 1.7% last year and the key

LO/NHO settlement points to wages climbing around 2.5% this year. This will

put slightly more of a damper on domestic price inflation than previously

expected. On the other hand, the krone’s recent weakness will start to push

import prices back up again if it proves more persistent than we predict. We

now expect core inflation to fall further in 2017 and be below 1.5% at the end

of the year.

Lower unemployment and higher corporate earnings point to higher levels of

wage growth going forward. This could lead to higher wage drift as early as

this year, and at the very least we would expect wage growth to accelerate to

3% in 2018.

Housing market set to cool

The housing market has tightened further since our previous forecast. Prices

have risen faster than expected, especially in the big cities. Nationwide, prices

in February were up 13% y/y, the highest rate of growth for a decade. In Oslo,

prices climbed more than 24% y/y.

The underlying reason for these soaring prices is a surge in demand, due to

population growth and increased borrowing capacity on the back of low

mortgage rates and the supply side’s failure to keep up.

As a result, there has been growing concern that the rapid rise in prices and

associated increase in debt in the household sector could pose a risk of financial

imbalances building up. As mentioned in our previous forecast, Finanstilsynet

– the financial supervisory authority – therefore introduced further restrictions

on banks’ lending practices with effect from 1 January. Higher equity

requirements for purchases of second homes and a maximum LTI of 5 are

probably those that will have the greatest impact.

We think these measures could well help curb the rise in prices in Oslo by

making it harder to fund purchases of second homes. According to Norges

Bank, 6.9% of new mortgages in 2014 had an LTI above 5 and the percentage

has probably risen slightly since. It is still too early to see any effects of these

measures, as most people buying homes in January and February (and even

March) probably had loans approved before the new requirements came in.

At the same time, borrowing rates have stopped falling, population growth has

slowed and homebuilding activity is rising. Homebuilding is actually now

outpacing growth in the number of households, so we expect a better balance

in the housing market during the course of 2017 and 2018, including in Oslo.

Krone will continue to put pressure on inflation


Headed for a better balance in the housing market

Source: Macrobond Financial, Danske Bank


No

rdic O

utlo

ok

Nordic Outlook

We therefore expect housing price inflation to slow during the course of this

year and for the annual rate next year to be in line with or even below our wage

growth forecast of 3%.

Interest rates have hit bottom

As expected, Norges Bank left its policy rate unchanged at 0.5% at the March

rate-setting meeting. Clear signs of economic growth picking up mean that

there is less need to cut rates further. Soaring housing prices over the summer

also underlined the growing cost of extremely expansionary monetary policy.

On the other hand, both wage growth and inflation look set to be lower than

previously anticipated, which will reduce the need to raise interest rates even if

economic growth picks up.

The interest rate path presented in Norges Bank’s latest monetary policy report

still includes a roughly 40% chance of a further rate cut in 2017. Based on our

forecasts here, however, we expect Norges Bank to leave its policy rate

unchanged at 0.5% throughout the year. It is worth remembering that the

central bank’s interest rate path builds on the assumption that housing price

inflation will slow as a result of higher homebuilding activity and tighter credit

practices. If this slowdown in housing prices fails to materialise, there may be

a need to raise interest rates earlier than we anticipate.

Until recently, oil prices had stabilised above USD50/bbl and the krone was

approaching the levels seen before the oil price crash. In recent weeks,

however, this trend has reversed, despite the Norwegian economy proving

stronger than many may have feared. Expectations of further rate cuts have

receded and much of the downside risk to the Norwegian economy has

evaporated. The fall in the krone would therefore seem excessive but is largely

a result of renewed uncertainty about the expected rebalancing of the oil

market. Weaker risk appetite in general has also hit both oil prices and the

krone, directly and indirectly.

Based on our view that oil prices will nevertheless head up again in coming

months, we would therefore expect the krone to strengthen again on a three- to

six-month view. We do not expect any massive appreciation, however, rather

a return to the levels of mid-February, as the interest rate differential to

Norway’s trading partners will be largely unchanged and the rise in oil prices

will be only moderate.

Interest rate low of 0.5%


Oil price will continue to drive krone



No

rdic O

utlo

ok

Nordic Outlook

Norway: forecasts at a glance

Source: Statistics Norway, Danske Bank


NOK bn (current prices)




Petroleum activities 159.7 -14.7 -9.5 3.0

Mainland Norway 586.0 5.9 4.5 2.2

Dwellings 182.2 9.9 7.7 2.0

Enterprises 238.3 2.9 3.0 2.4

General government 165.6 6.1 3.1 2.2

Mainland demand 2754.0 2.7 2.6 2.3

Growth contribution from stockbuilding 0.3 0.0 0.0

Exports 1051.7 -1.2 1.4 1.6

Crude oil and natural gas 371.0 3.8 0.4 0.5

Traditional goods 355.8 -8.2 1.8 3.5

Imports 1013.1 0.3 1.2 2.2

Traditional goods 584.7 -0.6 2.1 2.4

GDP 3111.8 1.0 1.1 1.4

GDP Mainland Norway 2715.4 0.8 1.8 2.2


Employment, % y/y 0.1 0.8 1.0

Unemployment (NAV), % 3.0 2.8 2.7

Annual wages, % y/y 1.7 2.5 3.0



Core inflation 3.0 1.8 1.8


Repo rate, % p.a. 0.50 0.50 0.50 0.50

2-yr swap yield, % p.a. 1.21 1.25 1.35 1.60

10-yr swap yield, % p.a. 1.96 2.10 2.30 2.60

EUR/NOK 9.16 8.90 8.70 8.70

USD/NOK 8.44 8.24 7.91 7.63

Forecast

% y/y

27/03/2017


No

rdic O

utlo

ok

Nordic Outlook

Finland

Firing on all engines

The Finnish economy surprised positively in 2016, although GDP

continues to be well below pre-crisis levels. We have slightly revised

our forecast higher and expect Finnish GDP to grow 1.5% annually in

2017-2018. Growth was driven mainly by consumption and

construction in 2016, while improved competitiveness and expectations

should help to boost exports and investments in 2017.

Private consumption is forecast to slow down in 2017. While low

interest rates and falling unemployment support consumers, inflation

will rise above 1% and low wage and pension growth will challenge

purchasing power. Better employment, high confidence and income tax

cuts should keep consumption on a modest growth track.

Exports have performed badly in recent years and rose only 0.5% in

2016, while imports rose 2.5%. The export outlook for 2017 is better

thanks to growth in export markets, especially Russia, improving price

competitiveness, several ship orders and new production facilities in

forest and automotive industries. We expect manufacturing

investment to follow growth in demand in 2017.

Migration to growth centres has created more demand for apartments.

Growth in housing demand has raised prices and caused a construction

boom in Helsinki and a few other towns, while the real estate market

in the rest of the country remains more of less flat.

The government budget for 2017 does not include new significant cuts

in expenditure and lowers income taxation, which implies still rising

debt. Cyclically adjusted, the budget could be characterised as

modestly expansionary. Structural reforms are still necessary to

manage needs of an ageing population and to boost potential growth.

Finland close to potential growth

According to the latest national account figures, GDP rose 1.4% in 2016. Last

quarter was nearly flat quarter-on-quarter, but all demand side items from

consumption to exports contributed positively. Despite improving growth

figures, the level of GDP is still roughly 5% lower than before the recession in

2008 and the economy is somewhat below potential output. Reforms in the

labour market could increase participation rates and boost growth, yet the long-

run growth potential is likely to stay below 2% p.a. Therefore, current speed is

close to long-run potential, but there is still a gap.

Domestic demand grew significantly in 2016, but foreign trade disappointed

again. Corporate investment was subdued most of the year because of weak

demand compared to existing capacity and an uncertain outlook. Investment

activity picked up in Q4, however. The situation in the labour market has

stabilised and the trend in unemployment has improved modestly. Although we

expect a continued recovery in 2017-2018 and a positive surprise cannot be

ruled out, the growth outlook as a whole remains moderate. Population ageing

limits supply of labour and productivity growth has slowed down.

We expect GDP to grow 1.5% annually in 2017-2018, roughly at the same speed

as in 2016. The growth structure is shifting away from consumption towards

exports and corporate investments. Households have fuelled consumption and

Changes relative to previous forecast

Source: Danske Bank

More than a lost decade in Finland’s GDP

Source: Macrobond Financial, Statistics Finland

% y/y 2017 2018 2017 2018

GDP 1.5 1.5 1.3 1.3


Public consumption -0.1 0.2 0.0 0.2


Exports 3.0 4.0 3.0 3.5

Imports 2.5 3.0 2.5 3.0

Unemployment rate 8.3 8.0 8.3 8.0

Inflation 1.2 1.4 1.3 1.5

Government balance, % of GDP -2.3 -2.0 -2.4 -2.2

Current account, % of GDP -1.1 -0.9 -0.7 -0.7

Finland



No

rdic O

utlo

ok

Nordic Outlook

construction, but weak growth in real earnings will significantly slow down private

consumption growth in 2017. At the same time, the competitiveness pact together

with growth in the global economy begin to lift exports. Headwinds will abate as

we expect Russia, an important export market, to recover in 2017. Thanks to an

income tax cut, the government budget for 2017 is modestly supportive to

consumption, while municipalities seek savings. Main risks are external relating

to global demand.

Consumers still happy to spend

Taking into account the prolonged weakness of the Finnish economy, private

consumption has been surprisingly resilient. Also in 2016 private consumption

continued its relatively strong performance and grew by 2.0% y/y. Low interest

rates, moderate inflation and declining unemployment have been supporting

consumers. Consumer confidence is very high in Finland – the highest in the

whole EU.

Part of the consumption was financed by debt. Indebtedness of households has

continued to grow reaching all-time highs. Despite the growing indebtedness,

the interest-rate burden paid by households is at an all-time low due to the low

interest rates. The household indebtedness ratio in Finland is a bit higher than

euro-area average, but lower than in other Nordic countries. Risks in the

household sector finances seem to be moderate, although an exposure to rising

rates exists.

It is hard to believe that consumption could grow strongly in the coming years

without a pick-up in exports and employment. Low interest rates and a falling

unemployment rate are supporting consumers, whose confidence remained

upbeat at the beginning of 2017. However, due to the competitiveness pact,

agreed in June, wages are frozen in 2017 and employees’ share of social

security payments will be increased. To compensate for this, the government

has introduced tax concessions in income taxes for 2017. Inflation will rise and

eat up most of the growth in purchasing power. Yet, inflation is likely to stay

below euro-area average making expensive Finland more affordable. Taking

into account these factors, we expect growth in private consumption to

moderate from 2.0% in 2016 to 1.0% this and next year.

Exports set to rise in 2017 - finally

The volume of exports rose 0.5% in 2016, while imports rose 2.5%. In total net

foreign trade contributed negatively to GDP growth. According to customs

statistics, the value of goods exports diminished by 4% in 2016. Exports have

disappointed in the past few years for many reasons, from structural change in

the forest industry to poor price competitiveness. In early 2017, however, the

outlook is brighter. The value of exports jumped 27% in January thanks to weak

comparison figures and a ship delivery. Customs statistics also indicate that

exports to Russia have started to increase.

Consumer confidence is very high


Weak real earnings growth



No

rdic O

utlo

ok

Nordic Outlook

Export price competitiveness is a core issue in the government’s plan to boost

growth. Because Finland cannot devalue its currency, the government pursued

an ‘internal devaluation’. After one year of intensive negotiations, a new

competitiveness pact was signed in June 2016. The pact freezes wages for a

year (mainly 2017), makes employees liable for a larger share of social security

payments, increases annual working hours by 24 without any impact on wages,

cuts public sector holiday bonuses and adds some flexibility to local

agreements. The competitiveness pact is estimated to cut unit labour costs by

3.7%, which together with higher wage increases in other countries like

Germany boosts price competiveness a fair amount by the end of 2017. We

expect a modestly positive impact on exports and capex. The downside of the

pact was that possibilities for more local agreements, which would increase

flexibility in the face of global competition, were largely left out.

Meanwhile, the export outlook depends on demand from main markets. The

outlook for the main Finnish export markets has remained relatively good

(Germany, Sweden, the US) and Russia is expected to stage a modest recovery

in 2017. Tourism from Russia has started to recover already. Exports of forest

industry goods and cars should rise thanks to new production lines. Orders for

new cruise ships will improve export figures in 2018. Brexit clouds the export

outlook in the medium term but the impact in 2017-18 is less adverse than

initially expected. We expect exports to rise by 3.0% in 2017 and 3.5% in 2018.

Investments should follow

Due to the prolonged recession and poor export performance, manufacturing

investments have been subdued in Finland for some time. Total investment

finally started to rise in 2016 largely thanks to construction. Housing

construction led the growth and total construction volume rose 8%, while

investments in machinery and equipment rose 4% and investment in

intellectual property products like research and development fell by nearly 4%.

The slump in industrial investments ended in the fourth quarter, but the

investment outlook is still fragile. Given higher growth expectations,

improving cost competitiveness, relative ease of funding and ageing

equipment, we expect industrial capex to maintain growth in 2017. A similar

turn in R&D expenditure is not in sight yet, which means that Finland risks

falling behind other top innovators. Finland has lost its position as the most

innovative country in WEF ranking, for example. Ability to turn innovations

into major commercial success seems to have been missing in recent years as

well.

Housing construction is expected to be strong also in 2017 but growth figures

are set to peak already. The number of completed apartments is still rising,

which helps to cool down housing prices and rents. Housing permits and new

starts continue to indicate robust apartment construction in growth centres,

especially the Helsinki region, while construction of detached houses is slow.

Demographic changes as well as financial limitations favour smaller

apartments. We expect investments as a whole to grow 3.5% in 2017 and to

slow down to 2.5% in 2018, when construction is pasts its peak levels.

Exports to Russia stabilising


Finland’s exports are still lagging


Investment activity per GDP



No

rdic O

utlo

ok

Nordic Outlook

Unemployment continues to decline

The official unemployment rate started to decrease in mid-2015, but the pace

is slow. The seasonally-adjusted unemployment rate has been flat for seven

months and stood at 8.7% in February. More people work overtime, so

companies have not been very eager to recruit new staff so far. Long-term

unemployment was declining but still high by historical standards.

Unemployment in Finland is lower than the euro area's average but above

NAIRU estimates. Seasonally adjusted employment has been flat for half a

year. The employment rate was 67.8% in February, which is still well below

the government’s target of 72%. The employment rate in Finland is lower than

in other Nordic countries, so the target could be even higher in the long run.

Without significant additional policy measures and reforms, it is hard to reach

the target during this government’s term ending in 2019.

We forecast the average unemployment rate will fall to 8.3% in 2017 and

continue to reach 8.0% in 2018, assuming that the economy recovers. Wage

growth is very slow in 2017 due to the competitiveness pact. High

unemployment would also keep wage inflation modest, but the growing

economy and rising inflation imply tough industrial wage negotiations late

2017. Finland has a long history of centralised collective labour agreements but

this time the negotiations probably take place on industry level. The

government would like to see a Swedish-style model, where export industries

lead negotiations and domestic sectors follow.

Divergency in housing market is here to stay

House prices have stagnated in Finland during the past five years. This

development is new for many as prices used to increase relatively evenly after

the big depression in the 90s. Currently the housing market is stable, but

divided geographically and by type of housing. Migration to growth centres has

created more demand for apartments. Growth in housing demand has raised

prices and caused a construction boom in Helsinki and a few other towns, while

the real estate market in the rest of the country remains more of less flat or is

even declining. This phenomenon is here to stay in our opinion, as the

demographic shift and better employment opportunities are driving people into

cities. Prices of old apartments and row houses rose 0.9% in 2016. In January

2017 prices were more or less flat on average; prices rose 3% y/y in the Helsinki

region and fell 3% in the rest of the country. In addition to the demographic

shift, low interest rates and high consumer confidence support the housing

market. A surge in supply of new housing will ease pressures on the active

market. On average, we expect housing prices to increase by 1.0% in 2017 and

by 1.5% in 2018.

Unemployment decreasing


Employment rate still below target


Diverging housing prices



No

rdic O

utlo

ok

Nordic Outlook

Public finances not out of the woods yet

Finland’s public debt has grown fast over the past few years. Surprisingly,

public debt to GDP ratio fell from 63.7% in 2015 to 63.6% in 2016 according

to the latest figures. Tax revenues rose significantly, the government used cash

funds instead of issuing new debt and municipalities cut back on investment.

The budget for 2017 does not include new significant cuts in expenditure and

lowers income taxation, which implies still rising debt. Cyclically adjusted, the

budget could be characterised as modestly expansionary. Main risks are a

weaker external demand derailing the exports recovery and government

disagreement on vital structural reforms, which are needed to manage the needs

of an ageing population and to boost potential growth. All major credit rating

agencies give Finland to AA+/Aa1 sovereign credit rating with stable outlook.

We do not anticipate any rating revisions in the near future. The recession and

earlier downgrades had little impact on government borrowing costs. Finland

still has a good reputation and the ECB purchase programme helps. Spreads to

German government 10Y bond yields have stayed close to 20bp after some

widening seen summer 2016.

Even if the level of the debt-to-GDP ratio is still moderate by international

standards, its growth is worrisome given that economy has started to recover

and the ageing population creates additional pressures (the so-called

sustainability gap). The conservative three-party government led by Prime

Minister Juha Sipilä is reform-oriented and the fiscal policy was initially

tightened. The budget for 2017, however, does not include additional austerity

measures and is aimed at maintaining domestic demand largely through tax

cuts and deduction possibilities, which reduce tax revenues. Cuts in holiday

bonus pay and staff reduction may lower the staff expenditure in 2017. Going

forward, economic growth does not seem fast enough to solve the debt spiral

alone. Without faster than expected growth, the government needs to

implement either new austerity measures or implement further structural

reforms, which would increase private employment and slow public cost

growth.

10Y government bond yields

Source Macrobond Financial

Debt level inching up even if economy grows

Source Macrobond Financial, Statistics Finland


No

rdic O

utlo

ok

Nordic Outlook

Finland: forecasts at a glance

Source: Statistics Finland, Danske Bank


EUR bn (current prices)

GDP 214,1 1.4 1.5 1.5

Imports 78,2 2.5 2.5 3.0

Exports 75,7 0.5 3.0 4.0

Consumption 170,7 1.5 0.7 0.8

- Private 118,8 2.0 1.0 1.0

- Public 51,9 0.5 -0.1 0.2

Investments 45,8 5.2 3.5 2.5


Unemployment rate, % 8.8 8.3 8.0

Earnings, % y/y 1.2 0.6 1.0

Inflation, % y/y 0.4 1.2 1.4

Housing prices, % y/y 1.0 1.0 1.5

Current account, EUR bn -2.3 -2.5 -2.0

- % of GDP -1.1 -1.1 -0.9

Public deficit, % of GDP -1.9 -2.3 -2.0

Public debt/GDP, % of GDP 63.6 64.7 65.0


Repo rate, % p.a. 0.00 0.00 0.00 0.00

2-yr swap yield, % p.a. -0.10 -0.10 -0.10 0.00

10-yr swap yield, % p.a. 0.82 0.85 1.00 1.30

EUR/USD 1.09 1.08 1.10 1.14

27/03/2017

Forecast

% y/y


No

rdic O

utlo

ok

Nordic Outlook

Global overview

Recovery set to continue

The global recovery is set to continue at a decent pace this year and

gain some speed in 2018, as we expect fiscal stimulus to lift US

growth. We look for global growth of 3.4% in 2017 followed by 3.7%

in 2018.

We expect stronger US growth to be counterbalanced by a moderate

slowdown in the Chinese economy. We expect the euro area to hum

along around 1.5%.

The main risk factors are a US-China trade war, a military conflict

with North Korea, European politics and financial turbulence in

China.

Strongest recovery since 2013

The global economy recovered in 2016, as the drags lifted from a sharp fall

in energy investment and very weak construction activity in China. Higher

oil prices and significant Chinese stimulus changed the game. Last year

finished strongly and we entered 2017 with a synchronised recovery across

all regions of the world.

Looking ahead, we do not see any big headwinds on the horizon and look for

the recovery to continue – and even gather some pace in 2018 if US president

Donald Trump gets his fiscal boost from tax cuts and infrastructure

investment. We look for US growth to rise to 2.8% from 2.2% this year.

While China was a strong force behind the 2016 recovery, we look for a

moderate slowdown here in 2017. The two main engines behind the economic

pickup were stronger housing and a big boost to infrastructure investments. We

expect both factors to dampen this year, as China has moved its foot from the

gas to the brake in order to rein in a red-hot housing market and lean against

inflationary pressures building in the economy. However, in our view, tightening

will be moderate, as China will not risk entering a sharper downturn in a year of

the National Congress of the Communist Party, which takes place every five

years (this is the 19th).

In the euro area, we expect growth to be restrained from more moderate

consumer spending due to a decline in real wage income following the increase

in inflation. In our view, this will prove temporary, though, and at the same

time we expect exports to be underpinned by decent growth in the US.

In our view, inflation is set to peak in Q1, as the boost from energy prices is

set to fade from here. We expect euro area inflation to fall back to just above

1% by early 2018 and we expect this to keep the ECB from tightening policy,

instead extending the asset purchase programme. In the US, we look for the

Fed to hike rates three times this year and a further three times in 2018. This

is in line with the Fed’s own projections.

There are risks to the above scenario. First, there seems to be a rising risk of

a confrontation with North Korea, as it is getting closer to develop long-range

missiles that can reach the US. Second, the US is likely to move to a more

protectionist path, which could lead to a trade war with China. European

politics also continue to be on the radar, as does the risk of financial

turbulence in China, where debt and shadow banking continue to rise.

GDP outlook: continued global recovery

Source: Bloomberg, Danske Bank Markets

Strong synchronised recovery going into 2017


US investments set to pick up on turn in oil prices,

fiscal stimulus and more positive business sentiment


2016

% y/yD anske

B ank C o nsensus

D anske

B ank C o nsensus

USA 1.6 2.2 2.2 2.8 2.3

Euro area 1.7 1.6 1.6 1.6 1.5

Japan 0.9 0.8 0.8 0.7 0.7

China 6.7 6.6 6.5 6.3 6.2

Global 3.1 3.4 3.4 3.7 3.5

2017 2018


No

rdic O

utlo

ok

Nordic Outlook

Economic forecasts

1. % y/y

2. % contribution to GDP growth

3. % of labour force

4. % of GDP

Source: OECD, Danske Bank

Macro forecast, Scandinavia

Denmark 2016 1.1 2.1 -0.2 4.7 -0.3 1.4 2.4 0.3 4.2 -0.9 37.7 8.12017 1.7 2.0 0.1 4.2 0.0 4.4 4.8 1.2 4.3 -1.2 36.7 7.82018 1.7 2.1 0.8 3.5 0.0 2.7 3.4 1.5 4.2 -0.6 35.1 7.7

Sweden 2016 3.3 2.2 3.1 5.9 0.1 3.4 3.7 1.0 6.9 0.7 42.1 4.72017 1.8 1.3 1.3 2.2 -0.5 3.7 2.0 1.3 7.0 0.2 39.9 5.02018 1.9 1.4 2.0 2.1 0.1 3.6 3.6 1.2 6.9 0.0 39.3 5.0

Norway 2016 0.8 1.6 2.3 0.5 0.3 -1.2 0.3 3.6 3.0 - - -2017 1.8 2.1 1.7 1.3 0.0 1.4 1.2 2.3 2.8 - - -2018 2.2 2.3 1.6 2.0 0.0 1.6 2.2 1.5 2.7 - - -

Macro forecast, Euroland

Euroland 2016 1.7 1.9 1.8 2.5 - 2.7 3.4 0.2 10.0 -1.7 91.5 3.62017 1.6 1.4 1.2 1.8 - 3.8 3.9 1.6 9.4 -1.4 90.4 3.22018 1.6 1.1 1.1 3.6 - 3.6 4.0 1.2 8.8 -1.4 89.2 3.1

Germany 2016 1.8 1.8 4.0 2.1 - 2.4 3.6 0.4 4.2 0.6 68.2 8.72017 1.9 1.3 2.5 2.4 - 3.9 5.0 1.7 3.8 0.4 65.5 8.32018 1.9 1.4 1.9 4.3 - 4.0 4.8 1.5 3.8 0.4 62.9 8.0

France 2016 1.1 1.8 1.4 2.8 - 1.2 3.6 0.3 10.0 -3.3 96.4 -2.12017 1.1 1.2 1.2 1.9 - 3.3 3.8 1.1 9.9 -2.9 96.8 -2.32018 1.2 1.0 1.1 3.0 - 3.0 3.5 1.3 9.7 -3.1 97.4 -2.6

Italy 2016 1.0 1.3 0.6 3.1 - 2.6 3.1 -0.1 11.7 -2.3 132.8 2.72017 1.0 0.8 0.7 3.3 - 4.3 4.8 1.5 11.5 -2.4 133.3 2.12018 1.3 0.8 0.7 3.6 - 3.5 3.5 1.2 11.4 -2.6 133.2 1.8

Spain 2016 3.2 3.2 0.8 3.1 - 4.4 3.3 -0.3 19.6 -4.7 99.7 1.82017 2.5 2.3 0.8 2.7 - 3.8 2.9 2.1 17.7 -3.5 100.0 1.72018 2.2 2.0 1.2 4.7 - 3.6 4.6 1.0 16.1 -2.9 99.7 1.6

Finland 2016 1.4 2.0 0.5 5.2 - 0.5 2.5 0.4 8.8 -1.9 63.6 -1.12017 1.5 1.0 -0.1 3.5 - 3.0 2.5 1.2 8.3 -2.3 64.7 -1.12018 1.5 1.0 0.2 2.5 - 4.0 3.0 1.4 8.0 -2.0 65.0 -0.9

Macro forecast, Global

USA 2016 1.6 2.6 0.8 0.4 -0.4 0.7 0.7 1.3 4.9 -2.6 105 -2.72017 2.2 2.2 0.6 2.8 0.1 3.2 2.3 2.4 4.7 -2.9 105 -2.92018 2.8 2.0 2.9 6.1 0.0 3.0 3.0 2.5 4.4 -2.8 103 -3.3

China 2016 6.7 - - - - - - 2.0 4.1 -3.0 46.3 2.42017 6.6 - - - - - - 2.0 4.3 -3.3 49.9 2.12018 6.3 - - - - - - 2.0 4.3 -3.0 53.3 1.5

UK 2016 2.0 2.8 0.8 0.9 0.5 1.0 2.7 0.7 4.9 -3.6 88.7 -5.02017 1.2 1.7 0.2 0.3 0.3 1.7 2.4 2.3 5.0 -2.9 89.2 -4.92018 1.0 1.0 0.4 0.7 0.0 2.8 2.0 2.6 5.3 -2.2 88.7 -3.3

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1


No

rdic O

utlo

ok

Nordic Outlook

Financial forecasts

Source: Danske Bank

Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 27-Mar - 684.8

+3m - 688.9

+6m - 676.4+12m - 652.6

EUR 27-Mar 108.7 744.0

+3m 108.0 744.0

+6m 110.0 744.0+12m 114.0 744.0

JPY 27-Mar 110.2 6.21

+3m 115.0 5.99

+6m 118.0 5.73+12m 118.0 5.53

GBP 27-Mar 125.6 860.1

+3m 124.1 855.2

+6m 127.9 865.1+12m 132.6 865.1

CHF 27-Mar 98.5 695.1

+3m 100.0 688.9

+6m 100.9 670.3+12m 100.0 652.6

DKK 27-Mar 684.8 -

+3m 688.9 -

+6m 676.4 -+12m 652.6 -

SEK 27-Mar 877.5 78.0

+3m 870.4 79.1

+6m 845.5 80.0+12m 807.0 80.9

NOK 27-Mar 843.5 81.2

+3m 824.1 83.6

+6m 790.9 85.5+12m 763.2 85.5

Equity Markets

Regional

Price trend12 mth

Regional recommen-dations

USA (USD) Growth boost: fisc. expansion, tax cuts, infl./growth-impulse 10-15% Overweight

Emerging markets (local ccy) Hurt by stronger USD and increased protectionism -5-+5% Underweight

Japan (JPY) Valuation and currency support 10-15% Overweight

Euro area (EUR) Political uncertainty ahead due to French election 0-5% Underweight

UK (GBP) Currency support, stronger infl. exp. o ff-set Brexit negativity 5-10% NeutralNordics (local ccy) Currency support on earnings, continued domestis demand 5-10% Neutral

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018

NYMEX WTI 53 53 57 59 60 60 61 61 56 61

ICE Brent 55 55 57 59 60 60 61 61 57 61

Copper 5,850 5,900 5,950 6,000 6,025 6,050 6,075 6,100 5,925 6,063

Zinc 2,725 2,600 2,500 2,400 2,300 2,300 2,300 2,300 2,556 2,300

Nickel 10,500 11,000 11,400 11,500 11,600 11,700 11,800 11,900 11,100 11,750

Aluminium 1,825 1,800 1,800 1,800 1,800 1,800 1,810 1,820 1,806 1,808

Gold 1,200 1,150 1,150 1,160 1,170 1,180 1,190 1,200 1,165 1,185

Matif Mill Wheat (€/t) 170 164 168 170 170 169 168 168 168 169

Rapeseed (€/t) 420 440 440 430 425 425 425 425 433 425

CBOT Wheat (USd/bushel) 435 465 500 510 520 530 540 550 478 535CBOT Soybeans (USd/bushel) 1,050 1,100 1,100 1,100 1,125 1,125 1,150 1,150 1,088 1,138976

423

0.82

1.451.60

1.96

2.10

2.30

1.551.85

0.19

-

--

2.60

1.251.55

1.10

1.15

1.35

1.08

0.85

1.001.30

-

--

1.24

1.25

0.25

48

9,870

5,804

2,831

2018

Medium

Medium

Medium 5 -10%

Medium 5 -10%

-5 -0%

0 -5%

Medium 3-8%Medium 3 -8%

1,259

167

50

1,939

2017

27-Mar

Currencyvs EUR

2-yr swap yield

Risk profile3 mth

Price trend3 mth

2.45

2.34

2.65

1.59

-0.10

0.05

0.64

-0.60

0.06

-0.10

-0.100.00

1.70

86.5

3.00

86.086.0

108.0

111.0114.0

108.0

110.0114.0

124.2

129.8134.5

108.7

-

-

--

119.8

744.0

744.0744.0

953.4

916.4

870.0

940.0

870.0

930.0920.0

890.0

107.0

744.0

87.0

1.60

-0.30

1.210.96

0.90

-0.50

1.752.25

0.60

0.600.60

-

-

1.35

-0.40

-

1.25

0.05

0.050.15

-

--

-0.26

-0.40

10-yr swap yield

-0.50

0.05

0.050.05

3m interest rate

0.90

0.00

-0.10

0.25

-0.75

0.05

-0.35

0.35

0.350.36

0.50

0.50

0.90

-0.75-0.75

-0.50

-0.10

-0.25

-

Key int.rate

1.00

1.00

1.251.75

0.50

-0.75

0.00

0.00

-0.10-0.10

0.25

0.50

-0.50

0.25

-0.50-0.50

0.00

0.25

-

-0.50

Average

1.15

-0.33

0.02

0.34

401

-0.50

-0.73

-

--

-0.25

-0.25

-0.25

1.47

1.581.95

-0.35

-0.35

-


No

rdic O

utlo

ok

Nordic Outlook

Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’).

The authors of the research report are Las Olsen (Chief Economist), Bjørn Tangaa Sillemann (Analyst), Louise

Aggerstrøm Hansen (Analyst) and Christian Alexander Lilholt Toftager (Assistant Analyst), Roger Josefsson

(Senior Analyst), Frank Jullum (Chief Analyst), Pasi Kuoppamäki (Chief Economist), Henna Mikkonen

(Economist) and Minna Kuusisto (Economist).

Analyst certification

Each research analyst responsible for the content of this research report certifies that the views expressed in the

research report accurately reflect the research analyst’s personal view about the financial instruments and issuers

covered by the research report. Each responsible research analyst further certifies that no part of the compensation

of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed

in the research report.

Regulation

Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject

to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske

Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority

(UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation

Authority are available from Danske Bank on request.

The research reports of Danske Bank are prepared in accordance with the recommendations of the Danish Securities

Dealers Association.

Conflicts of interest

Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality

research based on research objectivity and independence. These procedures are documented in Danske Bank’s

research policies. Employees within Danske Bank’s Research Departments have been instructed that any request

that might impair the objectivity and independence of research shall be referred to Research Management and the

Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report

to other business areas within Danske Bank.

Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes

investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance

or debt capital transactions.

Financial models and/or methodology used in this research report

Calculations and presentations in this research report are based on standard econometric tools and methodology as

well as publicly available statistics for each individual security, issuer and/or country. Documentation can be

obtained from the authors on request.

Risk warning

Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of

relevant assumptions, are stated throughout the text.

Expected updates

Quarterly publication.

Date of first publication

See the front page of this research report for the date of first publication.

General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for

informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered

as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial

instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options,

warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial Instruments’).

The research report has been prepared independently and solely on the basis of publicly available information that

Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue

or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and

subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any

loss of profits, arising from reliance on this research report.

The opinions expressed herein are the opinions of the research analysts responsible for the research report and

reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not

undertake to notify any recipient of this research report of any such change nor of any other changes related to the

information provided in this research report.

This research report is not intended for, and may not be redistributed to, retail customers in the United Kingdom or

the United States.

This research report is protected by copyright and is intended solely for the designated addressee. It may not be

reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written

consent.

D a n s k e B a n k , D a n s k e R e s e a r c h , H o l m e n s K a n a l 2 - 1 2 , D K - 1 0 9 2 C o p e n h a g e n K . P h o n e + 4 5 4 5 1 2 0 0 0 0 w w w. d a n s k e r e s e a r c h . co m

N o r way

C h i e f A n a l y s t & H e a d of F r a n k J u l l u m+ 4 7 8 5 4 0 6 5 4 0f j u @ d a n s k e b a n k . c o m

J o s te i n T v e d t+ 4 7 2 3 1 3 9 1 8 4j t v @ d a n s k e b a n k . c o m

F i N l a N d

C h i e f A n a l y s t & H e a d of P a s i P e t te r i K u o p p a m ä k i+ 3 5 8 1 0 5 4 6 7 7 1 5p a k u @ d a n s k e b a n k . c o m

M i n n a E m i l i a K u u s i s to+ 3 5 8 1 0 5 4 6 7 9 5 5m k u u @ d a n s k e b a n k . c o m

i N t e r N at i o N a l M a c r o

C h i e f A n a l y s t & H e a d of A l l a n v o n M e h r e n + 4 5 4 5 1 2 8 0 5 5a l v o @ d a n s k e b a n k . co m

P e r n i l l e B o m h o l d t H e n n e b e r g+ 4 5 4 5 1 3 2 0 2 1p e r n i @ d a n s k e b a n k . co m

M i k a e l O l a i M i l h ø j+ 4 5 4 5 1 2 7 6 0 7m i l h @ d a n s k e b a n k . co m

F i x e d i N c o M e r e s e a r c h

C h i e f A n a l y s t & H e a d of A r n e L o h m a n n R a s m u s s e n + 4 5 4 5 1 2 8 5 3 2a r r @ d a n s k e b a n k . co m

J e n s P e te r S ø r e n s e n+ 4 5 4 5 1 2 8 5 1 7 j e n s s r @ d a n s k e b a n k . co m

C h r i s t i n a E . Fa l c h + 4 5 4 5 1 2 7 1 5 2c h f a @ d a n s k e b a n k . co m

J a n We b e r Ø s te r g a a r d+ 4 5 4 5 1 3 0 7 8 9j a s t @ d a n s k e b a n k . c o m

A n d e r s M ø l l e r L u m h o l t z+ 4 5 4 5 1 2 8 4 9 8a n d j r g @ d a n s k e b a n k . c o m

H a n s R o a g e r J e n s e n+ 4 5 4 5 1 3 0 7 8 9h r o a @ d a n s k e b a n k . c o m

M a th i a s R ø n M o g e n s e n + 4 5 4 5 1 4 7 2 2 6m m o g @ d a n s k e b a n k . c o m

T h o m a s H o p p e R o s e n l u n d+ 4 5 4 5 1 4 3 2 8 5th r o s @ d a n s k e b a n k . c o m

F x & c o M M o d i t i e s s t r at e g y

G l o b a l H e a d of F I C C R e s e a r c hT h o m a s H a r r+ 4 5 4 5 1 3 6 7 3 1th h a r @ d a n s k e b a n k . c o m

C h r i s t i n K y r m e Tu x e n ( o n l e a v e )+ 4 5 4 5 1 3 7 8 6 7tu x @ d a n s k e b a n k . co m

M o r te n T h r a n e H e l t+ 4 5 4 5 1 2 8 5 1 8m o h e l @ d a n s k e b a n k . c o m

J e n s N æ r v i g P e d e r s e n + 4 5 4 5 1 2 8 0 6 1j e n p e @ d a n s k e b a n k . co m

K r i s tof f e r K j æ r L o m h o l t+ 4 5 4 5 1 2 8 5 2 9 k l o m @ d a n s k e b a n k . c o m

A i l a E v c h e n M i h r+ 4 5 4 5 1 3 7 8 6 7a m i h @ d a n s k e b a n k . co m

d c M r e s e a r c h

C h i e f A n a l y s t & H e a d of T h o m a s M a r t i n H o v a r d+ 4 5 4 5 1 2 8 5 0 5 h o v a @ d a n s k e b a n k . co m

L o u i s L a n d e m a n+ 4 6 8 5 6 8 8 0 5 2 4l l a n @ d a n s k e b a n k . s e

J a ko b M a g n u s s e n + 4 5 4 5 1 2 8 5 0 3j a k j a @ d a n s k e b a n k . co m

M a d s R o s e n d a l+ 4 5 4 5 1 4 8 8 7 9m a d r o @ d a n s k e b a n k . co m

G a b r i e l B e r g i n+ 4 6 8 5 6 8 8 0 6 0 2g a b e @ d a n s k e b a n k . co m

B r i a n B ø r s t i n g+ 4 5 4 5 1 2 8 5 1 9b r b r @ d a n s k e b a n k . co m

S v e r r e H o l b e k+ 4 5 4 5 1 4 8 8 8 2h o l b @ d a n s k e b a n k . co m

N i k l a s R i p a+ 4 5 4 5 1 2 8 0 4 7n i r i @ d a n s k e b a n k . co m

H e n r i k R e n è A n d r e s e n + 4 5 4 5 1 3 3 3 2 7h e n a @ d a n s k e b a n k . co m

L u k a s P l a t z e r+ 4 5 4 5 1 2 8 4 3 0l p l a @ d a n s k e b a n k . c o m

K a tr i n e J e n s e n+ 4 5 4 5 1 2 8 0 5 6k a tr i @ d a n s k e b a n k . co m

H a s e e b S y e d+ 4 7 8 5 4 0 5 4 1 9h s y @ d a n s k e b a n k . co m

B e n d i k E n g e b r e ts e n+ 4 7 8 5 4 0 6 9 1 4b e e @ d a n s k e b a n k . co m

J o n a s M e y e r+ 4 7 9 2 8 5 8 5 2 5m e y @ d a n s k e b a n k . co m

d e N M a r k

C h i e f E c o n o m i s t & H e a d of L a s O l s e n + 4 5 4 5 1 2 8 5 3 6l a s o @ d a n s k e b a n k . co m

L o u i s e A g g e r s tr ø m H a n s e n+ 4 5 4 5 1 2 8 5 3 1l o u h a n @ d a n s k e b a n k . co m

B j ø r n Ta n g a a S i l l e m a n n + 4 5 4 5 1 2 8 2 2 9b j s i @ d a n s k e b a n k . co m

s w e d e N

C h i e f A n a l y s t & H e a d of M i c h a e l B o s tr ö m+ 4 6 8 5 6 8 8 0 5 8 7m b o s @ d a n s k e b a n k . co m

R o g e r J o s e f s s o n+ 4 6 8 5 6 8 8 0 5 5 8 r j o s @ d a n s k e b a n k . co m

M i c h a e l G r a h n + 4 6 8 5 6 8 8 0 7 0 0m i k a @ d a n s k e b a n k . co m

C a r l M i l to n+ 4 6 8 5 6 8 8 0 5 9 8c a r m i @ d a n s k e b a n k . co m

M a r c u s S ö d e r b e r g+ 4 6 8 5 6 8 8 0 5 6 4m a r s d @ d a n s k e b a n k . co m

S te f a n M e l l i n+ 4 6 8 5 6 8 8 0 5 9 2m e l l @ d a n s k e b a n k . c o m

S u s a n n e P e r n e b y+ 4 6 8 5 6 8 8 0 5 8 5s u p e @ d a n s k e b a n k . co m

e M e r g i N g M a r k e t s

C h i e f A n a l y s t & H e a d of J a ko b E k h o l d t C h r i s te n s e n+ 4 5 4 5 1 2 8 5 3 0j a k c @ d a n s k e b a n . co m

V l a d i m i r M i k l a s h e v s k y + 3 5 8 ( 0 ) 1 0 5 4 6 7 5 2 2v l m i @ d a n s k e b a n k . co m

R o k a s G r a j a u s k a s+ 3 7 0 5 2 1 5 6 2 3 1r g r a @ d a n s k e b a n k . c o m

Documents

2 March 2017 Nordic Outlook - Danske Bankdanskeresearch.danskebank.com/link/NordicOutlook280317/$file/... · 28 March 2017 Nordic Outlook ... Las Olsen Chief Economist +45 45 12 85