Exposed to global risks
The global economy is looking weaker, with continued concerns over growth in China and a lot of discouraging data from the manufacturing sector, not least in the euro area. A lot of this weakness is likely to prove temporary. One reason is the current uncertainty about both the US-China trade war and Brexit, both of which we hope to get some clarification on. Another is the sharp slowdown in China, which looks likely to be reversed following the large amount of stimulus from Chinese authorities. Our main scenario is that the global economy will regain momentum and again support Nordic growth. Even so, there is a risk that we face a period of more prolonged weakness.
So far, though, the Nordics have been resilient to the global manufacturing slowdown, broadly speaking. Danish exports and industrial production have actually accelerated and Swedish manufacturers remain surprisingly upbeat. Finnish exports are supported by shipbuilding for the time being and Norway is more dependent on global oil investments than on the global manufacturing cycle - and oil investments are looking strong.
However, the Nordic countries are also in quite different positions and at different levels of risk from a more prolonged global slowdown. Even in the base case, we expect a pronounced decline in growth in Sweden for domestic reasons and export weakness would clearly hurt. Finland is slowing already, but is not at a similar risk of a sharp housing price drop as Sweden. Denmark will clearly weaken if Europe does, but has unusually large resistance compared to previous crises. It is difficult to see a scenario where Norway's economy weakens, at least in the near term. With Finland as a possible exemption, the Nordic countries have ample opportunity to use fiscal policy to counter a crisis.
Political risks on top of economic ones
Trade war tensions are mostly between China and the US, with limited direct effect on the Nordics, although sectors like Danish shipping are clearly affected and lower global growth matters for all. If the US starts to target Europe, Nordic producers would also be affected, for instance as suppliers to the European car industry. A disorderly Brexit would create problems closer to home and affect many Nordic companies directly. If it triggers a short-term recession or at least a slowdown in the UK, this would be felt in the rest of Europe. In terms of direct effects, Nordic exporters would likely face tariffs on some of their UK exports and all Nordic countries have a surplus against the UK in goods (but a deficit in services). Norway has the most exports, but 80% of that is oil and gas, which faces only 2.5% tariffs under rules and which the UK government intends to impose no tariffs on in the case of a no-deal Brexit. Denmark's substantial food exports would have to deal with more significant tariffs and would also face increased competition from non-EU producers. However, the total value of agricultural exports to the UK is only 0.5% of Danish GDP. The UK is not as important as it once was to the Nordics and we do not expect a major economic impact beyond the immediate effect.
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