direct/ Nordea (SE) - Nordea economists: At the turning point

World economy is at the turning point. If reading about the global economic situation in 2007 was like reading an exciting book it looks like the 2008-story can be compared to a thriller. That is the view expressed by Nordea´s economists in their publication "Economic Outlook, January 2008".

- Despite the leading central banks´ efforts to navigate through the sub-prime crisis, the US economy looks increasingly fragile; we believe there is a 40 per cent risk of the US economy entering a real economic recession. At the same time, markets in Europe and Japan show growing signs of an economic slowdown, says Helge J. Pedersen, Head of Economic Research at Nordea.

The Nordic economies have for quite some time experienced the fastest growth rates in the Western world, but even the Nordic countries seem to have difficulties in avoiding the dark clouds looming on the horizon.

- The world economy now depends on the ability of the fast-growing Asian and other Emerging Markets´ to keep up the pace. We doubt that these countries are ready to act as a growth engine for the rest of the world, says Helge J. Pedersen.

The Danish economy is on the one hand facing a steady decline in unemployment. Accelerating pay rises and a persistent decline in the current account surplus indicate that the Danish economy is running at more than full capacity.
- On the other hand, we see clear signs of a slowdown in private consumption as a consequence of higher interest rates and an uncertain housing market. Still, we foresee a likelihood of a soft landing for the Danish economy over the next few years, but the risk of an overheated economy could be hedged by a less expansionary economic policy from the Danish government, says Helge J. Pedersen.

With the exception of a minor decline on the housing market it is hard to spot any weaknesses in the Norwegian economy. Wages are increasing briskly and inflation is heading higher. In the oil-related businesses we will see continued strong growth, and as long as oil prices remain high, the Norwegian economy will steer relatively clear of the international turmoil.
- The climbing interest rates will affect household savings and domestic demand will dampen. Coupled with a weak international outlook, this will trigger only two rises in interest rates in 2008 despite clear tendencies of pressure and rising inflation, says Helge J. Pedersen, adding that the increased interest rates and relatively strong growth will keep the NOK strong.

Turning to Sweden, the economy slowed down more than expected in 2007 mainly as a result of lower export growth. Nordea expects growth to dampen further this year, but the economy will still expand at or around the potential growth rate, with domestic demand as the major driving force. Employment picked up sharply in 2007 and is likely to continue growing this year, but at a slower pace.
- A tight labour market combined with large wage increases and low productivity growth will lead to higher cost pressures. Inflation will be further boosted by sharply rising energy and food prices and looks set to clearly exceed the Riksbank´s 2 per cent target in 2008.
However, inflation is seen broadly in line with the target at year-end. The Riksbank is therefore likely to keep the repo rate unchanged at 4 per cent throughout 2008.

The Finnish economy expanded briskly last year, but the momentum slowed down markedly already in the second half of 2007. Nordea expects this year´s GDP growth to be slightly lower than estimated earlier mainly due to weaker export demand.
- However, we expect export demand to pick up slightly in 2009 and consequently the soft patch in the economy will be moderate as well as relatively short-lived. There is a risk of an even more severe decline due to the risks related to the global economy. Still, the outlook for consumption demand in particular is so solid that even major difficulties in export markets are likely to strain the Finnish economy less than at the beginning of this decade, says Helge J. Pedersen.

View interview with Helge J. Pedersen on Nordic economic trends at www.nordea.com/eo/uk - where the report is also available.

For further information:
Helge J. Pedersen, Head of Economic Research, +45 33 33 31 26
Atte Palomäki, Group Chief Press Officer, +358 9 165 42325

Press release (PDF)
http://hugin.info/1151/R/1183613/236534.pdf

This release was published on openPR.