These include US President Donald Trump’s economic policy, the impact of ongoing Brexit negotiations, increasing geopolitical risks and financial market reactions to the expected tightening of monetary policy.
Helge J. Pedersen, Nordea’s group chief economist, added that emerging markets seem to be back on a more sustainable growth trajectory.
The outlook for the Nordic countries has improved further, and 2017 seems to be the strongest growth year for the region since 2010.
Private consumption and residential investment have driven growth in Swedish GDP, which will continue to grow despite an election year in 2018, buoyed by a weak krona and rising exports combined with fiscal policy measures. Policy stimulus will gradually fade and interest rates rise, thereby dampening consumption and slowing residential construction as of late 2018.
Growth in the Norwegian economy has gained momentum and the outlook is good, the report says.
With rising housing and business investment and solid export and consumption growth, economic expansion in 2018 seems to be strong enough for the economy to reach full capacity that year. In 2019 growth will slow, but not enough to prevent the labour market from tightening further.
For the first time in more than a decade, there is a full-blown recovery of the Danish economy. Employment is rising, consumer spending is increasing, companies benefit from growing international trade and the pick-up in housing prices has spread beyond the big cities.
Growth will continue over the coming years, although labour shortages and rising interest rates will slow the pace a bit, the analysis concludes.
The Finnish economy is also now on a firmer footing as both foreign trade and domestic demand contribute to growth.
Export demand has picked up following the new momentum in world trade, and, going forward, employment should improve and support private consumption while business investment continues to increase rapidly, Nordea says.
Pedersen said: “With the economic upswing, labour markets in most countries have improved sharply, but even so there are currently still no signs of inflation picking up in earnest.
“This is the main reason why global monetary policies remain extremely accommodative. And although we should see some normalisation of monetary policies in most countries in the years ahead through gradual withdrawal of liquidity and sanctioning of rate hikes, monetary policy overall will likely continue to support economic growth for a long time.
“The sustainability of the economic upswing will increasingly be challenged by demographic trends in coming years. In the advanced economies, the baby boom generations born after World War II are now exiting the labour market, leaving it to the younger, smaller generations to take over.”
For further details on the Nordea Economic Outlook, click here