Bloomberg News

Nordea Cuts Growth Forecasts for Sweden, Norway on Crisis

December 01, 2011

(Updates with economist comments in fourth paragraph, currencies in fifth.)

Josiane Kremer

Dec. 1 (Bloomberg) -- Nordea Bank AB cut its forecast for economic growth in Sweden and in Norway next year and predicted central banks in the Nordic nations will slash interest rates as the debt crisis in Europe weighs on output and exports.

Scandinavia’s largest economy will stagnate in 2012 after expanding 4.5 percent this year, the Stockholm-based bank said in a report today. Nordea had forecast a 0.8 percent Swedish expansion. The Riksbank will cut its benchmark rate to 0.75 percent by the second half of next year from the current 2 percent, the bank said.

Expansion in Norway’s mainland economy, which excludes oil, gas, and shipping, will slow to 2.1 percent from 2.5 percent this year on lower consumption and investments, Nordea said. It had previously expected the economy to grow 2.5 percent next year. Norges Bank will cut its benchmark by 0.5 percentage point this month and by 0.25 percentage point in March, from the current 2.25 percent, the largest Nordic lender estimates.

“The European debt crisis will affect Norway through several channels,” Nordea’s Oslo-based economists wrote in a report. “Developments in key export markets will be weaker.”

Norwegian exports will grow 0.2 percent next year while exports from Sweden, home to Ericsson AB, the world’s largest maker of wireless networks, will rise 0.3 percent.

Sweden’s krona lost 0.4 percent against the euro to 9.1300 by 12:19 a.m., while the Norwegian krone weakened 0.3 percent to 7.7845.

The failure of European leaders to end the debt crisis in the euro area is sapping growth in both Nordic nations, which rely on sales to the region for more than half of their exports. A slump in Nordic manufacturing deepened last month as Norwegian industry contracted for the first time since March last year and Sweden shrank at the fastest pace in 30 months, purchasing managers’ surveys showed today.

Unemployment in both countries will rise, Nordea said. Sweden’s jobless rate will rise to 8 percent next year from 7.5 percent this year, while Norway’s unemployment rate will 3.6 percent in 2012 from 3.3 percent in 2011, the bank forecast.

Riksbank Governor Stefan Ingves said last month the bank is ready to do what’s necessary to ensure stability as Sweden’s economy is “highly affected” by the turmoil in Europe. Norges Bank Governor Oeystein Olsen said he is ready to cut the benchmark if global growth prospects worsen. Both central banks shelved planned rate increases this year because of Europe’s debt crisis and its implications on global growth.

In 2013, the Swedish and Norwegian economies will grow 1.5 percent and 2.9 percent, respectively, Nordea forecasts.

Riksbank policy makers will announce their next decision on Dec. 20, while Norges Bank policy makers meet on Dec. 14.

--Editors: Jonas Bergman, Tasneem Brogger

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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