Nordics: Key themes 2023: A year of two halves

Following a hard winter, we expect the Nordic economies to rebound from mid-2023 as falling inflation turns real incomes positive, alleviating uncertainty, boosting confidence, and allowing central banks to end policy tightening.

Here are the themes we think will define the outlook:

• Winter recessions will give way to a domestic demand-led rebound. After contractions in winter, falling inflation, a halt in monetary policy tightening, and real incomes turning positive should support a domestic demand-led rebound.
• Headline inflation will come down, but core inflation will prove stickier. Base effects and disinflation in food and energy prices will drive down headline inflation.
• Volatility in energy markets will continue. The Nordic energy market follows different dynamics to Europe, as gas and coal are marginal in the energy mix and risks of energy rationing minimal.
• Central banks will stop hiking, but tightening effects will come to the fore. The hiking cycles of Sweden’s Riksbank and Norway’s Norges Bank should come to an end in H1 2023.