• In our new Nordic Outlook published today, we continue to expect a modest slowdown in the Nordic countries, but have revised up GDP expectations for Denmark in light of Novo Nordisk's improved outlook, and revised down for Sweden in light of disappointing data for Q2.
  • The US economy is developing as hoped for by the central bank, with inflation coming down and the labour market cooling without signs of the economy falling into recession, causing relief in equity markets.
  • In the euro area, by contrast, indicators are pointing to recession here in H2, while inflation has not yet eased enough.
  • Concerns over the Chinese economy are increasing. Growth is likely to slow down, but we expect a financial crisis to be avoided

Economic data has been softening further over the summer with especially Europe showing additional weakness in the service sector and continued recession in manufacturing. So far, the euro area labour market still looks solid, though, and core inflation remains sticky above 5%. The tight labour market has also pushed up wage inflation to around 5%, keeping inflation pressures sustained for now. However, we expect the weakening economy to push unemployment higher and wage inflation gradually lower in the medium term. We still have not seen the full effect of the monetary tightening, which should work to keep growth subdued over the coming year. In our new Nordic Outlook, we look for euro area growth in 2023 to be 0.5% and staying below trend growth in 2024 at 0.8%. We also expect inflation to move gradually lower due to the pass through from lower commodity prices and weakening wage pressures. But we still forecast an average inflation in 2024 of 2.8% and thus above the 2% target. We project one more hike of 25bp from the ECB this month, taking the policy rate to 4.0% while we expect rate cuts to begin in summer 2024 driving rates to 3.25% by year-end.

In the US, the economy has developed as well as one could have hoped for over the past months. Growth is slowing moderately while the labour market is showing signs of cooling down gradually as needed to achieve a soft landing. Core inflation has clearly moderated with monthly momentum now close to 2% annualised. While we do project a soft landing scenario for the US with growth at 1.9% in 2023 and 0.6% in 2024, it is still too soon to celebrate. We still have not seen the full effects of the significant amount of rate hikes and there is a risk they hit harder once the full impact is felt. We believe the Fed is done tightening policy and starts cutting the fed funds rate in Q1 when inflation has fallen further and unemployment started to move higher. Lowering the policy rate does not imply a real easing of policy, though, as lower inflation expectations will keep the real rate from declining.

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