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A relatively gentle lockdown strategy will limit this year’s GDP decline to 6.5 per cent. Employment will seize up, but job losses will be milder than in the early 1990s. The Riksbank will expand QE but not resume negative key interest rates.
Aside from COVID-19, plummeting oil prices have hurt the economy. Petroleum investment will fall nearly 25 per cent in 2020-2021, and household fundamentals look weak. The krone will improve but remains weak.
Despite a comparatively mild virus outbreak, the GDP downturn will be the worst in the Nordics. Solid government finances allow major stimulus, however. As in 2008, Denmark was forced to hike its key rate to defend the EUR/DKK peg.
The downturn had already started in late 2019. ECB and Finnish government stimulus measures are helping, but more will probably be needed to ensure that the economy avoids a long period of stagnation like after the financial crisis.
