BofA Foresees a Stronger Phase for Nordic Economies in 2025
Bank of America (BofA) has published its "Nordic Countries Year Ahead" report, outlining expectations for internal economic recovery and gradual monetary policy adjustments in the region for 2025.
BofA forecasts that Sweden will shift from trade-driven growth to domestic demand-driven growth, with an anticipated increase in growth to 1.6%. This rate exceeds the projected growth of 0.9% for the Eurozone. The improvement is attributed to healthier consumer balance sheets and a favorable fiscal stance.
Despite balanced risks from potential upward pressures stemming from household spending and downward risks stemming from international trade, particularly with Germany and the U.S., inflation in Sweden is expected to remain below target, with core inflation projected at 1.9%.
Consequently, BofA predicts that the Riksbank will cut interest rates to 2% in the first quarter of 2025, followed by a period of stability. Due to inflation remaining below target, there is a possibility of another rate cut in the fourth quarter.
Norway demonstrated economic resilience in 2024 and is poised for gradual growth acceleration in 2025, supported by consumer balance sheets and domestic investments. BofA anticipates a core growth rate of 1.2% for Norway, noting that there is potential for better performance influenced by financial factors.
Although core inflation remains relatively resilient at 2.6%, the report suggests that continuous productivity increases should aid in the normalization process. In response, Norges Bank is expected to lower rates to 3.50% by implementing quarterly rate cuts by the end of 2025.
The currency outlook for the first half of 2025 is unfavorable for Scandinavian currencies (Scandies) due to trade uncertainties, a challenging risk environment, and the relatively hawkish influence of the Federal Reserve.
However, the outlook becomes more positive in the second half of the year, with expectations of a weakening U.S. dollar, Nordic growth outpacing the Eurozone, and anticipated hawkish pivots from the European Central Bank (ECB).
The report indicates a slight positioning for the Norwegian krone (NOK) following significant sales this year, and a modest short position for the Swedish krona (SEK). BofA maintains a moderately constructive view on the NOK-SEK exchange rate, while acknowledging low confidence in this outlook.