Inflation, elections feed commentary in Nordic markets

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Nordic bank SEB joined others in making predictions about continued low inflation in Sweden and Finland ahead of the publication of latest consumer price data.

SEB noted that inflation in Finland dropped “significantly” over the past year, as well as in January and February this year. Consensus therefore has been for inflation to remain negative through March, as low oil prices and weak domestic demand kept prices from increasing.

Meanwhile, wages in Finland do not look set to rise in the near future as local companies struggle with levels of competitiveness. Some inflation may be imported via the weaker euro – as Finland is a eurozone member, alone among the bigger Nordic economies.


Of greater interest in the immediate near term for investors in Finland are the elections, which have started for those doing advanced voting, but which will be decided properly this coming Sunday.

As Nordea Markets notes in an analyst comment, there is little by way of proper alternative choice for Finnish voters, yet at the same time the polls indicate voters are likely to switch in sufficient numbers to make the current main opposition party the biggest in what may be a stronger government than the one which resulted from the six party coalition that followed the last elections in 2011.

“After the disastrous six-pack government that resulted from the 2011 elections, no party seems willing to repeat that experience. As a result, as the post-election maths probably exclude the formation of a majority government on the back of two large parties, the next government will most likely be formed among three of the four large parties, possibly augmented by the long-term government party, the Swedish People’s Party of Finland. Other alternatives are naturally possible as well, especially as the people have not voted yet.”

“The task ahead is daunting. Apart from the Left Alliance, all the main parties admit the need for consolidation measures in public finances and the need for structural reforms. Still, there are big differences between the parties.”

“The next government will hopefully start reforming already this year. The challenges ahead include making the social security system more encouraging, reforming municipality structures and the provision of health services, ensuring the competitiveness of the Finnish industry and making the public sector sustainable in the longer run, to name a few. Unfortunately, for now it seems that neither the next government is prepared to do what it would take to really boost the outlook for the Finnish economy.”

The key outcome for investors will be how the election affects bond yield spreads. Historically, Nordea Markets notes that the market has not reacted strongly in the immediate aftermath of elections – coalitions are expected.

“The results of the elections and the resulting policies, however, will have longer-term consequences on Finnish bonds.”


Back on the inflation question, SEB is forecasting that Sweden’s central bank, the Riksbank, will look to a further rate cut at its next policy meeting. This will come despite what it sees as some possible near term factors that could push up inflation, such as the weaker krona. However, the inflation picture for the rest of 2015 and 2016 suggests it will remain below the central bank’s target.


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