NORDIC/EUROPE - Economists for Nordea, the Nordic bank, have lowered their forecasts of economic growth in the region following the global economic slowdown, although it claimed the downturn would be "relatively cushioned".

The latest 'Economic Outlook' for September warned the prospects of the global economy have deteriorated since the spring, and "we have yet to see the last of the repercussions of the credit crisis", so predicted an "actual trend reversal" is not very likely until 2010.

The report said the Nordic economies - Denmark, Sweden, Norway and Finland - have shown impressive growth rates for several years, but warned higher interest rates and stronger inflation means the upswing seems to have "ground to a halt".

However, the forecast suggested the downturn in the Nordic region "will probably be relatively cushy as these countries all have sound macro economic structures without prospects of dramatic increases in unemployment".

That said, Nordea noted the Danish economy appears to be in the midst of a "sharp slowdown", mainly driven by a downturn in the housing market, while the Finnish economy has "weakened further", and Sweden's economy "came to a halt in the first half of 2008".

In Denmark, the report claimed, the falling housing market has resulted in lower consumer spending which, combined with higher inflation, has made the outlook for the country's key trading partners "gloomier than previously assumed", and leaves GDP growth estimated to be 0.9% for 2008 and 0.6% for 2009, before recovering slightly in 2010 to 1%.

Nordea predicts unemployment will rise from the current record-low levels, which in turn will restrict wage growth. More importantly, although Nordea suggested this low-growth period will ease inflationary pressure and reduce the risk of an overheating economy, "conversely, there is a growing risk of an even more pronounced slowdown of the Danish economy".

The research also claimed higher interest rates and an inflation spike had weakened the domestic economy in Finland, resulting in estimates suggesting economic expansion will slow to well below the average level "as early as the second half of 2008 and a recovery cannot be expected until 2010".

That said, the report argued the Finnish outlook is "fairly reasonable compared to many other countries" as its macroeconomic balance is in "good shape" and the housing market is more stable than other parts of the Nordic region,as GDP growth is predicted to be 2.3% in 2008, 1.3% in 2009 and 2% in 2010.

Even Norway is expected to experience a slowdown in household investment and lower growth in mainland exports, while mainland investments could potentially fall, as interest rates have risen sharply over the past few years, with at least one more raise to come as inflation is higher than the central bank expected.

The research admitted the downturn will not be too strong - with total GDP growth estimates of 2.6% this year, 1.5% in 2009 and 2% in 2010 - as it will experience strong growth from both government demand and oil investments, although Nordea warned unemployment will rise and wage growth will slow in the coming years.

Sweden, meanwhile, is also assumed to only make recovery from 2010, as GDP grew by just 0.1% in the first quarter and stagnated in the second quarter, leading to an estimated GDP of just 1.5% for 2008 and a further slowdown in 2009 to 1% before increasing slightly to 1.9% by 2010.

While unemployment is expected to rise in 2009 and 2010, the report suggested the inflationary boost from rising prices on energy and food, will be offset by the stabilisation of oil prices and other commodities, with inflation expected to start falling and reach its 2% target by summer 2009.

Helge Pedersen, global chief economist at Nordea, said: "The credit crisis is not yet over and the housing markets in many countries are in serious trouble, which impacts the outlook for both private consumption and investments activities and it is evident that we can expect a relatively long period with subdued growth - also in the Nordic countries."

Elsewhere, the Organisation for Economic Cooperation and Development (OECD), revealed in an interim assessment of the economic outlook of OECD countries that the UK will officially enter a recession in the second half of 2008.

Figures from the report show the OECD has revised its forecast for GDP growth downwards across all the G7 countries except the US, which has increased from 1.2% to 1.8%, while the UK has seen its projected growth cut from 1.8% in June 2008 to 1.2%.

In addition, the OECD has forecast the next two quarters will see a decline in UK GDP of 0.3% and 0.4% respectively, which follows a report of no growth in the three months to the end of June.

However, the OECD has also cut the projected growth forecast for the Euro area from 1.7% to 1.3%, while the estimated figures for Germany fell from 1.9% to 1.5%, and Italy dropped from 0.5% to 0.1%, although the biggest cut was in France's growth forecast which was reduced from 1.8% to 1% for the year.

The report noted that "sharp increases in energy and food prices have boosted headline inflation and sapped real incomes of consumers across the OECD area", while rises in statistical measures of underlying inflation "partly reflect the ongoing feed through of higher commodity prices".

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