Recent months have seen a significant decline in the global economy, which is now in the worst recession since World War II. But in its latest research report, Economic Outlook, Nordea forecasts that the economic downturn will bottom this year.

Although there are tentative signs of economic recovery, it should be noted that this is happening from very low levels. In many countries the economy has been set back several years, and it will take a long time before activity is back at pre-crisis levels, says Helge J. Pedersen, Nordea’s Global Chief Economist.

The economic bottoming is mainly a result of significant economic policy easing initiated almost worldwide to counter the effects of the crisis. But the economic crisis could still deepen unless private consumption and investment activity are revived, says Helge J. Pedersen.

The Danish economy is in the midst of a deep setback. Like all other countries Denmark was hard hit by the collapse in world trade in the second half of 2008, and a steep increase in unemployment in the coming years cannot be avoided. This is made worse by the fact that employment initially continued to rise even after economic activity had begun to slow. The good news is that the drop in economic activity seems to be levelling out. During the second half of the year a cautious upturn in economic activity is expected, which will continue into 2010 thanks to major interest rate declines, lower oil prices and not least the batch of Danish growth packages. Especially the 2009 budget and repayment of special pension funds (SP) will initially lift activity.

The Finnish economy contracted sharply during winter. The downturn was already apparent towards the end of 2008, but it was sharper than even the gloomiest estimates. With the arrival of spring, more definite signs have emerged of the economy gradually stabilising, and the downtrend is expected to level out towards autumn and reverse into a gradual rise. However, GDP will start to recover from a lower level than previously estimated and GDP will this year clearly contract more than forecast in January. Slight economic growth is expected as early as next year. However, the improvement will start from such a low level and be so slow that the outlook for unemployment and public finances will remain weak for years.

In Norway, growth in traditional export markets will be considerably weaker than forecast in the latest issue of Economic Outlook. This will not only hit exporters but also trigger a deeper-than-expected decline in mainland economy investment. Still, much indicates that growth will be more resilient in Norway than in many other countries. The aggressive rate cuts will support a renewed uptick in private consumption, after a clear downward trend. Solid growth in public consumption and investment will also make a positive contribution. Also oil investment will make a positive contribution this year. Norges Bank has already slashed interest rates sharply, but low inflation and falling capacity utilisation will allow the bank to sanction further cuts. Stable and gradually increasing oil prices coupled with solid public balances suggest that the Norwegian krone will gradually strengthen.

The Swedish economy ground to a halt at end-2008 when the deep financial crisis paralysed world trade and made the crisis-conscious Swedish consumers increase their savings.

Trends in early 2009 remained weak, but signs are emerging that the bottom is close and an uptick in exports is expected to contribute to a recovery later in the year. However, the labour market, which lags behind in the economic cycle, continues to weaken. This will probably make households reluctant to increase consumption, although those with jobs will actually benefit from fiscal policy easing and significant rate cuts, which will also have an effect on market rates. All in all, weak demand and low capacity utilisation suggest that the Riksbank can leave the current policy rate unchanged well into 2010.