Bank of America’s "Nordics Year Ahead" Report

Bank of America (BofA) released its "Nordics Year Ahead" report, outlining expectations for a domestic recovery and gradual monetary policy adjustments in the region for 2025.

Sweden’s Economic Outlook

BofA anticipates Sweden to experience a shift from trade-driven to domestic-driven growth, projecting an increase in growth to 1.6%, a figure that outpaces the Euro area's forecasted 0.9%. This improvement is attributed to healthier consumer balances and a positive fiscal stance.

While balanced risks exist—potential upside from household spending and downside from international trade, especially with Germany and the US—Sweden's inflation is expected to remain below the target, with core inflation at 1.9%.

As a result, BofA predicts the Riksbank will implement rate cuts to 2% in the first quarter of 2025, holding steady thereafter, with the possibility of another cut in the fourth quarter due to persistent below-target inflation.

Norway’s Economic Performance

Norway has shown economic resilience in 2024 and is poised for a gradual acceleration in growth in 2025, supported by consumer balances and domestic investment. BofA forecasts a mainland growth rate of 1.2% for Norway, with potential for higher performance driven by fiscal factors.

Despite relatively sticky core inflation at 2.6%, the report suggests that continued productivity growth should aid in normalization. Consequently, the Norges Bank is expected to reduce its rate to 3.50% by the end of 2025 through quarterly cuts.

Currency Outlook

The currency outlook for the first half of 2025 is bearish for the Scandinavian currencies (Scandies), influenced by trade uncertainties, a challenging risk environment, and a comparatively hawkish Federal Reserve.

However, the outlook shifts positively in the second half of the year, with expectations of a softer US dollar, Nordic growth outperforming the Euro area, and a hawkish pivot against the European Central Bank (ECB).

The report notes light positioning for the Norwegian krone (NOK) following significant selling this year, and a modestly short position for the Swedish krona (SEK). While BofA maintains a modestly constructive view on the NOK-SEK exchange rate, it acknowledges low conviction in this outlook.

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