Spending is back: Nordics lead the recovery

Nordea’s data on card transactions show that, after the initial coronavirus shock, the level of spending activity in the Nordics had bounced almost back to normal already in early summer.

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The outbreak of the coronavirus has had a dramatic effect on the Nordic countries and their economies. After the virus appeared in Europe, all four Nordic countries swiftly took measures to slow the rate of new infections. Denmark and Norway were first to act, closing down most of their societies fairly quickly. Finland followed suit a week later, while Sweden also introduced measures but remained more open than the other countries.

Unlike prior crises, households and consumption have been and still are at the centre of the corona crisis. The negative shocks stemming from the virus and the ensuing containment measures quickly spread to the service sector and consumption.

Therefore, in order to monitor and analyse the coronavirus’s effects on economic activity, we have used the rich resource of Nordea’s card transaction data. These data give a frequent and fairly accurate overview of developments in household consumption – a major determinant of economic activity – and the sectors of the economy that have been most affected.

In line with the huge stimulus support and a gradual easing of restrictions, Nordic households continued to increase their spending over the summer.

Dane Cekov, Nordea Analyst

Sharp contraction followed by a quick rebound

All Nordic countries experienced a sharp contraction in household spending in March, according to our card transaction data (see chart below). The overall fall in card transaction local currency/nominal volumes neared some 30% in Norway, Denmark and Finland, while Sweden experienced a drop of around 20%. The countries that implemented the strictest anti-contagion measures experienced the most severe drop. The decline in Sweden, which chose less stringent measures, was not as severe as in Denmark, Norway and Finland.

The recovery also started quickly. Card transaction volumes started to pick up already in March-April in all Nordics, as households grew accustomed to the situation and some restrictions were eased.

Spending in Norway, Denmark and Finland rose more quickly than in Sweden, albeit from lower levels. This could support the hypothesis that strict containment measures to combat the virus followed by gradual easing have led to a quicker normalisation of consumer behaviour than other strategies. Looking at the details, while services seem to be lagging somewhat in Sweden, especially goods purchases are lower there than in the other countries. This could be a result of less pent-up demand in Sweden since the initial drop in expenditure was smaller. Overall, it is still too early to conclude which containment strategy has had or will have the best economic outcome.

Chart showing Nordea card expenditures across the Nordics during the pandemic

Large differences between sectors remain

In line with the huge stimulus support and a gradual easing of restrictions, Nordic households continued to increase their spending over the summer. But the development  was uneven across sectors:  Some sectors have fared well, while others have been left lagging behind.

According to our card data, households’ expenditure has tilted towards goods purchases in the aftermath of the coronavirus pandemic. Overall expenditures on goods are above last year’s levels in all of the four countries. Expenditures on services recovered during the summer months, but have lately fallen below last year’s levels after the holiday season ended. Some sectors will have to undergo a painful adjustment to a new normal, specifically airlines, hotels, public transportation and culture.

Goods have fared well

Nordic households changed their consumption pattern in the direction of spending more on certain retail goods. Supermarkets and non-food retail sectors have done especially well. Remote work, less going out and more time at home have led to increased demand for supermarkets. In some countries, such as Norway, supermarkets have also benefited from lower border trade.

With more time spent at home, Nordic households also seem to have turned their attention to home improvements. We have seen markedly higher spending at hardware stores and “do it yourself” home improvement stores.

At the same time, shuttered gyms and working from home have led to increased sales of sporting equipment and electronics. Especially at the start of the summer, spending on leisure and camping equipment escalated as people geared up for their domestic “staycations”.

Charts showing household spending on goods and services during the pandemic.

Services improved over the summer

Most services have, on the other hand, suffered. Lockdowns and activity restrictions have meant a huge shortfall in demand. Services have recovered gradually, in line with restrictions being eased and households adapting to the new “normal”.

Nordea’s card data show that household spending on services was well above last year’s levels over the summer months in Norway and Denmark. In Finland it normalised, while in Sweden it was still 10% lower.

Due to travel restrictions, most Nordic households have spent their summer vacations in their home countries. This is an important factor behind the increased domestic spending relative to last year. In particular, spending on hotels rose markedly in Denmark and Norway. Relative to last year, the latest data show that services demand has dampened after the summer.

When analysing the development in, for example, the hotel industry using the card transaction data, it is of course important to note that the data covers only the domestic use of domestic cards. Thus, the data give an overly positive picture for some sectors since foreign transactions are not taken into account.

Staycations have helped the recovery.

Helge J. Pedersen, Nordea Group Chief Economist

Staycations have helped the recovery

The continued restrictions on international travel have forced Nordic households to take staycations instead of jet-setting abroad. This is an important factor behind the increase in demand during the summer.

All the Nordic countries normally have negative travel balances. In other words, Nordic households spend more abroad than foreign households spend here. This year, most of the money that usually goes abroad found its way to Nordic businesses. This has mitigated some of the demand shortfall from foreign tourists not being able to travel to the Nordics.

The Nordic welfare states and additional fiscal measures have allowed Nordic households to weather the worst of the storm.

Tuuli Koivu, Nordea Chief Economist, Finland

Authorities have provided much needed support

Responses from the authorities and the characteristics of the Nordic societies have helped to ease the burden for Nordic households. The fiscal policy effort to mitigate the consequences of the coronavirus pandemic has been unprecedented in size and scope.

The Nordic responses to the crisis share many similarities. From the beginning, the main focus was on different kinds of “lifesaving” measures to dampen the fall in activity by supporting businesses as well as workers who were furloughed. Unemployment insurance was extended while payroll taxes were lowered. Loan guarantees were introduced, in addition to other liquidity measures.

As the Nordic economies began to reopen, governments have also introduced comprehensive recovery packages to support the recovery.

In Denmark, an amount equivalent to 2.6% of GDP of previously frozen holiday pay will be distributed to wage earners, and a small amount will be paid out to people outside the labour market. Moreover, a government fund will be established in order to inject capital into essential businesses.

Norway launched a broad stimulus package to support domestic demand, which included tax cuts for important sectors and large infrastructure investments.

Finland’s latest budget amendment will also change character from a rescue package to a recovery package with special focus on education and infrastructure.

Overall, we see fiscal stimulus in the Nordic countries in the range of 5-10% of GDP. If needed, more will come.

The Nordic welfare states and additional fiscal measures have mitigated the most harmful long-term effects of the pandemic and allowed Nordic households to weather the worst of the storm. While all the Nordic countries have been deeply affected by the coronavirus, the trajectory has been better than in many other developed countries, as can be seen from the Q2 GDP figures above.

Chart showing GDP % change year-over-year for Nordics and other countries.

Some sectors still face challenges

The hotel, airline and culture industries in particular will continue to face challenges due to restrictions on travel and large gatherings. Outside the domestic holiday seasons, the lack of large events and foreign tourists will hurt the tourism industry.

There was plenty of spare capacity in the airline industry even before the corona pandemic, and we see signs that airlines are gradually reducing their capacity to cater for the new normal.

Even if a vaccine were to be found, some customers will be lost forever as people draw on new experiences. Videoconferencing will likely be used to a large degree also after the pandemic is over, reducing the need for travel, for example. While this will be painful for those workers affected, over time they will get jobs elsewhere. For society as a whole, these changes present an opportunity for efficiency gains and increased productivity

Charts showing Nordic spending on culture sector, flights and hotels

The corona crisis is not yet over. How consumers react ahead will be key.

Torbjörn Isaksson, Nordea Chief Analyst

Looking ahead

The corona crisis is not yet over. Infection rates remain low but have seen an uptick recently. And even if, in the best case, a vaccine becomes available next year, it will take time before the virus is eliminated.

We cannot entirely rule out renewed flare-ups of the virus and new lockdowns. But the authorities and health care professionals now have more knowledge about the virus, and we therefore consider locally targeted measures as the most likely approach to tackle cluster outbreaks.

How consumers react ahead will be key. A new shutdown will likely put a damper on consumption, and households are likely to become more cautious. But we will not see as sharp a drop as that we saw in March.

Back then the virus was a new phenomenon for both the authorities and medical staff. Uncertainty was therefore high, and households changed their behaviour quickly due to both fear of contracting the virus and the government restrictions.

Since then, we have gained important knowledge and become more accustomed living with the virus. Finally, the Nordic welfare states have shown their resilience when it comes to these types of shock.


Find out more in the September 2020 issue of Nordea Economic Outlook: Bouncing Back.


Dane Cekov, Nordea Analyst
Dane Cekov, Nordea Analyst

Helge Pedersen, Nordea Group Chief Economist
Helge Pedersen, Nordea Group Chief Economist

Torbjörn Isaksson, Nordea Chief Analyst
Torbjörn Isaksson, Nordea Chief Analyst

Tuuli Koivu, Nordea Chief Economist, Finland
Tuuli Koivu, Nordea Chief Economist, Finland

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