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Since our last report on the Nordic and Baltic region, 2016 has so far proved to be a year of exceptional events, with surprises and shocks bringing political and economic repercussions. These have affected business confidence and investment plans across Europe, which has been reflected in the asset finance markets, although the Nordics and Baltics markets have shown resilience.

The unexpected vote by the UK to leave the EU, terrorist attacks, the various reactions to the refugee crisis, and the failed military coup in Turkey are indicators of heightened political uncertainty in Europe; the aggression of the US presidential election campaign has revealed further protectionist sentiment; meanwhile, global growth continues to be constrained, especially in China.

These factors have led to forecasts of economic growth in Europe being tightened, at least for 2016 and 2017. However, set against this is the fact that a number of underlying factors have stayed resilient. Inflation generally remains low and interest rates show no signs of rising, unemployment overall has come down while employment levels have improved in some sectors. Oil prices have been relatively stable, meaning that manufacturers and private consumers continue to benefit from favourable energy costs.

The positive factors are summed up in the August 2016 Autumn Outlook from SEB, which states: “Despite various sources of concern, the eurozone economy will continue to grow at a pace of between 1.5–2%, which is above trend and implies that unemployment will continue to fall. Domestic drivers are relatively strong, with a household sector benefiting from low inflation, job growth and an improved wealth position due to rising home prices.”

It continues: “Capacity utilisation has now also reached levels where capital spending usually takes off,” although it adds the important proviso, “But continued banking sector problems are holding down the pace of lending and hampering the effectiveness of ECB stimulus measures.”