Inflation strikes in Northern Europe

In Northern Europe, more than half of respondents say their businesses are weaker now than they were 12 months ago, in terms of their revenue, efficiency, and ability to manage disruption. This is higher than in each of the other regions, as well as across Europe as a whole, according to the latest European Payment Report.

An overview of the European Payment Report (EPR) results for Northern Europe, including: Denmark, Estonia, Finland, Latvia, Lithuania, Norway and Sweden.

This sentiment is highest in Lithuania, where six in 10 (60%) said they were weaker, followed by Estonia (59%) and Latvia (55%). This tallies with concerns about inflation and growth in the Baltic states, which have been very strongly affected by the war in Ukraine due to their proximity to the conflict and to Russia.

However, difficulties are not limited to these countries, with forecasts that output growth this year will underperform across the region, with the exception of Norway. It is likely that the Baltic states and Sweden are already in recession, while Finland and Denmark are projected to stagnate in the coming months.

Soaring inflation

Inflation in Northern Europe has hit levels not seen for decades. Estonia last year had the highest inflation rate in the Eurozone, Denmark has seen 40-year highs, and, despite dropping from autumn-winter, Latvia’s inflation rate remained at 17% in March 2023.

Businesses in Northern Europe are also more likely to think that the current period of high inflation will last for more than another year, with 73 per cent thinking this compared with just 61 per cent in Southern Europe.

In Estonia, Latvia and Lithuania, 87% said inflation would last for at least another year, well above the European average of 68%. In fact, almost half said it would be more than two years – much higher than the Europe-wide figure of 26%. In Norway and Finland, predictions were also less positive than the European average – 71% and 70% respectively.

Due to inflation, businesses said they are finding it increasingly difficult to pay suppliers on time. In Estonia and Latvia this is particularly acute, with seven in ten (69%) reporting this as an issue, much higher than the European average of 56%.

Less demand for pay rises expected

Within the Baltic states, however, employees are slightly less likely to be asking for higher-than-average pay increases, which may be because there is less pressure from unions.

In Lithuania, for example, 77% of companies say their employees are, or soon will be, demanding higher salaries, which is eight percentage points lower than the average. In Estonia this figure is 80% and in Latvia 82%. Sweden also has below average demand for pay rises (81%).

Insights from the EPR Country Snapshots 2023

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Country Snapshots Whitepaper 2023
EPR Country Snapshots Whitepaper 2023