Macroeconomic Transformations in Nordic Economies, 2024-2032

Defense Spending and High-Tech Leadership Fueling Investment Attractiveness

The Nordic region, comprising Denmark, Finland, Norway, Sweden, and Iceland, features highly developed economies with strong innovation capacity and advanced technological ecosystems. In the near term, US tariff tensions under the Trump presidency are expected to create headwinds for these export-dependent nations. However, the region's established high-tech expertise, sophisticated infrastructure, and positive spillover effects of rapid defense spending-including opportunities for defense manufacturing localization-will serve as key long-term growth drivers.

By 2032, the region's nominal GDP is projected to exceed $2.5 trillion, up from $1.9 trillion in 2024, with real GDP growth forecast to average 1.6% annually between 2024 and 2032. Exports will remain robust, particularly in ICT, smart technologies, pharmaceuticals, advanced manufacturing, emerging technologies, and oil and gas. However, a rapidly aging population poses a significant challenge, with acute labor shortages and increasing public spending on social services threatening long-term growth sustainability.

This macroeconomic thought leadership provides strategic insights into the region's economic transformations through 2027. Decision-makers can also leverage country-level growth outlooks for Denmark, Finland, Norway, and Sweden to design geographic expansion strategies. The analysis highlights unique growth drivers and constraints for each country, enabling business leaders to capitalize on long-term structural shifts and make informed investment decisions.

Key Themes:

• Regional Economic Outlook
• Regional Macroeconomic Transformations
• Country-Specific Economic Outlook and Industry Growth-Opportunities
• Regional Growth Opportunities

The Impact of the Top 3 Strategic Imperatives on the Nordics Economy

Geopolitical Chaos: Protracted Regional War driving Manufacturing Localization Opportunities in Defense

• Why: Following the onset of Russo-Ukrainian war in 2022, the security paradigm has shifted in the Nordics, with Sweden and Finland joining the NATO† in the recent past. The region's defense spending has more than doubled since 2020, with countries targeting to reach 3.0-3.5% of GDP in terms of defense expenditure by 2030, with focus on building local manufacturing capabilities.
• Frost Perspective: Defense manufacturers should prioritize building local production capacities to gain access to the rapidly expanding fiscal funds. Supply chain localization will also drive opportunities for regional industrial and academia partnerships. Dual-use technology players can benefit from positive spillover effects for advanced materials, civilian applications, and cybersecurity services.

Disruptive Technologies: Established High-tech Proess will Foster Next-Gen Technology Investment Opportunities

• Why: The Nordics' GDP is forecasted to surpass the $2.5 trillion mark by 2032, with established leadership in high-tech exports (ICT2, cleantech). Sizable fiscal support for digitalization, AI3, clean energy, and emerging tech coupled with near-universal digital infrastructure access positions the region as a launchpad for advanced tech development.
• Frost Perspective: Global tech firms can consider Nordics as a test bed for tech products before global deployment, leveraging the conducive policies and sophisticated user base. Established prowess in sustainability technologies can prove as a critical differentiator for commercial manufacturing, creating sustainable industrial solutions in the long-term.

Transformative Mega Trends: Aging Population will drive Need for AI-Collaborative Workforce

• Why: Share of population over 65 years is forecast to rise from 14.8% in 2000 to 22.6% in 2032, indicating a sharp rise in share of the elderly. Denmark, Finland, and Sweden will be witnessing a fall in the share of 0-14 (youth) and 15-64 (working-age) age groups through 2032, indicating falling fertility rates and a shrinking labor force.
• Frost Perspective: Automation, AI for labor augmenting tech, immigration-focused tech solutions (language learning, skills support, digital integration), and productive enhancing technologies stand to benefit from this demographic shift. However, a rising dependency ratio will exacerbate the local security burdens on regional governments and become a key fiscal constraint, warranting revenue diversification focus.

Scope of Analysis

• Since early 2024, the Nordic countries have grappled with weak domestic growth and elevated unemployment. Looking ahead to the second half of 2025 and 2026, labour market recovery will remain slow, while continued export headwinds from the United States' (US) tariffs and global uncertainty may constrain short-term economic momentum.
• Easing inflation and resultant monetary policy normalization is set to revive private investment and consumption late 2025 onwards, fuelling expansion across key sectors. Continued fiscal support and strong technological capabilities will reinforce the Nordics' position as a competitive high-tech export hub in the long run.
• Public funding, tax incentives, and European Union (EU)-backed schemes-alongside rising private investment-are accelerating clean energy and ICT growth in the Nordics, boosting both domestic capacity and export potential. Meanwhile, the Nordics' defence spending is rising sharply in response to the Russo-Ukrainian war and US-backed calls for greater EU autonomy, fuelling industrial activity and cross-border collaboration. Rich domestic reserves of lithium, rare earth minerals, oil and gas, and processing strength further cement the region's role in Europe's advanced manufacturing supply chains.
• Some potential constraints on the Nordic economies' growth include the threat of US tariffs on their export-oriented industries, shrinking fiscal space due to rising healthcare costs and an aging population, and the threat of climate disasters.

Growth Drivers

• The region targets to boost defense spending from the current 1.0-2.5% to 3.0-3.5% of GDP by 2030 amid the protracted Russo-Ukrainian war. Policy support for defense manufacturing localization and coordinated defense procurement frameworks will boost industrial demand. The recent joining of Sweden and Finland into NATO, positions the region for strong cross border R&D collaboration and dual-use1 technology spillovers.
• Targeted policy support such as Denmark's $157 million support for quantum computing commercialization, $368 million funding support for AI innovation by Finland, underscore strong policy impetus for high-value-add exports. ICT, sustainability, pharmaceuticals, and clean energy exports growth will provide the region a competitive edge.
• Supply chain vulnerabilities, post-pandemic and post-war, are driving new resource sovereignty policies including strategic mineral stockpiling programs (e.g., EU Critical Raw Materials Act). Natural resource abundance and established processing capacities of critical and other natural resources including lithium, rare earth minerals, oil and gas, position the Nordics as a critical contributor in the EU supply chains.
• Easing price pressures are paving way for monetary policy normalization. This will spur private investment and consumption recovery, while supporting corporate expansion spanning key industries.

Growth Restraints

• US tariffs (including 10% universal, 25% on automotives, 50% on metals, and risks of country-wise reciprocal levies) will weigh on the highly exports-dependent Nordics region.
• Acute labor drive wage inflation and also slow down high-tech growth in the medium to long-term. This would curtail industry profit margins significantly.
• 22.6% of the regional population will be over 65 years in age, exacerbating social security burdens on the governments. A shrinking size of the working age population coupled with rising healthcare costs will narrow fiscal leeway for growth-supporting investments.
• Extreme weather events especially the Arctic storms, significantly push up the need for investments into infrastructure resilience. Operational disruptions and temperature volatilities also have long-term economic costs as productivity and competitiveness are impacted.