Scandinavia avoids the financial crisis
While many western countries are still reeling from the widening economic crisis and some southern European economies are regarded as basket cases, Scandinavia has been weathering the global financial storm surprisingly well.
Economists and governments in other less-favoured economies are now starting to ask why it is that Scandinavian economies have been able to avoid the economic turmoil so successfully.
One crucial factor is that some Scandinavian countries received an early inoculation against the kind of boom and bust that has derailed larger and apparently more robust economies, which are still floundering since the US-led housing crash and subsequent financial crisis.
What can Ireland learn from the Scandinavian model?
“At the beginning of the 1990s, Norway, Sweden and Finland experienced a banking crisis when the housing bubble burst in the same way that other western economies have now been experiencing,” says Steinar Juel, the chief Norwegian economist at Nordea. “Sweden and Finland subsequently implemented good policies in banks together with new fiscal policy rulings.”
However, it is inaccurate to lump all of Scandinavia’s economies together under the assumption that all are equally robust or subject to the same pressures. Norway’s robust economy, for instance, is underpinned by its oil industry, which has benefited massively from the global rise in oil prices.
“The Norwegian economy is showing few signs of weakness and we see no reason to change our optimistic view of the economy going forward,” says Eric Bruce, an economist who also works for Nordea.
“Growth looks set to be high, but with increased labour immigration, an overheating of the economy and sharply rising costs will probably be avoided. Wage growth will be much higher than in neighbouring countries, but not so high as to push inflation above target.”
Strong wage and employment growth, coupled with low inflation, are boosting consumer purchasing power in Norway, with the result that consumption growth in the first half of this year was very high after last year’s weaker-than-expected trend. With an initial high level of savings and a sustained strong labour market, economists and market watchers see consumption growth continuing unabated into the next year.
Even at a time when many of Norway’s export markets are floundering, Norwegian companies continue to expand globally.
Companies in Scandinavia’s other economies are also pressing ahead with overseas expansion. Sweden’s Ericsson, the world’s largest mobile network equipment maker, is working with Mobile Communication Company of Iran to expand its network. Ericsson’s growing investment in Iran comes at a time when many western companies have stopped doing business there because of international sanctions.
But lacking Norway’s buffer of oil reserves Sweden may still be facing tougher times ahead.
Last month, Sweden’s pony-tailed finance minister Anders Borg, announced that he might have to cut the country’s growth estimates following the adverse effect of Europe’s debt crisis on the country’s exports.
According to economists, however, Sweden has been surprisingly resilient to the global turbulence and is significantly strengthened by consumer growth.
“Household finances are generally stable. A low inflation level and pay rises jack up households’ purchasing power,” says Torbjorn Isaksson, an economist at Nordea.
It is expected that real disposable income in Sweden will rise by about 2 per cent a year until 2014.
Economists are also looking towards growth in consumer spending to boost Denmark‘s economy. Danish economists predict that the economy will expand at a rate of 0.7 per cent this year, 1.9 per cent next year and 2.1 per cent in 2014.
Finland, however, is facing a slowdown in consumer spending growth, with economic activity decreasing across the board after the first quarter of this year.
Nevertheless, Nordea expects the Danish economy to gradually return to growth this year.
No one is certain that Scandinavia will continue to weather the global financial storm. But economists remain confident that their social systems will act as a stabiliser.
“When companies face difficulties and lay off staff, the government gives them money to live on and helps them find another job. This is focused to keep the economy on at an even level through difficult times,” Mr Juel says.
Strengthening social networks could be difficult medicine for some western economies to swallow. But it should be remembered that many of the social safeguards existing in non-Scandinavian economies were put in place as a direct response to financial crises in the last century.
Topic Finland Norway Sweden
The facts s to why Finland Norway Sweden re doing ok
Norway Underpinned by high oil prices and exports of related equipment and services, Norway’s problems are those of success. Growth is predicted to be high, but increased labour immigration will reduce the risk of costs rising sharply and the economy overheating. It is predicted that wage growth will be much higher than in neighbouring countries, but not so high as to push inflation above target. However, strong economic growth could mean higher interest rates over the next couple of years.
Sweden Despite a weakening labour and export market since the global financial crisis, Sweden’s economy is proving to be remarkably resilient. The country’s GDP and employment rose again during the first half of this year. Nevertheless, the global economic situation has forced the Swedish finance minister Anders Borg to reduce the country’s growth targets.
Denmark Although Denmark’s economy has been languishing when compared with Norway and Sweden, activity has remained at about the same level since the autumn of 2010. But it is widely expected that the economy will gradually start to grow again this year, accelerating to 2.1 per cent in 2014. The expected reversal of economic trends will be driven by growing consumer spending.
Finland With its economy no longer propelled by mobile phone maker Nokia, which once accounted for half the value of the Helsinki stock exchange, Finland faces difficulties typified by a slowdown in consumer spending, a growing public sector deficit and an export market that is not expected to start to recover until next year. Nordea has lowered its forecast for economic growth next year from 1.6 per cent to 1.2 per cent. In 2014, growth is expected to be 2.8 per cent.
The fact that Scandinavian countries have onerous tax systems and generous state welfare benefits seems to contradict accepted economic wisdom in other parts of the world, such as in the United States and the United Kingdom, where the role of the state is generally being rolled back where possible in response to the global crisis.
“Denmark, Finland, Norway and Sweden all belong to the exclusive club of countries with top ratings from the major credit rating agencies. These countries have status as safe havens in financial markets,” says Helge Pedersen, the global chief economist at Nordea, a financial services group in the Nordic and Baltic region.
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Posted on February 23, 2013, in buisiness, EU, Government, IMF/ECB, International affairs, Ireland, politics and tagged Anders Borg, Banks, Denmark, Financial crisis, Finland, Ireland, Irish, Irish News, Nordea, Norway, Scandinavia, Sweden, United States. Bookmark the permalink. Leave a comment.