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.
Welfare State the Scandinavian model click on the link below
In the past year one million hours have been cut from the homecare service, leaving great hardship and anger, writes JOHN LONERGAN
We are a society that appears trapped in a dark, depressing tunnel and we are slowly developing a dog-eat-dog mentality along with a hardness of heart that appears to make us almost totally immune and indifferent to the pain and suffering of many of our fellow citizens.
Every week more and more cutbacks are inflicted on many of our most vulnerable people. Only last Sunday RTÉ Radio reported on the sad situation of a Co Mayo mother caring for her child who has a serious disability. She was originally allocated eight hours’ home help, this was subsequently reduced to five, and just recently she was told by the Health Service Executive that the five hours were now being withdrawn as they were required for a more deserving case.
This callous decision means that this mother is left on her own to care for her child 24 hours a day, seven days a week. A great example of when the lowest common denominator is used to decide on the merits of a case – you think that you are badly off but I know someone who is worse off.
It must be remembered that the home help programme was introduced to support a government policy that encouraged families to care in their homes for their loved ones in order to facilitate the freeing up of beds in hospitals and other residential centres for more urgent cases and, of course, to save money.
The ongoing reduction, and in many cases the total withdrawal, of home help hours has been nothing less than a betrayal of the individuals and families who have so generously participated in this scheme over the years. During the past year one million hours have been cut from the home care service, leaving in its wake great hardship and frustration.
The most recent announcement by the HSE of a further reduction in hours to save an extra €8 million, made so close to Christmas, is a Scrooge-like decision and how any society can support such a miserable attack on such vulnerable people is sad indeed.
And I must stress that people selected for home help are almost totally dependent on the support of their carers for their very survival.
Surely no economic crisis can justify such decisions. The result is that both those being cared for and their carers are all suffering great hardship and stress and many are at breaking point. Many will end up back in hospitals, nursing homes and in special care units, defeating the very purpose of the whole scheme.
Also this past week the principal of a primary school in Bluebell in Inchicore, Dublin, went public to say that she had no money to have essential maintenance work carried out in her school. It appears that the funds available from the Department of Education for emergency repairs in schools are no longer available, and the principal had to rely on the goodwill and generosity of some members of the public who became aware of her plight.
The Irish Principals’ Network claimed that 46 per cent of primary schools were operating on a deficit, and the dropping of the emergency repairs funding will inevitably plunge many schools into dire straits; many will not be able to pay for light or heat. And primary schools were already under pressure because of cuts to their capitation grants which fund the day-to-day running of schools.
Add in the savage cuts and reduction in special needs assistants and other support services in both primary and secondary schools and it becomes obvious that once again it’s the poor and the most vulnerable who are targeted during recessions and they most definitely pay the biggest price – a price, incidentally, that is almost impossible to measure.
Yes, of course we can measure in financial terms what the State saves but what about the human costs?
Primary education is the most important and precious of all our strands of education and if we continue to neglect it we will in time pay a huge price as thousands of children will lose out.
Last week I attended a seminar organised by childcare residential managers at which many of those present expressed their frustration and anger at the State’s failure to care adequately for many very vulnerable children and their families, and in many cases the examples given were nothing short of neglect.
Earlier this year the report on the deaths of children in care concluded that almost 200 children had died, after the original figure given by the HSE was fewer than 30. This report generated a strong public reaction and lots of anger and rightly so. These were children who were failed by the State and all had paid the ultimate price.
At the time of its publication I expressed the view that the report was long overdue and at last the real cost of the State’s neglect of vulnerable children was being recognised. But I did highlight the fact that it was restricted to reviewing the cases of children who had died.
What about the many hundreds or perhaps thousands of children who were equally failed by the State but survived in so far as they are still alive? What price have they paid in terms of their health and their general wellbeing?
How many have experienced homelessness, addiction, imprisonment, mental health problems or lives of unemployment as a direct result of their neglect?
The answer is we don’t know.
I can vouch for the fact that most charitable and voluntary organisations are working on a knife edge and will not be in a position to sustain any further cutbacks in financial resources with the result that many essential family and child support services will be reduced or lost.
Like all budgets, this year’s is about choices, and I know where I stand on such choices: I am more than willing to give more to help those who are in dire need and I believe that there are thousands of like-minded people in our society.
Many in Irish society, young and old, have soaked up and tolerated huge hardship over the past four years or so; many are left with no real quality of life and the most vulnerable have suffered most of all, the old, the sick, children born into and living with poverty, children and adults with physical and mental disabilities, the unemployed and the elderly living alone. At this stage people need to be reassured that their lives are going to improve but most definitely that they won’t get any worse.
Next Wednesday’s budget can be a new beginning or it can be the straw that finally breaks people’s resolve.
One thing is certain: any more cutbacks for those on the margins of our society will have catastrophic consequences.
Michael Cohrs, a former Goldman Sachs banker who now sits on the Financial Policy Committee, said regulators may be trying too hard to “re-fight the last war” and that “allowing financial companies to blow themselves up, and then try and deal with the fall-out, may be – whether we like it or not – the reality of where we end up”.
Speaking at the University of the West of England, he also warned the authorities against forcing banks to increase lending, saying it was “no silver bullet” for the current economic malaise. Higher lending risked weakening the banks as most households and businesses were trying to pay off their debts and those wanting more debt were the least creditworthy.
“If we push too hard on the lending theme, we will simply raise default levels, as more of the borrowers will not be creditworthy,” he said. “There is no silver bullet to quickly fix the current economic situation.”
Drawing attention to the wide variety of financial crises over the past 200 years, Mr Cohrs said: “We shouldn’t pretend we can eliminate financial crises completely. Nor that the next crises will necessarily be a carbon copy of the last one.”