Sweden is Nordic market most recovered from 2008-9 low point, argues DNB economist Lindskog

Dag Lindskog, chief economist at DNB Asset Management, says a review of the latest macro data suggests Sweden is the Nordic market that has recovered most from the 2008-9 financial crisis.

The last month of 2012 ended on cautiously optimistic notes. It was followed by a rally in global equity  markets during the first trading day of the new year. The reason is that the American politicians finally  struck a compromise deal over fiscal cliff although they postponed important issues until the end of  February.

Central banks were very active during December. Both the American Fed and Bank of Japan announced new more aggressive quantitative monetary policies. The Swedish Riksbank stuck to the orthodox tool-box and cut rates. Government bond yields issued by the Nordic countries increased a touch but remained at very low levels. The Danish, Norwegian and Swedish currencies were essentially stable versus the euro.

Prices on the Nordic equity markets climbed some during December and rallied along with markets elsewhere during the beginning of January.

Sweden – outside the Eurozone – has nevertheless so strong trade and other links with the rest of Europe that the Swedish business cycle by and large mimics the rest of the continent. The important difference is the starting point with strong private and government finances when the crisis hit, which has even allowed policy makers to add some fiscal stimulus. Statistics and surveys indicate that the fourth quarter may have been the trough of the downturn. Typical forecasts call for some 1% real growth rate this year based on higher domestic demand partly due to very low inflation – currently negative – boosting real income gains.

Norway – also outside the Eurozone – has like Sweden strong links with the rest of Europe. However, the big energy sector adds certain country-specific characteristics. The Norwegian economy is in relative terms more exposed to movements of international energy prices but typically more resilient to the ups and downs of the European and global business cycle. This is the main explanation why typical forecasts call for more or less continued robust domestic demand led real GDP-growth rate of around 3%. Although somewhat higher inflation (1.1% in November) but even higher wage increases than in Sweden provides Norwegians with strong real income gains. Hence, Statistics Norway’s influential December forecast suggests higher than 4% real growth rate of private consumption in 2013.

Comparing the recovery from the severe global downturn in 2008-2009 reveals that the Swedish economy has staged the strongest comeback (in the third quarter of last year up 13% from the trough and standing 4% higher than the peak ahead of the crisis) and Norway second. Neither Denmark nor Finland and the Eurozone have as yet fully recovered from the trough.

The Nordic economies often stand out in international comparisons. One recent example is “Growth Environment Scores” (GES) by Goldman Sachs. The GES are meant to cover important features of the economic, political and institutional context that affect productivity performance. GES signal according to Goldman Sachs the medium- and long-run growth potential. The GES from December cover some 180 countries. The top three are from Asia: 1) Singapore, 2) South Korea and 3) Hong
Kong. Australia takes the fourth place. The Nordic economies are next: 5) Sweden, 7) Norway, 8) Finland and 11) Denmark. The Netherlands manages to squeeze in between Sweden and Norway.

This is by and large confirmed by OECD-statistics. Sweden and Finland have had a much better productivity development compared with Denmark, Norway and the Eurozone. Norway’s high GESposition is partly attributed to the beneficial effects of its big energy sector


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