Sweden

THE Swedish economy emerged from the financial crisis as one of the strongest in Europe. A high-tech economy and a comprehensive system of welfare benefits allow Sweden to enjoy one of the highest standards of living in the world. Sweden’s economic growth has been much higher than that of the rest of Western Europe, or the United States, since 2006.

Data from the IMF and the Organisation for Economic Cooperation and Development (OECD) show that Sweden has one of the lowest inflation rates in Europe; it runs a budget surplus every year; its corporate tax rates are considerably lower than US rates; and it runs sizable current-account surpluses.

From the early 1990s until 2008, Sweden enjoyed a sustained economic upswing, fueled by strong exports and rising domestic demand. In the fourth quarter of 2008, Sweden entered a recession.

Heavily dependent on exports of automobiles, telecommunications, construction equipment, and other investment goods, Sweden was hit hard by the contraction in external demand due to the global crisis. As a result, its GDP fell 4.9 per cent in 2009. But GDP grew by 5.5 per cent in 2010, beating expectations. The economy maintained a similar pace in 2011, but growth slipped to 1.2 per cent in 2012.

Meanwhile, Sweden’s economy suffered an unexpected decline during the second quarter of this year, as Scandinavia’s largest economy struggles to perform amid weak demand from the financially-stricken eurozone. GDP shrank by 0.1 per cent between April and June, after expanding by 0.6 per cent in the first three months of the year, according to figures from Statistics Sweden. Annual growth slowed from 1.7 per cent to 0.6 per cent.

However, if the first two quarters are viewed together, some growth was witnessed over the first six months of the year. According to the National Institute of Economic Research (NIER), GDP growth would pick up towards the end of 2013. The NIER sees growth at 2.5 per cent in 2014.

Sweden’s government expects the $540 billion economy to grow 1.2 per cent this year, and 2.5 per cent in 2014, compared with July forecasts of 1.3 per cent and 2.1 per cent respectively. The government is forecasting a weaker recovery than the Riksbank, which in predicted growth of 1.5 per cent this year and 2.8 per cent in 2014 in its monetary policy update in July.

However, panellists at FocusEconomics Consensus Forecast are slightly less optimistic, and expect the Swedish economy to grow by 1.3 per cent in 2013, and 2.4 per cent in 2014.

The National Institute of Economic Research also expects inflation to remain well below the target level. While still below target, consumer prices unexpectedly rose in July to an annual 0.1 per cent, after a 0.1 per cent drop in the prior month, according to Statistics Sweden.

The central bank has been steadily lowering rates over the past six months to stimulate the economy. The rate currently sits at 1.5 per cent. The bank has kept its forecast for underlying inflation at 1.4 per cent for 2013 and 1.9 per cent for 2014. The government predicts that annual inflation will slow to 0.1 per cent this year and accelerate to 0.9 per cent in 2014.

Meanwhile, unemployment slid to 7.8 per cent, the lowest since June last year. NIER sees unemployment at elevated levels, while the central bank has lowered its unemployment forecasts. The government predicts it to rise to 8.2 per cent this year from eight per cent in 2012, before declining to 8.1 per cent next year.

The budget deficit will be 1.5 per cent of GDP in 2013, compared with July estimates of 1.3 per cent. Both are within the European Union’s three per cent threshold. State debt is expected to rise to 42.2 per cent of GDP this year, and to 42.7 per cent in 2014, according to government forecasts.

Sweden remains a social welfare society, and government spending still accounts for half of its economy; it finances all education and healthcare, as is common throughout Europe. Sweden did not dismantle the social system, but in addition to drastically reducing its costs, adopted macroeconomic and structural reforms to make it sustainable, and greatly enhanced its efficiency by privatising the delivery of many educational and medical services.

The country’s guiding principle is that a successful social welfare society must be fiscally conservative and administratively efficient.

Norway

THE Norwegian economy, comprising a vibrant private sector, a large state sector, and an extensive social safety net, is, as of now, prospering. However, a persistent downturn in the eurozone, Norway’s biggest export destination, may weigh down on the country’s growth and other economic indicators this year.

The government controls key areas like the vital petroleum sector through extensive regulation and large-scale state-majority-owned enterprises. The country is richly endowed with natural resources — petroleum, hydropower, fish, forests, and minerals — and is highly dependent on the petroleum sector, which accounts for the largest portion of export revenue and about 20 per cent of government revenue.

But Norway’s booming, oil-fed economy of the past several years is showing clear signs of a slowdown, with some economists predicting that growth is ‘close to stopping up entirely’. No crisis is looming, but unemployment levels are rising, and growth is already slower than what it had been for the past 10 years.

The profitability of the country’s non-oil export industry is under pressure amid low international demand growth and high domestic costs, and non-oil exports were expected to remain flat in 2013.

In the second quarter, total GDP rose a seasonally adjusted 0.8 per cent over the previous period, contrasting the revised 0.1 per cent drop tallied in the first quarter. This marked the fastest acceleration since first quarter of 2012, but undershot the one per cent expansion market analysts had expected.

According to the statistical institute, total GDP benefited from a strong expansion in petroleum activities and ocean transport. On an annual basis, GDP rebounded from a 2.6 per cent contraction in the first quarter to a 2.6 per cent increase in the second quarter. The central bank expects GDP to rise 0.5 per cent in 2013, before accelerating to a 2.5 per cent expansion in 2014.

Meanwhile, FocusEconomics Consensus Forecast panellists see GDP increasing by 1.7 per cent in 2013, and by 2.4 per cent in 2014.

The oil-fuelled Norwegian economy should return to stable growth in 2014, after a moderate pause this year, as exports increase and the government adopts a more expansive fiscal policy with tax cuts, according to Statistics Norway.

Norway is still enjoying relatively low unemployment rates, of around 3.5 per cent, compared to the alarmingly high levels in other European countries that have been hit by the euro and debt crises.

But as Europe remains Norway’s biggest market for exports of everything from energy to seafood, though, the severe economic problems among many EU members were bound to have an effect on the country sooner or later. And now that the effects of the regional downturn are being felt, the number of unemployed in Norway has risen to around 100,000, and is expected to hit 120,000, according to one estimate.

Finland

FINLAND has a highly industrialised, largely free-market economy, with per capita output roughly that of Austria, Belgium, the Netherlands, and Sweden. Trade is important for the country, with exports accounting for over one-third of GDP in recent years. It is strongly competitive in manufacturing, principally wood, metals, engineering, telecommunications, and electronics. It excels in high-tech exports such as mobile phones; it is home to the cell phone maker Nokia.

Except for timber and several minerals, the country depends on imports of raw materials, energy, and some components for manufactured goods. The economy, which shrank 0.2 per cent in 2012, is reeling from the fallout of the euro area’s debt crisis.

Finland’s economy is expected to sink deeper into recession in 2013, as weak European demand hit exports of paper, machines and ships. The Finnish central bank recently revised downward its earlier forecast to a 0.8 per cent contraction, which was more pessimistic than those from other institutions and economists, including the European Union, which last month predicted a 0.3 per cent growth for this year.

In the first quarter, Finland’s economy shrank 0.1 per cent from the prior three months, when it shrank by a revised 0.7 per cent, according to Statistics Finland. However, GDP increased by 0.2 per cent in the second quarter, according to preliminary data, but demand continues to be weak across the board.

The governor of the Bank of Finland is of the view that a struggle by traditional Finnish industries to compete with foreign rivals has exacerbated a slowdown caused by the euro zone’s long-running debt crisis. The Bank of Finland forecast GDP would grow 0.7 per cent in 2014, far lower than its earlier forecast of 1.5 per cent. It expects growth to pick up to 1.4 per cent in 2015.

Meanwhile, the Nordea Bank forecasts Finland’s GDP to contract 0.5 per cent this year, before growing 1.5 per cent in 2014, in one of the more cautious views among private economists. The country’s public finances are among the strongest in the eurozone, but weaker growth would make it more difficult for the government to trim spending as planned in preparation for an expected rise in the costs of caring for an ageing population.

The central bank has forecasted that public debt would rise to 61.8 per cent of GDP by 2015, from 53 per cent in 2012. Maintaining the financial market’s trust in Finland’s ability to keep debt under control is a prime concern. The eurozone’s fiscal rules require countries to have debt at 60 per cent of GDP or less, but few countries currently meet this requirement.

Despite the poor economic performance in recent quarters, employment has remained somewhat stable in the country. Household and corporate balance sheets continue to be healthy, and very low interest rates help. In the second quarter, the number of employed persons grew by 0.1 per cent from the previous quarter. However, the number of employed was 0.7 per cent lower than one year earlier.

According to Statistics Finland, the unemployment rate for the April to June period was 9.1 per cent. In the corresponding period of last year, it had stood at 8.6 per cent.

Finland’s budget deficit is seen at 1.8 per cent of GDP this year, and 1.5 per cent next year, compared with prior forecasts of 1.5 per cent in 2013 and 1.1 per cent in 2014. The 2014 budget proposal comprises a proposed 53.9 billion euros in appropriations, which is more than one billion euros less than what was budgeted for 2013.

With GDP contracting in 2013 and modest growth anticipated in 2014, growth in the tax base will be restricted. The 2014 budget proposal is for a 6.7 billion euro deficit.

Meanwhile, the central government’s debt is expected to grow to around 100 billion euros by the end of 2014, which corresponds to about 49 per cent of GDP. The Finnish government agreed on a $11.9 billion plan that includes boosting employment and productivity by 2017.