Tighter Monetary Policy has not only Weakened Domestic demand in Nordic’s biggest Economies, but has also put a Brake on Region’s overall Growth Momentum. Is Nordic slipping back into recession?
Several investors in western Europe, particularly in the Nordic region (comprising countries like Sweden, Denmark, Norway, Finland, et al), are busy rejigging their portfolios these days. Raison d’être: Ghosts of a double-dip recession, which had disappeared as green shoots of recovery started popping up, have once again started haunting the region.
Tighter monetary policy has not only weakened domestic demand in the region’s two biggest economies, Norway and Sweden, but has also put a brake on Nordic’s overall growth momentum. While Norway’s real GDP contracted by 0.5% during Q1 2010, Finland too remained in a full-blown recession in H1 2010 (Finland’s GDP contracted by 5.4% in Q4 2009 and by 0.6% in Q1 2010) as firms pulled back fixed investment spending on the back of falling export demand. Even Sweden’s economy, which was the first to rebound in 2009, has lost its winning momentum. GDP growth in Sweden is expected to slow down from 4.2% in Q2 2010 to 2.1% in Q3 2010. What’s more? Unemployment has also risen in Denmark (from 3.9% in Q3 2009 to 4.3% in Q1 2010) and Norway (from 3.2% in Q3 2009 to 3.5% in Q1 2010) while staying at record-high levels in Finland (at 8.8%). So, is Nordic slipping back into recession or is it just a halt before the growth finally picks up in the region?
Though Eszter Miltenyi, Senior Press Officer at European Central Bank finds an excuse to get away from bringing in the real picture of the region by saying to B&E, “We do not comment on particular countries’ economies of the euro zone,” there are still many who are bold enough to speak the truth. “The region will tip back into a shallow recession in early 2011. Growth momentum will fade as the recovery stalls in key trading partners. Although Denmark, Finland & Sweden have strong trade links with each other, most of their trade flows outside the region to Germany, US and UK. And as Germany and UK are expected to see mild recessions in the first half of 2011, things would really weigh heavy on the Nordic region’s exports,” Christine Li, the London based economist at Moody’s Economy.com tells B&E.
Further, if Europe’s sovereign debt crisis deepens, the demand from Nordic’s trading partners could suffer longer than expected. Dismal economic news from US and western Europe too implies that the global recovery continues to be fragile and growth remains inconsistent. This means a lot more trouble is on its way for Nordic countries in the near future. No doubt, public finance was strong across the Nordic when it entered the 2008 financial crisis, but the situation has changed today with the region’s major economies like Denmark, Sweden and Finland struggling with massive budget deficits. But then, are policy makers really aware of the financial storm that might hit them anytime soon? If yes, what are they doing to avert the danger?
Tighter monetary policy has not only weakened domestic demand in the region’s two biggest economies, Norway and Sweden, but has also put a brake on Nordic’s overall growth momentum. While Norway’s real GDP contracted by 0.5% during Q1 2010, Finland too remained in a full-blown recession in H1 2010 (Finland’s GDP contracted by 5.4% in Q4 2009 and by 0.6% in Q1 2010) as firms pulled back fixed investment spending on the back of falling export demand. Even Sweden’s economy, which was the first to rebound in 2009, has lost its winning momentum. GDP growth in Sweden is expected to slow down from 4.2% in Q2 2010 to 2.1% in Q3 2010. What’s more? Unemployment has also risen in Denmark (from 3.9% in Q3 2009 to 4.3% in Q1 2010) and Norway (from 3.2% in Q3 2009 to 3.5% in Q1 2010) while staying at record-high levels in Finland (at 8.8%). So, is Nordic slipping back into recession or is it just a halt before the growth finally picks up in the region?
Though Eszter Miltenyi, Senior Press Officer at European Central Bank finds an excuse to get away from bringing in the real picture of the region by saying to B&E, “We do not comment on particular countries’ economies of the euro zone,” there are still many who are bold enough to speak the truth. “The region will tip back into a shallow recession in early 2011. Growth momentum will fade as the recovery stalls in key trading partners. Although Denmark, Finland & Sweden have strong trade links with each other, most of their trade flows outside the region to Germany, US and UK. And as Germany and UK are expected to see mild recessions in the first half of 2011, things would really weigh heavy on the Nordic region’s exports,” Christine Li, the London based economist at Moody’s Economy.com tells B&E.
Further, if Europe’s sovereign debt crisis deepens, the demand from Nordic’s trading partners could suffer longer than expected. Dismal economic news from US and western Europe too implies that the global recovery continues to be fragile and growth remains inconsistent. This means a lot more trouble is on its way for Nordic countries in the near future. No doubt, public finance was strong across the Nordic when it entered the 2008 financial crisis, but the situation has changed today with the region’s major economies like Denmark, Sweden and Finland struggling with massive budget deficits. But then, are policy makers really aware of the financial storm that might hit them anytime soon? If yes, what are they doing to avert the danger?
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
