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Moody's announces the credit strengths and challenges that drive the positive ratings of Denmark, Finland, Norway, and SwedenTuesday, 01 October 2013
The Aaa ratings and stable outlooks for Denmark, Finland, Norway and Sweden are driven by shared strengths and a sustained economic resilience relative to most other Aaa-rated peers, says Moody's Investors Service in a new Credit Focus report published on Monday. However, this economic resilience masks highly indebted private sectors and high house prices, which could inhibit private consumption over the coming years.
The four countries entered, the global financial crisis having benefited from several years of budget surpluses and public-debt-to-GDP ratios below 50 percent, providing them with a fiscal buffer when their economies weakened. Moody's says that the countries' consensus-driven policy-making environments have helped to sustain high revenue-to-GDP ratios. This ratio has supported high public spending while at the same time allowing budget surpluses to be maintained.
The Nordic banking crises in the 1990s helped to improve the effectiveness of the region's institutions. The crises also led to a strengthening of financial sector regulation and the development of a broader consensus for prudent policy making, especially with regard to sustainable fiscal policies. The banking crises resulted in an improvement in the region's financial supervisory regimes. Moody's says that the domestic banks of Norway, Finland and Sweden thus entered the global financial crisis having operated under relatively conservative regulations that limited the degree of risk they were able to take on relative to their peers in other developed economies.
The broad characteristics of Nordic economies have substantial similarities to other advanced economies. The four countries have a high GDP per capita and diversified, open economies where foreign trade plays a significant role amid different exchange-rate regimes. They all benefited from the rapid expansion in global trade growth ahead of the global financial crisis, but while Sweden and Norway have recorded relatively rapid growth since 2010, Denmark and Finland face some structural issues, such as weakness in their traditional manufacturing sectors..
Household indebtedness in Denmark, Norway and Sweden has risen sharply since the mid-1990s, in line with house-price increases, while Finnish households have avoided a build up of debt to the same magnitude. High household asset levels partly mitigate the risks associated with these debt burdens. However, Moody's says that current debt levels could pose challenges to the economic growth outlook, particularly in Denmark.
News sources: Announcement from Moody's