Crisis Spreads the two Out of the Eurozone Scandinavian Economies: Norway and Sweden

The credit bubble will go bust in Sweden and Norway — even though the mainstream economists believe that these countries do not suffer from one, and that they resilient, and greatly managed by central planers and socialist governments.

Thanks to my friend SS for forwarding me these two Bloomberg reports:

Feb. 17 (Bloomberg) -- Sweden’s economy, Europe’s strongest as recently as 2010, will hardly grow this year as the crisis that started in Greece spreads north, killing jobs, sapping confidence and tipping the housing market into a decline
“Judging by the central bank’s outlook, the Swedish economy has shifted down to a dramatically lower gear,” Anders Kjaer, a senior analyst at Nykredit A/S in Copenhagen, said in a note. “Growth in the fourth quarter looks to have been negative.” 
The central bank yesterday cut its main interest rate a quarter point to 1.5 percent and abandoned plans to raise rates through the first quarter of 2013 as it predicted Europe’s debt crisis will hurt exporters more than first estimated. Sweden, which grew more than any other European Union economy in 2010, has been unable to protect its exporters from the fallout of the debt crisis, prompting the central bank to raise its forecast for unemployment as trade weakens.[...] 
At the same time, Sweden’s property values are declining from what Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, last month characterized as bubble levels. The European Union on Feb. 14 said Sweden is under review for “increasing household indebtedness,” after debt as a share of disposable incomes rose to a 170 percent last year from about 100 percent in 2000
It’s not unreasonable to assume that house prices may fall a bit, or at least park at today’s level,” Ingves said yesterday in an interview in Stockholm. “The pace of lending is significantly lower now than before and we have a generally weaker economic development.” 
The International Monetary Fund said back in June that Swedish homes “appear overvalued with enduring price falls likely.” Property values fell 2 percent last quarter, sliding from a record that had been fueled by tax cuts, historically low central bank interest rates and the fastest economic expansion in four decades in 2010. 
Ingves said household debt levels remain “manageable” after borrowing slowed down. 
Feb. 14 (Bloomberg) -- Norway’s overheated credit and property markets are vying with export-eroding krone gains for policy makers’ attentions as officials risk fueling either an asset bubble or currency appreciation
According to Morten Baltzersen, director general of the Financial Supervisory Authority in Oslo, the country’s credit markets face “severe” imbalances as households continue to amass debt at unsustainable levels. At the same time, continued krone gains pose a “challenge” for the government, Trade Minister Trond Giske said this week. [...]
In September last year, Olsen warned that the bank was ready to take measures to prevent further krone appreciation, and signaled he would use the policy interest rate to do so. 
[...] Norway’s government boasts the biggest budget surplus of any AAA rated nation and has no net debt thanks to a $560 billion sovereign-wealth fund. [...] 
Growth rates on household debt and house prices are not following a sustainable path,” Baltzersen said. “The longer these developments go on, the greater the risk is of a severe imbalance evolving.” 

Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, said in January Norway is in the grip of a house price bubble, while the International Monetary Fund on Feb. 2 warned of real estate and credit market risks in Norway
The central bank estimates private debt burdens will grow to about 204 percent of disposable incomes this year. The FSA in December turned a recommendation that credit standards be tightened into an official guideline and told banks to cap loan- to-value ratios at 85 percent from 90 percent. The decision has yet to filter through to credit markets.

No comments: