Download Denmark, Finland, Norway and Sweden: Peer

SEPTEMBER 30, 2013
SOVEREIGN & SUPRANATIONAL
Denmark, Finland, Norway and Sweden:
Peer Comparison
CREDIT FOCUS
Summary
RATINGS
Denmark
FC Government Bond Rating
LC Government Bond Rating
FC Bond Ceiling
LC Country Ceiling
The Aaa ratings and stable outlook of the four main Nordic countries 1 – Denmark, Finland,
Norway and Sweden – are driven by a number of shared credit strengths and challenges.
Their strengths include robust government balance sheets, strong institutional frameworks
and – despite diverging economic performances since the global financial crisis – a sustained
economic resilience relative to most other Aaa-rated peers. However, this economic resilience
masks highly indebted private sectors and high house prices, which could inhibit private
consumption going forward.
Aaa/STA
Aaa/STA
Aaa
Aaa
Finland
FC Government Bond Rating
LC Government Bond Rating
FC Bond Ceiling
LC Country Ceiling
Aaa/STA
Aaa/STA
Aaa
Aaa
The shared credit strengths and challenges of the four countries’ Aaa ratings are as follows:
Norway
FC Government Bond Rating
LC Government Bond Rating
FC Bond Ceiling
LC Country Ceiling
Aaa/STA
Aaa/STA
Aaa
Aaa
»
Low budget deficits or surpluses and low general government debt-to-GDP ratios: The
four Nordic countries entered the global financial crisis having pursued prudent fiscal
policies resulting in several years of budget surpluses and public-debt-to-GDP ratios
below 50%. This provided them with a fiscal buffer when their economies weakened.
»
Very high institutional strength: The Nordic banking crises in the 1990s motivated the
governments to strengthen the region’s institutions, which was an important reason for
their relative resilience in the crisis. The crises also led to a further tightening of financial
sector regulation and evidenced the advantages of the broad consensus that prevails in
these countries regarding prudent policy making, especially with regard to sustainable
fiscal policies.
»
Economic resilience relative to Aaa peers: The four countries have diversified economies
and a high GDP per capita. 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.
»
Household indebtedness is high: Household indebtedness in Denmark, Norway and
Sweden has risen sharply since the mid-1990s in line with house-price increases. 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.
Sweden
FC Government Bond Rating
LC Government Bond Rating
FC Bond Ceiling
LC Country Ceiling
Aaa/STA
Aaa/STA
Aaa
Aaa
KEY INDICATORS, 2013F
Real GDP
(% Y/Y)
CPI (%
Y/Y)
Fiscal
Balance
(% GDP)
Current
Account
(% GDP)
Denmark
Finland
Norway
Sweden
0.7
-0.1
1.5
1.4
1.3
2.5
1.7
0.9
-1.7
-2.2
13.7
-1.5
4.9
-1.7
13.8
7.5
Source: Moody’s Investors Service, Central Banks, Eurostat,
IMF
1
This peer comparison does not cover Iceland (rated Baa3/stable) given the different factors that underpin its creditworthiness.
SOVEREIGN & SUPRANATIONAL
1. Strong government balance sheets
All four Nordic countries entered the global financial crisis with a track record of budget surpluses and
low general government debt-to-GDP ratios.
A long-term track record of sustained fiscal surpluses or low deficits
The Nordics have built up a prudent fiscal track record since the banking and economic crises
experienced by Finland, Norway and Sweden in the 1990s (Denmark avoided a banking crisis during
the same period). This track record reflects the fact that, in order to limit future crises, Nordic
governments implemented a number of widespread policy reforms that included a strengthening of
their fiscal frameworks.
The consensus-driven policy-making environment has helped governments in each country to sustain
high revenue-to-GDP ratios without voter demands for lower taxation rates – in fact, in 2012 all four
countries had revenue ratios above 50% compared to a median for Aaa-rated peers of 43% in the same
year. This income has supported high public spending while at the same time allowing budget
surpluses to be maintained; only Norway had an expenditure-to-GDP ratio below 50% in 2012.
Much of this spending relates to a relatively high percentage of the labour force in each country being
employed in the public sector, government’s responsibility for healthcare and education, as well as a
generous social security system. Public confidence in the authorities’ policies combined with general
voter support for spending in these areas has enabled successive governments to plan around a longterm fiscal framework.
Finland and Norway recorded continuous fiscal surpluses averaging 4.2% and 14%, respectively,
during 2000-08 (see Exhibit 1). Denmark experienced a modest fiscal deficit in 2003 and Sweden
small deficits in 2002-03, but both countries also entered the global financial crisis with strong
government balance sheets: Denmark’s surpluses averaged 2.6% during 2000-08, while in Sweden
they averaged 1.4% (better than Sweden’s fiscal rule).2 This robust performance compares with
median fiscal surpluses for Aaa-rated credits of 1.2% of GDP during 2000-08. All four countries
experienced recessions in 2009 owing to the global financial crisis and the highly open nature of their
economies. A combination of a fall in nominal GDP and stimulus spending contributed to budget
deficits being recorded in Denmark (2.8%), Finland (2.7%) and Sweden (1%) in 2009. Elevated
international oil prices allowed the Norwegian government to maintain a substantial budget surplus
(of 10.5% of GDP) in 2009, although the non-oil deficit stood at 4.4% of GDP in the same year.
Since the crisis, Norway has maintained budget surpluses of greater than 10% of GDP (the non-oil
deficit averaged 4.1% of GDP during 2009-2012) owing to revenues accruing to the Government
Pension Fund-Global (GPF-G) and this trend is expected to be sustained in 2013-14. We forecast
public-deficit-to-GDP ratios in Denmark, Finland and Sweden of 1.7%, 2.2% and 1.5%, respectively,
this year, similar to the 1.8% of GDP fiscal deficit expected for the median of Aaa-rated countries. A
resumption in global economic growth from the latter part of 2013 (and thus a recovery in external
demand) will contain deficits in the three weaker Nordic countries in 2014.
2
2
See “The Nordics exhibit very high institutional strength” below for more information.
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SOVEREIGN & SUPRANATIONAL
EXHIBIT 1
All four countries recorded budget surpluses in the run-up to the global financial crisis
Gen. Gov. Financial Balance (% of GDP)
Sweden
Norway
Denmark
Finland
Aaa-Median*
20
15
10
5
0
-5
-10
2004
2005
2006
2007
2008
2009
2011
2010
2012
2013F
2014F
* Excludes Denmark, Finland, Norway and Sweden
Source: Haver - Eurostat, National Statistics, Moody's
Low government debt-to-GDP ratios
Budgetary discipline in the run-up to the crisis meant that, at end-2008, each country had low
government debt-to-GDP ratios: Denmark at 33.4%, Finland at 34%, Norway at 48.2% and Sweden
at 38.8% (see Exhibit 2). This compares with 44.5% of GDP for the median in the Aaa-rated group.
Their healthy positions enabled fiscal stimulus measures to be introduced without fiscal sustainability
coming under pressure in 2009.
EXHIBIT 2
Balance sheets have consistently outperformed the median for Aaa-rated countries
Gen. Gov. Debt (% of GDP)
Norway
Sweden
Denmark
Finland
2009
2010
2011
Aaa-Median*
70
60
50
40
30
20
10
0
Average 2004-08
2012
2013F
2014F
* Excludes Denmark, Finland, Norway and Sweden
Source: Haver - Eurostat, Moody's
Since the global financial crisis, the fiscal performance of each country has been mixed, though all four
experienced economic contractions in 2009. Norway did not see a rise in its public-debt-to-GDP ratio
in 2009 as oil and gas revenues offset fiscal stimulus measures and ensured fiscal surpluses. Indeed, its
debt-to-GDP ratio dropped from 43% in 2010 to 28.7% in 2011, although this fall was driven by an
accounting adjustment owing to a drop in liabilities relating to repurchase agreements used by the
GPF-G. We expect the ratio to stand at 27% of GDP in 2014.
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Automatic fiscal stabilisers and discretionary spending saw the debt-to-GDP ratio in Sweden peak at
42.6% in 2009, but it has since fallen back amid healthy nominal GDP growth and low budget
deficits. The ratio is forecast to fall to 39.5% in 2014 in line with accelerating economic growth. Both
Denmark and Finland have experienced weak economic recoveries since the crisis, which has reduced
their ability to contain public spending. Their higher budget deficits have undermined efforts to
contain the debt stock as a result. Denmark’s debt-to-GDP ratio will fall back to 42.4% in 2014 (from
a peak of 46.4% in 2011) as its economy begins to recover (thus reducing upward spending pressures
and improving the outlook for revenue growth). In the case of Finland, the weak economic outlook
will be the main driver behind the continued rise in the public debt-to-GDP ratio, which will stand at
close to 60% in 2014.
Despite this mixed outlook, these three countries will outperform many of their Aaa-rated peers, with
the median debt stock for this group forecast to stand at 42.4% in 2014. The debt figures for both
Denmark and Finland mask their strengths on the asset side of the government balance sheet. Finland,
for example, benefits from surpluses on it social security holdings that regularly amount to around 2%
of GDP, but that are not used to fund the central government’s annual budgetary requirements.
Moreover, the net international investment position-to-GDP ratio for each country is positive; at the
end of 2012, it stood at 5.1%, 12.3% and around 100% for Denmark, Finland and Norway,
respectively. Sweden has a negative net international investment position-to-GDP ratio owing largely
to its sizeable net external debt position. Nevertheless, its ratio improved from -37% in 1998 to -7% in
2011. This improvement occurred largely between 1998 and 2007 and in part reflected the country’s
ability to generate substantial current account surpluses during the same period. The still-strong
government balance sheets of the four Nordics have enabled them to maintain a safe haven status –
Finland is the only Aaa-rated sovereign in the euro area that still maintains a stable outlook, in part
reflecting a strong track record of fiscal reform and a consistent macroeconomic policy framework –
since the global financial crisis, and debt-servicing costs have remained low as a result; yields on 10year government bonds have fallen sharply since 2008 (see Exhibit 3).
EXHIBIT 3
Safe-haven status has helped to contain government bond yields
10y Government Bond Yields
Denmark
%
Norway
Finland
Sweden
6
5
4
3
2
1
0
2007
2008
2009
2010
2011
2012
2013
Source: Haver-Financial Times
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2. The Nordics exhibit very high institutional strength
The Nordic banking crises experienced in the 1990s helped to improve the broader regulatory and
policy-making environment in all four countries. It also helped to drive a political consensus for
pursuing sustainable fiscal frameworks.
The Nordic banking crisis provided an incentive to improve institutional frameworks…
The Nordic banking crisis in 1990s effected Finland, Norway and Sweden. Only Denmark’s banking
system did not face similar systemic risks. The roots of the crisis were different in each country, but
they did share similar traits. Overall, the regulatory framework faced by banks was weak in terms of
capital requirements and general supervisory over-sight. When financial systems started to undergo
financial liberalisation in the 1980s domestic banks were therefore able to take on risky loans (for
example, excessive loan concentration and loans provided for potentially unviable projects) owing to
poor internal controls and inexperienced staff. The result was rapid private-sector debt accumulation
and asset price bubbles.
Debt levels had reached unsustainable levels in the early 1990s. When interest rates started to increase,
economic growth slowed and asset bubbles burst, the result was an increase non-performing loans and
the need for bank recapitalisations. Norway also suffered an external shock through a drop in oil prices
in 1986 and Finland a similar shock following a break-up of the Soviet Union, a major trading partner.
The strength of the Nordic institutions was highlighted by the ability of the sovereigns to borrow from
the global bond markets in order to obtain the funds needed to support banking rescues and restore
confidence. Moreover, although there were no bank-resolution frameworks in place in the three
countries, the existing legal and bureaucratic systems were effective and transparent. At the same time
the governments took swift action to provide the political resolve needed for quick action. Together,
these factors enabled the authorities to rapidly adopt policies aimed at shoring up confidence in the
banking system, including lending guarantees and government take-overs of problem banks.
The direct economic and fiscal costs of the Nordic crisis in the early 1990s are difficult to quantify
owing to the parallel external shocks faced by Norway and Finland and methodological issues, but a
2012 IMF paper 3 suggests that Finland faced a cumulative loss in gross output of 59.1% of GDP and
Sweden 30.6%. The gross fiscal cost for Finland was 12.8% of GDP and for Sweden 3.6%. Norway
was affected to a lesser extent, with no loss in gross output estimated and a fiscal cost of 2.7% of GDP,
possibly because in Norway the crisis was preceded by problems in smaller banks in the 1980s and
therefore the authorities had already started to act to restrain credit growth earlier in the credit cycle.
The negative impact that the banking crises had on the sovereign balance sheets and economy was the
main driver of an improvement in their financial supervisory regimes. Domestic banks thus entered
the global financial crisis having operated under conservative regulations that limited the degree of risk
they were able to take on (including limited investments in credit derivatives that have undermined the
balance sheets of many major banks in other Aaa-rated peers). Indeed, only Denmark – the Nordic
country not to suffer a banking crisis in the 1990s – was required to create a bank recapitalisation
scheme in response to the global financial crisis. Although the banking systems in all four countries
were not immune to the crisis and they suffered liquidity constraints owing to their extensive use of
external wholesale funding markets, their respective central banks were largely able to ensure that
domestic financial systems continued to play their credit-allocation role. Part of this ability stemmed
from market confidence in the authorities.
3
5
Systemic Banking Crises by Luc Laeven and Fabián Valencia
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SOVEREIGN & SUPRANATIONAL
...and created a consensus for fiscal sustainability
The Nordic crisis also helped to build political consensus for sustainable fiscal frameworks. Since 2001,
Norway has specified a fiscal rule that over time only the real return on the GPF-G (estimated at 4%)
should be included in the annual government budget. The guiding principle is that revenues from oil
resources remain available over the long term, although the policy does allow flexibility during periods
of economic weakness. For example, during the global financial crisis, the government pursued
counter-cyclical fiscal policies that were short term in nature (such as bringing forward infrastructure
investment).
Sweden has a fiscal rule requiring that general government net lending to be an average of ±1% of
GDP over the business cycle. The government must also propose a ceiling for central government and
pension system expenditure for the next three years. By determining the ceiling, the government sets
the framework for revenues and expenditure in order to comply with the surplus target.
Denmark has adhered to the Maastricht Criteria 4 (with the exception of 2012, when its fiscal deficit
stood at 4.1% of GDP owing to exceptional repayments of pension contributions) and has signed up
to the Fiscal Compact 5 that has been agreed by euro area members (despite not being a member of the
currency union). As part of a reform package announced in the 1980s, governments in Denmark have
followed medium- and long-term targets for a range of fiscal and macroeconomic indicators. Finland is
also a member of both the EU and the euro area and has adhered to the Maastricht criteria and is a
signatory to the Fiscal Compact. Moreover, for nearly 20 years, successive Finnish governments have
followed a guideline that sets a limit on the total amount that can be spent during a government’s term.
All four countries have also been carrying out reforms of their pension systems years in advance of
many other developed economies. In addition to policies aimed at increasing the age at which workers
can retire and encouraging private pensions (central planks of pension reforms in many other
countries), the Nordic countries have for several years been focusing on adjustments to the way their
pension systems are funded. As mentioned above, Norway is using its oil and gas revenues to build up
funds in the GPF-G. In the 1990s, Sweden reformed its pension system away from an expensive
defined-benefit system to a defined-contribution system in order to contain costs amid concerns that
the former system would be unsustainable as the population aged. Finland and Denmark have also
accumulated large pension assets; according to the OECD these represented 75% and 49.7% of GDP
in 2011, respectively 6. In the case of Denmark the current basic state pension is gradually being
reduced in importance relative to a savings-based pension. Finland also has a combination of a basic
state pension and a more dominant statutory earnings-related pension, and will be pursuing additional
pension reforms in the next two years. These systems compare with the largely pay-as-you-go systems –
viewed as unsustainable amid ageing populations – still in place in most other advanced economies.
4
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Glossary:Maastricht_criteria
5
http://www.eurozone.europa.eu/media/304649/st00tscg26_en12.pdf
6
This compares with an accumulated pension assets-to-GDP ratio of just 4.2% in Belgium and 4.9% in Austria in the same year. A number of countries have also
accumulated substantial pension assets; in 2011 the ratio stood at 95.8% in the UK, 110.7% in Switzerland and 135.8% in the Netherlands.
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3. The Nordics have a track record of economic resilience
Despite high labour costs, all four Nordic countries exhibited a track record of respectable growth rates
ahead of the global financial crisis, although Denmark and Finland face challenges.
Robust growth rates were recorded ahead of the global financial crisis
The broad characteristics of Nordic economies have substantial similarities to other advanced
economies. They are well-diversified and enjoy a high average GDP per capita. The Nordics also have
small, open economies where foreign trade plays a significant role amid different exchange-rate regimes.
Denmark is the most open economy, with its openness indicator7 standing at 104%, followed by
Sweden (91%), Finland (81%) and Norway (69%). The four economies grew in an annual average
range of 2%-4% during 2000-07, having benefited from the rapid growth in the global economy
during the same period. They also recorded high current account surpluses, although terms of trade
were higher in Norway and Sweden than in Denmark and Sweden (see Exhibit 4). However, this
openness left the Nordic region exposed during the global financial crisis, led by Finland whose real
GDP contracted by 8.5% in 2009. In the same year, Denmark and Sweden contracted by 5.7% and
5%, respectively, compared to an average contraction of 2.9% in the Aaa-rated peer group in the same
year. They also remain vulnerable to adverse developments in the euro area (see Exhibit 5).
EXHIBIT 4
Current account surpluses in Norway and Sweden have exceeded those in other Aaa-rated countries
Current Account Balance (% of GDP)
Sweden
Norway
Denmark
Finland
Aaa-Median*
20
15
10
5
0
-5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
2014F
* Excludes Denmark, Finland, Norway and Sweden
Source: Haver-Eurostat, National Statistics, Moody's
7
7
Openness of the economy is defined as (exports of goods and services + imports of goods and services)/GDP.
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EXHIBIT 5
Around a third of exports were destined for the euro area in 2012 (% of total)
EA*
Other EU**
Nordics
Other
100
90
80
29%
19%
43%
70
60
22%
50
40
16%
15%
30
20
10
29%
30%
Denmark
Finland
24%
13%
11%
33%
30%
12%
41%
33%
0
Norway
Sweden
* Excludes Finland
** Excludes Denmark, Finland, Sweden
Source: Haver-IMF DOT
Norway’s GDP contracted by a marginal 1.6% in 2009. While sensitive to Europe’s business cycle,
Norway’s economy was less affected by the crisis than its regional peers, in part owing to its oil-related
revenues, which provided funding for fiscal stimulus and as the sovereign benefited from oil prices
remaining above their long-term trend during the crisis. The local manufacturing sector had also built
up capacity in oil-related products, which provided an additional export stream. Since 1971, when the
government began to fully utilise the economic potential of Norway’s oil and gas reserves, the
hydrocarbons sector has been an important driver of the domestic economy. It now accounts for more
than one-half of total merchandise exports and one-third of general government revenue.
Norway and Sweden have recovered more quickly than their Nordic neighbours
Approximately one-third of total merchandise exports from Denmark, Finland and Sweden go to the
euro area, while around one-half are sent to the EU. Despite this similarity in external trade, Sweden
has, along with Norway, proved more resilient in the aftermath of the global financial crisis than
Denmark and Finland (see Exhibit 6). By 2012, both Norway and Sweden’s economies had recovered
from the output losses experienced in 2009, with real GDP growth in Sweden averaging 3.7% during
2010-12 and in Norway 1.6%. Norway continued to benefit from an expansion in the oil sector while
Sweden’s diverse manufacturing base allowed it to take advantage of continued economic growth in
emerging markets (particularly in Asia).
This compares with Denmark’s average real GDP expansion of 0.8% during 2010-12 and Finland’s
1.8% (although this growth rate is higher than that recorded in Norway, the rate masks the relatively
large output gap that appeared in Finland in 2009). We expect a similar pattern of divergent growth in
2013-14; growth will likely average 1.2% in Denmark, 0.8% in Finland (including a mild contraction
in 2013), compared to 2.2% in Norway and 1.9% in Sweden. The economies of Denmark and
Finland are therefore expected to grow by less than the median for Aaa-rated countries (an average of
1.7%). This relatively weak outlook for Denmark and Finland reflects country-specific issues that
started ahead of the global financial crisis. Finland’s manufacturing sector remains heavily
concentrated on pulp & paper, and information technology products. In the case of the former,
domestic companies are migrating their production facilities abroad, in part owing to the high costs of
operating in Finland. In the case of the latter, the technology sector was dominated by telecoms
products that have lost world market share to overseas competitors. Denmark’s domestic economy has
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problems owing to weak credit growth amid deleveraging in the banking system and the related issue
of a weak property market, which is undermining private sector demand (see Section 4).
EXHIBIT 6
Norway and Sweden's economic performance is ahead of its neighbours
Real growth rate (%)
Average 2000-07
Average 2012-14F
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Denmark
Finland
Norway
Sweden
Aaa-Median*
* Excludes Denmark, Finland, Norway and Sweden
Source: Haver-Eurostat, National Statistics, Moody's
4. High household indebtedness has been driven by rising house prices
Household indebtedness in all four Nordic countries has increased sharply since the 1990s, in part
owing to rising house prices. Risks in relation to this indebtedness are somewhat contained by the high
level of financial assets held by households. However, current debt levels could pose challenges to the
economic growth outlook, particularly in Denmark.
Households in all four Nordic countries have become increasingly indebted since the
1990s…
All four Nordic countries have high levels of household indebtedness. At end-2012 the ratio of
outstanding household debt to disposable income in Denmark, Norway and Sweden stood at 209.9%,
196.1% and 164.5%, respectively (see Exhibit 7). Although the ratio in Finland was a significantly
lower 113% last year, this compares with just 70.2% in 2002. The upward trend in indebtedness has
in part mirrored rising house prices (see Exhibit 8). Government policies played a role in the build-up
of these liabilities. For example, Norwegians receive tax subsidies for house purchases and this has
encouraged investment in housing (according to Norges Bank around 80% of household debt is
secured against dwellings).
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EXHIBIT 7
Household indebtedness is high in Denmark, Norway and Sweden
Household & NPISH Outstanding Debt to Disposable Income (%)
Finland
Sweden
Norway
Denmark
2002
2003
2004
2005
350
300
250
200
150
100
50
0
2006
2007
2008
2009
2010
2011
2012
Source: Haver
Readily available credit helped to drive up house prices
A related determinant of the trend in rising indebtedness and house prices was easy access to mortgage
financing, particularly from the early 2000s. Since the global financial crisis, the authorities in Norway
and Sweden have attempted (with varying degrees of success) to reduce trend growth rates for both
debt and house prices owing to concerns over sustainability. In 2010, Norway’s Financial Supervisory
Authority issued a guideline that the loan-to-value (LTV) ratio on residential mortgages should be
below 90% (this guideline was tightened to 85% in 2011). The authorities in Sweden have adopted
similar guidelines since the financial crisis. In Finland, where house price growth has remained
relatively modest, there has been limited policy intervention, although the financial regulator there has
also voiced concerns over high LTVs. Denmark is the only country in the group to have witnessed a
sustained and sharp fall in house prices (of around 25% since 2006). The fall in this case relates to a
decline in credit supply (as banks have adopted more cautious lending practises since 2007 and as
households have been deleveraging) and therefore in demand. At the same time, the housing market
has a supply over-hang following a construction boom in the years preceding the crisis.
EXHIBIT 8
House price trends are a source of uncertainty
Index, 1992Q1 = 100
Norway
Sweden
Denmark
Finland
500
400
300
200
100
2013Q1
2012Q1
2011Q1
2010Q1
2009Q1
2008Q1
2007Q1
2006Q1
2005Q1
2004Q1
2003Q1
2002Q1
2001Q1
2000Q1
1999Q1
1998Q1
1997Q1
1996Q1
1995Q1
1994Q1
1993Q1
1992Q1
0
Note: Norway: house price index; Sweden: real estate prices: 1 & 2-dwelling Bldgs for permanent living; Denmark: property prices: residential and
business properties; Finland: house price index
Source: Haver, National Statistics
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Household assets provide a partial buffer against high debt levels
The risk profile of Nordic household balance sheets as a result of the high debt levels is partly
mitigated by the fact that households in all four countries also hold significant financial assets (see
Exhibit 9). However, although these assets are likely to support the long-term health of the four
economies – the bulk of these financial assets are held in pension funds – the short-term economic
outlook is likely to prove more mixed, as these pension funds are illiquid in nature. Private
consumption (the largest component of GDP in all four economies) in Norway, where unemployment
remains low, is expected to remain healthy during 2013-14. Swedish households are likely to provide
support to the domestic economy as they also continue to benefit from a relatively stable job market
and a broadly positive outlook for the domestic economy.
Denmark’s economy faces the most formidable challenges as (in addition to the structural issues
highlighted in Section 3) the process of household sector deleveraging and a weak housing market are
likely to undermine domestic demand for several years. The relatively low household debt burden in
Finland reduces its economy’s susceptibility to a rise in interest rates in comparison to its neighbours.
However, although low interest rates are currently supporting the debt-servicing capacity of
households, a sharp rise in rates could transmit economic shocks into all four economies. Such a rise in
rates would reduce the capacity of the non-banking sector to meet its debt obligations and could result
in lower house prices. In such a scenario, their banking sectors could face pressure on their balance
sheets through a rise in non-performing loans and falling house prices (housing provides much of the
collateral against which loans to the household sector have been provided).
EXHIBIT 9
Financial assets remain considerable
Households & NPISH Financial Assets (% of GDP)
Norway
Finland
Sweden
Denmark
300
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Haver
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Ratings History
Foreign Currency Ceilings
Bonds & Notes
Government Bonds
Bank Deposit
Foreign
Currency
Local
Currency
Outlook
Long-term Short-term Long-term Short-term
Date
Denmark
Rating Raised
Aaa
--
Aaa
--
Aaa
--
--
August-99
Outlook Changed
--
--
--
--
--
--
Positive
February-99
Outlook Assigned
--
--
--
--
--
--
Stable
March-97
Ratign Raised
--
--
--
--
--
Aaa
--
November-86
Rating Raised
Aa1
--
Aa1
--
Aa1
Aa1
--
August-86
Rating Assigned
--
--
--
--
--
Aa
--
July-86
Rating Assigned
Aa
--
Aa
--
--
--
--
April-85
Rating Assigned
--
P-1
--
P-1
--
--
--
April-80
Rating Assigned
--
--
--
--
Aa
--
--
September-67
Rating Withdrawn
WR
WR
WR
WR
--
--
--
July-99
Rating Raised
Aaa
--
Aaa
--
Aaa
--
--
May-98
Review for Upgrade
--
--
--
--
Aa1
--
RUR+
March-98
Outlook Assigned
--
--
--
--
--
--
Stable
March-97
Aa1
--
Aa1
--
Aa1
--
--
January-97
Rating Assigned
--
--
--
--
--
Aaa
--
January-97
Rating Lowered
Aa2
--
Aa2
--
Aa2
--
--
January-92
Rating Lowered
Aa1
--
Aa1
--
Aa1
--
--
October-90
Rating Raised
Aaa
--
Aaa
--
Aaa
--
--
February-86
Rating Assigned
Aa
--
Aa
--
--
--
--
November-81
Rating Assigned
--
P-1
--
P-1
Aa
--
--
October-77
Finland
Rating Raised
Norway
Rating Raised
12
SEPTEMBER 30, 2013
Aaa
--
Aaa
--
Aaa
--
Stable
September-97
Outlook Assigned
--
--
--
--
Aa1
--
Positive
March-97
Rating Assigned
--
--
--
--
--
Aaa
--
August-95
Rating Lowered
Aa1
--
Aa1
--
Aa1
--
--
July-87
Rating Assigned
--
P-1
--
P-1
--
--
--
March-80
Rating Assigned
Aaa
--
Aaa
--
Aaa
--
--
January-78
CREDIT FOCUS: DENMARK, FINLAND, NORWAY AND SWEDEN: PEER COMPARISON
SOVEREIGN & SUPRANATIONAL
Foreign Currency Ceilings
Bonds & Notes
Government Bonds
Bank Deposit
Foreign
Currency
Local
Currency
Outlook
Long-term Short-term Long-term Short-term
Date
Sweden
Rating Raised
Aaa
--
Aaa
--
Aaa
--
Stable
April-02
Rating Raised
Aa1
--
Aa1
--
Aa1
Aaa
Stable
August-99
--
--
--
--
--
--
Positive
February-99
Aa2
--
Aa2
--
Aa2
--
Stable
June-98
Review for Upgrade
--
--
--
--
Aa3
--
RUR+
May-98
Outlook Changed
--
--
--
--
--
--
Positive
June-97
Outlook Assigned
--
--
--
--
--
--
Stable
March-97
Rating Assigned
--
--
--
--
--
Aa1
--
January-95
Rating Lowered
Aa3
--
Aa3
--
Aa3
--
--
January-95
--
--
--
--
Aa2
--
RUR-
October-94
Aa2
--
Aa2
--
Aa2
--
--
February-93
--
--
--
--
Aa1
--
RUR-
October-92
Rating Lowered
Aa1
--
Aa1
--
Aa1
--
--
January-91
Rating Assigned
Aaa
--
Aaa
--
--
--
--
November-79
Rating Assigned
--
--
--
--
Aaa
--
--
November-77
Rating Assigned
--
P-1
--
P-1
--
--
--
December-76
Outlook Changed
Rating Raised
Review for
Downgrade
Rating Lowered
Review for
Downgrade
13
SEPTEMBER 30, 2013
CREDIT FOCUS: DENMARK, FINLAND, NORWAY AND SWEDEN: PEER COMPARISON
SOVEREIGN & SUPRANATIONAL
Moody’s Related Research
Credit Analysis:
»
Denmark, December 2012 (148527)
»
Finland, May 2013 (154474)
»
Norway, March 2013 (151455)
»
Sweden, September 2012 (145192)
Credit Opinions:
»
Denmark, Government of
»
Finland, Government of
»
Norway, Government of
»
Sweden, Government of
Issuer Comments:
»
Despite Deficit Overshoot in 2012, Denmark Shows Commitment to Fiscal Sustainability,
August 2012 (145092)
»
Norway's Substantial Budget Surplus and Commitment to Fiscal Discipline Are Credit Positive,
May 2012 (142237)
Rating Methodology:
»
Sovereign Bond Ratings, September 2008 (109490)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of
this report and that more recent reports may be available. All research may not be available to all clients.
14
SEPTEMBER 30, 2013
CREDIT FOCUS: DENMARK, FINLAND, NORWAY AND SWEDEN: PEER COMPARISON
SOVEREIGN & SUPRANATIONAL
Analyst Contacts:
LONDON
Report Number: 157683
+44.20.7772.5454
Kilbinder Dosanjh
+44.20.7772.1376
Vice President - Senior Analyst
[email protected]
Author
Kilbinder Dosanjh
Financial Writer
Maya Penrose
Sarah Carlson
+44.20.772.5348
Vice President – Senior Credit Officer
[email protected]
Production Specialist
Shubhra Bhatnagar
Editor
Matthew Bridle
Yves Lemay
+44.20.772.5512
Managing Director – Banking
[email protected]
NEW YORK
+1.212.553.1653
Kristin Lindow
+1.212.553.3896
Senior Vice President
[email protected]
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15
SEPTEMBER 30, 2013
CREDIT FOCUS: DENMARK, FINLAND, NORWAY AND SWEDEN: PEER COMPARISON