Nordic Countries Plunge Into Recession as Export Markets Fail

By Johan Carlstrom

Feb. 27 (Bloomberg) -- The extent of the Nordic region’s economic downturn was highlighted today as Denmark confirmed it was in the worst recession in three decades while output in Sweden and Finland shrank the most in at least 17 years.

Danish gross domestic product fell 2 percent in the fourth quarter from the previous period, marking the severest recession since the 1970s. Swedish GDP shrank 2.4 percent in the period, the most in 18 years, and Finnish output slumped 1.3 percent, the most in 17 years, national statistics offices said today. Norway reported on Feb. 19 that its mainland economy contracted 0.2 percent in the final quarter.

“This is an unheard of drop in economic activity,” wrote Steen Bocian, head of global economic research at Copenhagen- based Danske, in a note to clients about Denmark. “There’s no longer any doubt that it makes sense to stimulate the economy through tax breaks as well as moving forward public investment.”

The Nordic region is more vulnerable than most to the slump in exports triggered by the global recession. Swedish exports from companies such as Ericsson AB, the world’s largest maker of wireless networks, and truck maker Volvo AB, make up about half its GDP. In Finland exports account for about a third of the economy. The average export exposure in the U.S., Japan, and the European Union is only 10 percent to 15 percent, according to Robert Bergqvist, chief economist at SEB AB in Stockholm.

“The Nordic region is dependent on exports to the rest of the world” as a result of the global economic crisis, Bergqvist said. “Falling exports accentuate the contraction, especially in Sweden and Finland, while household consumption is the main headache in Denmark.”

‘Incredibly Weak’

The Swedish economy was “incredibly weak” in the fourth quarter said Stefan Hoernell, senior economist at Svenska Handelsbanken AB in Stockholm. “We haven’t seen such a big drop since the second quarter of 1991.”

Sweden’s central bank voted unanimously to halve the benchmark interest rate to 1 percent at its last meeting.

Weak growth in the fourth quarter “supports our call for rate cuts to zero percent in April,” said Olle Holmgren, an economist at SEB AB in Stockholm in a client note.

“Finland’s recession, which started with exports, has spread to services and retail sales,” said Anssi Rantala, chief economist at the OP Bank Group Central Cooperative, a unit of the OP-Pohjola Group in Helsinki. “It will show in the jobless rate in the next few months.”

The Finnish economy may contract as much as 4.4 percent in 2009, Finance Minister Jyrki Katainen said on Feb. 24. The unemployment rate rose to 7 percent in January from 6.1 percent in December as companies including the nation’s biggest carbon- steel producer Rautaruukki said it will cut jobs.

Suffering More

Denmark’s economy contracted as households spent less and the global financial crisis sapped demand for exports.

The country is suffering more than neighboring Sweden and Norway, according to Nordea Bank AB, and will be the only regional economy to contract for two consecutive years. Unemployment will double this year, Danske Bank A/S estimates, adding to pressure on consumers after house prices fell in the last four quarters.

Denmark’s government said this week it wants to cut income taxes by 26 billion kroner ($4.5 billion) to create jobs and revitalize the economy.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.