Closing The Circle – To The East, The South, The West, and finally the North

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I’ve got it. Germany has finally encircled itself. With 10 countries out there desperately looking for help from the East, 5 (including Austria) about to do so from the South, and two more (the UK and Ireland) from the West, news now comes in that one last group of walking wounded have finally made their way into that hastily erected field hospital – the Scandinavian countries. Perhaps all that is left is for Germany itself to finally throw the towel in and turn to the Union for help. Go to it France!

Joking aside, it emerged on Friday that Sweden is in the middle of a much more serious recession than previously thought. Official figures for the fourth quarter of last year revealed that gross domestic product contracted 2.4 per cent quarter-on-quarter in the final three months of last year, equivalent to an annualised decline of 9.3 per cent.

These depressing growth numbers increase the chances that the Riksbank, Sweden’s central bank, will join other central banks around the world by introducing a zero interest rate policy and implementing a policy of quantitative easing.

Denmark’s economy, on the other hand contracted 3.9 per cent year-on-year in the fourth quarter, making this already the worst recession in three decades. Danish gross domestic product fell 2 percent in the fourth quarter from the previous one. Denmark is in the middle of a housing bust and the economy contracted as households spent less and the global financial crisis sapped demand for the country’s exports.

Finnish output also slumped, by 1.3 percent, the most in 17 years, in the fourth quarter. Unlike Denmark, Finland’s recession started with exports, and has now spread to areas like services and retail sales. Finance Minister Jyrki Katainen said last month that the Finnish economy may contract as much as 4.4 percent in 2009. The unemployment rate rose to 7 percent in January from 6.1 percent in December as companies cut jobs in the face of the slowdown.

On the back of this data and the country’s East Europe exposure the Swedish Krona weakened 1.1 percent to 11.5229 per euro by 5:08 p.m. today in Stockholm after dropping to 11.6152, a record according to Bloomberg data . It depreciated 1.8 percent to 9.1807 to the the dollar, after trading at 9.2379, the weakest level in more than six years.

“Sweden has many fires it needs to put out with regards to emerging-market exposure, and this while the Swedish economy is plunging into a deep recession,” according to analysts led by Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. Sweden holds 81 percent of the $40.4 billion in total cross- border banking exposure to Estonia, 56 percent of $44.4 billion in total cross-border banking claims in Latvia and 62 percent of the $46.3 billion exposure to Lithuania, Brown Brothers wrote, citing fourth-quarter data from the Basel, Switzerland-based Bank for International Settlements.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

2 thoughts on “Closing The Circle – To The East, The South, The West, and finally the North”

  1. Bad news indeed. But I don’t think the Scandinavians, Iceland aside, will need to be “bailed out”. The Scandinavian countries have relatively sound national finances and low government debt levels as a percentage of GDP. The recession will be ugly, in Denmark because of the bursting housing bubble (which the current conservative government at best failed to curb, and at worst encouraged), and in Sweden because its traditional industrial base is hurting.

  2. These are not bad news. The operative words for Finland are “the most in 17 years”. Let’s keep in mind that back then, the GNP dropped by 7%, in the middle of a purely domestic bank crisis and crashing export markets. That was bad news.

    And the news of the unemployment rate rising to 7%? Well, shock horror. Back in 1990-1991, the unemployment jumped from 3,2% to 6,6%, by 1992 to 11,7% and by 1993 to 16,3%. Hell, it _never_ dropped below 9% until _2004_.

    The current situation is generating its fair share of shit in Finland (ah, the Finnish trade unions – you gotta love them; you have no other choice), but it’s worth noting that even the gloomiest predictions still do not measure up even close to the purgatory that this country experienced in the early ’90s. And I should know that; I was there, and on the dole. What’s going on now is peanuts compared to that.

    The best evidence is that even now, this country still has money to spare for bailing out Latvia and Iceland. Why, basically every Finnish taxpayer is paying fifty euros in cash to keep Latvia from sinking – which is a good thing; helping your neighbours always is.

    However, this stands in stark contrast to the situation back in the 1990s, when Finland was desperately scrounging for money from abroad.

    Cheers,

    J. J.

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