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Nordic Recovery Dims as Sweden Should Ready Spending, OECD Says

May 29 (Bloomberg) -- The Nordic region’s recovery will be slower than earlier predicted as Sweden should stand ready to add stimulus to boost growth, the Organization for Economic Cooperation and Development said.

Sweden, the largest Nordic economy, will grow 1.3 percent this year and 2.5 percent next year, compared with the Nov. 27 forecasts of 1.9 percent and 3 percent, respectively, the Paris-based group said today. Finland will stall and Denmark will grow 0.4 percent in 2013, the OECD said. It had previously forecast 1.1 percent and 1.4 percent growth for the two countries.

Growth in mainland Norway, which excludes oil and gas output, will slow more than estimated to 2.6 percent, before reaching 3.2 percent in 2014, while Iceland will expand 1.9 percent, compared with a 2.7 percent estimate. Risks are skewed toward contraction, the OECD said.

Sweden’s monetary policy should remain accommodative and the government should “stand ready” for further stimulus, should the recovery falter, the OECD said. Sweden’s high house prices and household debt warrant stepping up the scope and intensity of financial supervision, it said.

Central banks in the region have sought to support economic growth amid the euro-area recession without stoking currency gains and an asset-price bubble. Sweden’s Riksbank has held its repo rate at 1 percent since December after reducing rates four times over a year and Norges Bank’s deposit rate has remained at 1.5 percent for more than a year. The Nordic countries, with the exception of Finland, are all outside the euro area.

Housing Boom

House prices are surging in Norway amid economic expansion and growing domestic demand, even as authorities have placed restrictive guidelines on mortgage lending. Policy makers should monitor the vulnerability of households and banks to credit shocks, the OECD said.

“The expansionary stance of monetary policy will become increasingly unsuitable with the upswing in activity,” the OECD said of Norway. “A tighter monetary stance would also mitigate a build-up of financial imbalances, particularly in the housing sector.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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