Indebted Nordic Households Pose Risks to Economies, OECD Says

The Nordic region’s policy makers need to do more to stem risks posed by household debt growth, the Organization for Economic Cooperation and Development said.

“A less supportive monetary stance would mitigate the build-up of financial imbalances, particularly in the housing sector” in Norway, the Paris-based group said today. “The exposure of households and banks to high debt levels should be monitored carefully.”

In Sweden, the clear allocation of macro-prudential tools to the Swedish Financial Supervisory Authority in August is “welcome,” yet “further measures are required,” the OECD said. Financial supervision and macro-prudential policies should continue to be strengthened in Denmark, which has the world’s biggest household debt load, the group said.

Private debt and rising house prices are rendering the economies of Norway and Sweden vulnerable, the OECD said. Both countries escaped the global financial and euro-area crises relatively unharmed, allowing borrowing to continue, it said. Household debt was 321 percent of disposable incomes in Denmark, 213 percent in Norway and 172 percent in Sweden last year, the OECD said.

“Monetary policy needs to remain accommodative in the near term given the economic weak patch, even though household debt, which mainly consists of mortgage loans, has reached high levels, and household credit growth and house prices have picked up again,” the OECD said of Sweden.

Lower Forecasts

Sweden, the largest Nordic economy, will grow 0.7 percent this year and 2.3 percent next year, compared with a May 29 forecast of growth of 1.3 percent in 2013 and 2.5 percent in 2014, the OECD said. Denmark will expand 0.3 percent and 1.6 percent in the two years and growth in mainland Norway, which excludes oil and shipping, is forecast at 1.9 percent this year and 3 percent next year.

Sweden’s financial-markets regulator last week again decided to try to tighten household lending, proposing to raise risk weights on mortgage loans to 25 percent next year after as recently as May tripling them to 15 percent.

Iceland’s economy will grow 1.8 percent in 2013 and 2.7 percent in 2014 while Finland will contract 1 percent before seeing growth of 1.3 percent in 2014, the OECD said. All Nordic countries apart from Finland are outside the euro area.

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