Comparing and Contrasting Nordic Economies

Referencing the previous article, “Are 100-Year Mortgages Next? Effects of Negative Real Interest Rates on Nordic Housing Bubble,” Nordic and European central banks extended their mandate beyond price stability to support economic growth. Not only did that inflate housing bubbles throughout the Nordics but it also decimated the currencies, impacting the quality of life for everyday people in this egalitarian region.

Source: Calculated using Central Bank and government statistics data.

Although the Nordics, over the past ten years, were in negative real interest rate territory, it did not significant impact the currencies until after 2014. Why was it “tolerated” before and not now? Perhaps it is the perception. Before, markets perceived negative real rates as a temporary measure to stoke inflation (growth). Between 2010 and 2013 we saw that the Nordic Central Banks were able to contain inflation, raise interest rates or both, assuring the markets. At the very least, the success in Norway and Sweden in 2010 and 2012 respectively, bouncing back from negative real interest rates, indicated control. However, after 2014, that perception changed with Nordic and European Central Banks overtly stating that they would consider other factors.

Nordic Currencies Relative to the USD

Despite real interest rates varying across the region, especially between 2010 and into 2013, the currencies mostly remained mostly stable vs. the USD. After 2014, the Nordic Central Banks locked themselves into negative rate territory with their dual mandates (price stability and economic growth). Although the severity of negative real rates varied, the dollar jumped against all Nordic currencies and the Euro (Finland). Interestingly, the dollar jumped in lockstep, despite the differences between countries, regarding interest rates, economic policy, and inflation. That indicates that markets view the region more as a whole versus individual nations.

Source: Compiled from Central Bank websites.

Nordic Currencies Relative to Gold

Gold’s behavior, in the region, has been more predictable, closely following real interest rate theory. Considered the ultimate commodity and inflation indicator, it is very sensitive to the inflation vs. key rate relationship, indicated by real interest rates. During the 2010-2013 period, we saw gold take a hit when the real interest rates trended up or moved into positive territory. Nevertheless, the perception changed. Markets started to doubt the Central Bank’s ability and, more importantly, resolve to control inflation. Gold, priced in Nordic currencies, not only recovered in unison, nearing all-time highs, the trajectory is more pronounced, compared to the dollar’s advance during the same period.

Differences between Nordic Countries

From the outside looking in, many people ground the Nordic countries into one. However, there are differences. Finland and Sweden are more industrialized than Norway and Denmark. Norway and Sweden are the most prone to a housing crisis, attributed to more aggressive growth policies than the other two countries (The ECB regulates Finland’s interest rates). Norway only stands out economically due to oil, winning the lottery back in the late 1960s. Based on the table below, it is difficult to ascertain why Sweden went on the negative rate adventure, considering their diversified economy. It could have rebalanced itself against the correct interest rates, avoiding the current bubble situation.

Finland, although the poorest, appears to be the most balanced. Denmark has a lot of opportunity, diversifying their economy. Norway and Sweden have the furthest to fall but the Swedes have a better chance of recovering. Hence, it’s all very different.


Going negative may have upheld short-term economic growth. However, the policy is not sustainable over the long term, degrading the currency. Relative to population growth, the policy didn’t help. Ironically, Denmark grew the most and Norway declined in the same period, grasping with recent oil realities. 2011 to 2016 Real Economic Growth (GDP Growth in USD – Population Growth): Norway -5.8%, Sweden 10.3%, Denmark 12.2% and Finland 4.7%. Averaged over five years and considering that Nordic households are among the most indebted in the world, more than even Americans, negative rates have only contributed to misery, raising the price of imports and housing. Hence, the growth debt driven and not organic. The Nordic countries, over the next 5-10 years, engaging in experimental policy, run the risk of tearing up the balanced and egalitarian societies that took generations to build.

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