Nordic economies forge ahead of European rivals

The Nordic countries consistently top quality of life surveys, enjoying low crime rates and broad equality between the sexes, and now, contrary to many of their European neighbours, they are also in rude economic health.

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Denmark, Finland, Norway and Sweden's mix of economic liberalism and state provision has sparked growing interest among politicians outside the Nordic countries. One of these is Segolène Royal, the Socialist candidate for the French presidential election in April.

Norway stands out from the pack owing to enormous revenues from its oil and natural gas reserves discovered in the 1960s.

For the other Nordics, statistics paint a picture of enviable economic success. The countries' gross domestic product (GDP) growth in 2006 is set to outstrip the eurozone average of 2.6 percent, according to the Organisation for Economic Cooperation and Development (OECD).

Finland is expected to post GDP growth of 5.0 percent this year, while Sweden is forecasting 4.3 percent and Denmark 3.5 percent – compared to Germany and Britain's more modest 2.6 percent and France's comparatively sluggish 2.1 percent.

And as for their business competitiveness, Finland, Sweden and Denmark hold second, third and fourth spots in the World Economic Forum's most recent ranking.

"There are some similarities between these countries -- but there is no common explanation why all are performing well," chief economist at Swedish banking group Skandinaviska Enskilda Banken (SEB) Klas Eklund told AFP.

In the 1980s and early 1990s these three small countries – Sweden with a population of 9.2 million, Denmark with 5.4 million and Finland with 5.2 million – faced severe economic problems. All three were wracked by banking sector crises and shock hikes in the oil price.

The trio have however adapted and reformed in their own ways, Eklund said.

"While all three are turnaround cases – from poor-performing to strong-performing economies – they have followed different strategies. The Danes started their turnaround as far back as the late 1970s, the Swedes and Finns not until the 1990s," he explained.

But all three embarked on reform programmes aimed at reducing the size of the state and put their economies on austere fiscal footings.

For Sweden and Finland, the 1980s were years of high inflation and weak currencies. When both countries were hit by economic shocks in the early 1990s – Finland from the collapse of Soviet trade, Sweden from high interest rates and a banking crisis – the result was a severe recession with falling GDP levels and rapidly rising unemployment.

Since the 1990s, "sloppy budget practices have been replaced by strict budget rules in Sweden and Finland. Several markets have been deregulated," Eklund said, noting that economic policy has been characterised by liberal market reforms.

"In only a few years in the mid 1990s, a radically new macro-economic framework was put in place. This framework has given both countries a stable low-inflation environment," he said.

The approach is a compromise between the Anglo-Saxon and continental models, according to Håkan Frisén, an economist at SEB.

In addition to having highly skilled workforces, the Nordics have benefitted from their readiness for dialogue and their willingness to resolve conflicts through consensus building. This has fostered a high degree of cooperation between unions and employers, Frisén and Eklund noted.

Finally, the small Nordic countries have a tradition of openness to the outside world, dependent as they are on exports.

Swedish Prime Minister Fredrik Reinfeldt recently told the Financial Times that his planned round of major privatisations, which would allow foreign investment in state-run companies, did not cause consternation at home.

However, Sweden's independent central bank has repeatedly expressed fears of a possible inflationary trend in the long-term, and has doubled its key interest rate in successive increases over the past year.

On Friday, the bank raised the repo rate by a quarter of a point to 3.00 percent, just days after the Confederation of Swedish Enterprise warned of the risk of an overheated economy.

And Denmark has almost become a victim of its own economic success. Unemployment reached 4.1 percent in October, its lowest level since 1974, and the jobless rate is now so low that employers are struggling to fill vacancies.

Labour shortages cost Danish industry 27 billion kroner (4.79 billion dollars) in lost orders in the first quarter of 2006, according to the Confederation of Danish Industries.

By AFP's Delphine Toitou