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Fitch warns Nordic countries of potential crisis unless much is done to bring down costs

Wednesday, 28 September 2011
Credit rating organisation, Fitch has warned the Nordic countries to put their acts together or face crisis in the nearest future.

In a report, Fitch described the Nordic countries of running an economy characterise by inflated housing prices, high household debt levels and over-sized banks compared to the size of their economies. These are risks in the Nordic countries, including Sweden, according to a new report from credit rating organisation, Fitch.

Among other points, Fitch analysts point that the major banks depend on short-term financing in foreign currency and a level of indebtedness among households that are among the highest in the world.

Countries specifically affected by the report are Sweden, Norway and Denmark as well as Finland which the organisation feels that they are living up to their top rating of AAA. Fitch gives these Nordic countries praised for its well-managed economies.

"Scandinavia has some of the world's most creditworthy states. However, some risk factors remain. It is especially in the housing sector and the market and banking system, "writes Douglas Renwick of Fitch in the report.
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Although the major banks in the Nordic region have well-stocked coffers, Fitch is concerned however, about the size of the Nordic banking system and banks are widely rely on short-term borrowing in foreign currency. It increases the risks for the banks' financing.

The Nordic consumer borrowing - which is one of the highest in the world - is another strike to Fitch. This means that households in the Nordic countries more sensitive to interest rate changes and the dramatic changes in housing prices.

"With the exception of Denmark, prices have not fallen significantly, "says credit the credit rating agency.

On the whole, household borrowing is less risk for the countries' credit ratings. However, the potential decline in house prices pose a significant risk to the outlook for growth in the Nordic countries.

Two countries are however in a much more comfortable better off than the other two Nordic sister nations in Fitch sense.
"Norway and Sweden, with its independent monetary policy, is best equipped to cool its housing markets with interest rate increases. The risk is that the increases are not aggressive enough and that housing prices are rising further, "writes the credit organisation.

However, Fitch believes that housing prices will stabilize, both in Norway and Sweden, since interest rates will rise in reported the long term.
By Scancomark.se Team
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