Last but not the least, the Nordics’ strong public finances have underpinned its adoption of a comprehensive and substantial package of measures to mitigate the severe impact from the pandemic without compromising fiscal sustainability. Public debt ratios for Denmark (29.4% of GDP), Sweden (34.8% of GDP), and Norway (41.3% of GDP) were among the lowest in Europe in 2019. Finland’s debt ratio was higher at 59.0% of GDP in 2019, but still allowed for a sizeable response to the pandemic without compromising the health of public finances. The Nordic economies’ sizeable and timely fiscal response coupled with accommodative monetary policy and high levels of household wealth have helped absorb shocks and prevented the pandemic’s effects in households and businesses from becoming long lasting thus far. The labour markets have proved fairly resilient to the substantial shock, and the direct aid and liquidity support appear to have shielded productive activity to a large extent. The traditionally strong automatic stabilisers embedded in the Nordic welfare system have provided a relatively strong first line of defence. The governments in the region supplemented these well-tested automatic mechanismswith sizable discretionary measures, writes Morningstar.
In this commentary, DBRS Morningstar explores the potential drivers behind the Nordic economies’ greater resilience to the Coronavirus Disease (COVID-19) shock thus far. For simplicity, we will be defining Nordic countries/Nordics as the group of countries rated by DBRS Morningstar including Sweden (AAA, Stable), Denmark (AAA, Stable), Finland (AA (high), Stable) and Norway (AAA,Stable). The coronavirus pandemic has dealt a substantial blow to the Nordic countries, but the contraction in output has been relatively modest compared with European peers. The Nordic countries contracted by an average of 2.7% of GDP in 20201, milder than the slumps seen for the European Union (EU-27; -6.2%) and the Euro Area (-6.6%). The contrast is even starker compared with the southern European countries in the EU-27, traditionally more reliant on the tourism sector, according to Morningstar.
