At the start of the election year, the government and the opposition are competing to “take responsibility” for public finances and any reforms proposed should be financed under the mantra, “krona for krona”. The framework for the state surplus is that it should amount to one third of a per cent of GDP on average over an economic cycle. However, the framework has become an axiom, whose advantages and disadvantages are outside of critical review, writes Nordea’s head analyst Andreas Wallström in Dagens Industri (DI) today, which is surprising considering Sweden’ exceptionally strong public finances.
Internationally, Sweden has low debt, around 40% of GDP. The framework places a singular focus on debt in the public sector. But, no company builds success on reducing its debts. A strong balance sheet is not necessarily the one with the lowest debt.
The stabilisation argument of austerity during an economic boom does not take into account the cost of postponing investment to the future. Every year of poorly functioning public transport or damaging taxes entails a cost. These costs ought to be weighed up against the stability argument. However, he sees no opening for a review of the fiscal policy framework on the political horizon.
Tuesday was another roller coaster day on the US markets, and Stockholm’s leading index fell 2.1%. In this situation, investors are searching for information that will give them an idea of what is ahead. All new information, often exaggerated, gains significance.
US economic data can be useful for investors to decide when to sell, but Annika Winsth, head economist at Nordea, says it is most important of all to listen to what the heads of the Federal Reserve are saying. Previously they have indicated three interest rate rises this year, but now they are starting to believe it will be four.
“The Fed has seen that the economy is performing strongly, but previously investors have not really chosen to take that in,” says Winsth.
Nordea’s shares fell heavily on Thursday after CEO Casper von Koskull announced the worst results for a fourth quarter since the financial crisis.
In the space of a year, Nordea has almost halved returns on equity and net profits for Q4 were the lowest since 2009. There were expectations that the results would be under pressure from investments in Casper von Koskull’s major transformation project, however the poor earnings came as a shock. In total Nordea’s operating income fell by 14% compared to the fourth quarter in 2016.
The poor progress during the second half of 2017 comes as the bank’s board and management are trying to juggle several balls. As well as existing projects, such as exchanging the core platform, the bank has been planning to move the head office to Finland and in October Casper von Koskull announced plans for significant cuts, in which 4,000 employees and 2,000 consultants would go. Casper von Koskull denies that they are trying to do too much.
Nordea’s shares fell 4.2% yesterday.
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