OECD sees risks to recovery in Sweden; Norway still immune

Tue Nov 27, 2012 5:00am EST

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* Nordic economies buoyant compared with euro zone-OECD

* Sweden, Finland should stimulate growth if needed

* Swedish central bank should stand ready cut rates

PARIS, Nov 27 (Reuters) - Sweden's central bank and government should stimulate the economy if a pick-up in growth next year falters, while Denmark and Finland face similar challenges, the OECD said on Tuesday.

In its annual outlook, the Organisation for Economic Cooperation and Development (OECD) said growth in oil-rich Norway will remain healthy and policymakers there should keep inflation in check and monitor rising levels of household debt.

The OECD forecast the biggest Nordic economy Sweden would see growth ease to 1.2 percent this year from 3.9 percent in 2011, before rising to 1.9 percent in 2013.

"Risks are tilted to the downside," the OECD said, citing lower consumption and possible bank problems if house prices fell sharply, or lower external demand if the euro zone did not solve its problems.

Given subdued inflation, the OECD said the Swedish central bank should cut its benchmark rate further from the current 1.25 percent level and that the centre-right government should be prepared to add a fiscal stimulus if needed.

The OECD saw Danish growth coming in at 0.2 percent this year before rising to 1.4 percent in 2013, but this forecast also risked falling short if the euro area crisis worsened or the were smaller than expected gains in competitiveness.

It said Danish monetary policy was accommodative and that fiscal policy would be slightly tighter in 2013, but neutral in 2014, which the OECD was appropriate.

Growth in euro zone member Finland would be 0.7 percent this year and 1.1 percent in 2013, the OECD said. Exposed to the currency bloc's problems, the country would suffer if external demand remained weak.

"In the event of significantly lower than forecast growth, the fiscal space for discretionary action should be used," the OECD added. Finland also had to take measures to deal with one of the most rapidly ageing populations in Europe, it said.

Oil exporter Norway was set for gross domestic product (GDP) to expand 3.3 percent this year and 2.5 percent in 2013.

The OECD said it assumed the central bank would raise its policy interest rate as inflation gained pace.

Given an acceleration in house price growth, the OECD said the authorities had to keep a close eye on the vulnerability of households to credit shocks.

Smallest Nordic economy Iceland was seen growing 2.5 percent this year and 2.7 percent in 2013 as it continues to bounce back from the collapse of its banks in 2008. Baltic state Estonia, which joined the OECD in 2010, was expected to expand 3.1 percent this year and 3.7 percent in 2013, the OECD added.

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