Svein Gjedrem: Transatlantic economic partnership - Nordic and American
perspectives
Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Nordic
Investment Bank Economic Colloquium, New York, 19 November 2002.
Please note that the text below may differ slightly from the actual presentation.
* * *
The Nordic countries and the US have long historic ties. I believe, Mr. Chairman, that the number of
Norwegians and their descendants living in the US today is larger than the population of Norway. I
think similar numbers can be found for the other Scandinavian countries. I will attempt to show here
today that even in economic terms, the ties have never been closer. I will mainly concentrate on the
Nordic perspective, but I also have few specific remarks about Norway.
GNI per capita 2000. PPP
40000
35000
30000
dollars
25000
20000
15000
International
10000
5000
0
US Norway Iceland Denmark Finland Sweden
Source: World Development Indicators database, World Bank, 7/16/01
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The Nordic economies are small, open and mature economies. At least, Norway, Iceland and
Denmark compare roughly with US income levels. In the case of Norway, the income differential
against the US is mainly explained by shorter working hours.
Labour productivity in the US1) and Norway2)
Index. 1990=100
140 140
Norway
130 130
120 120
110 110
US
100 100
90 90
1990 1992 1994 1996 1998 2000 2002
1)Business sector 2)Mainland Norway excl public sector
Source: Bureau of Labor Statistics and Norges Bank
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Business productivity growth has been high throughout the 1990s. The chart shows development of
productivity per working hour in Norway and the US. Unfortunately, I don't have comparable figures for
the other Nordic countries. I do, however, believe that they all, with the possible exception of Iceland,
have had stronger productivity growth than the US over the period.
Government employment and revenues.
Per cent of total employment and GDP 2001
40
Norway
Denmark
30
Sweden
20
Finland
employment
Iceland
10
US
Government
0
0 10 20 30 40 50 60 70
Current tax and non-tax receipts
Source: OECD
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Most Nordic countries have large public sectors, reflecting the fact that many services such as health
and education are produced within the public sector. This is especially the case in Denmark, Norway
and Sweden.
General government financial balance and current
account balance. Per cent of GDP. 2001
20
Government financial balance
Current account
15
10
5
0
-5
Iceland US Denmark Sweden Finland Norway
Source: OECD
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Another prominent feature is that, except for Iceland, the Nordic countries have a twin surplus in the
public sector and on the current account. This implies a net outflow of capital from the region.
The facts I have mentioned may lead outsiders to regard the Nordic region as one group, made up of
similar economies. However, there are also some striking differences.
Nordic countries - institutional differences
EU-membership Monetary policy regime
Inflation target of 2 per cent
Yes
Sweden
(+/- 1 percentage points)
Yes ERM II
Denmark
Finland Yes Member of EMU
No
Inflation target of 21⁄2 per cent
Iceland
(EEA-agreement)
No
Inflation target of 21⁄2 per cent
Norway
(EEA-agreement)
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We differ in our relations to the EU and with respect to monetary policy regimes. Sweden, Denmark
and Finland are members of the EU. Finland is also a member of EMU. The Danish krone is linked to
the euro through a fixed exchange rate, while Sweden, Iceland and Norway have inflation targets and
a floating exchange rate.
Our financial markets differ in size and structure.
Bonds outstanding, March 2002.
Per cent of GDP
250
Government
200
Private
150
100
50
0
US Iceland Denmark Sweden Finland Norway
Source: BIS, IMF
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Government bond markets are generally small, even in relation to GDP. There is, however, a relatively
large market for private bonds, especially in Denmark. The bond market in Denmark is twice the size
of the stock market.
Stock market values. Per cent of GDP
300
End 1999
250
Sep 2002
200
150
100
50
0
Finland Iceland Denmark
Source: National Central Banks, IMF
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Finland has the largest stock market relative to the economy. This reflects, I believe, the rise of Nokia
as the world's leading mobile phone company. We see that the Finnish and Swedish markets have
followed the US market more closely than the other Nordic markets.
This also reflects differences in industry structure. The sector composition of the three Scandinavian
stock exchanges provides an illustration. The Oslo Stock Exchange is heavily dominated by the
energy sector, which is practically absent on the other Nordic exchanges. Norway has small traditional
industries, but the IT and telecom sector is comparable to the other countries' in relative size. The
different sector composition of the stock exchanges also illustrates the potential for diversification by
investing across the Nordic countries.
The difference in sectoral composition may in part explain the differences in correlation of Nordic stock
exchanges with the world economy.
Sector composition of NOREX exchanges.
September 2002
100 %
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0 %
Stockholm Copenhagen Oslo
Industrials and materials IT/Telecom Consumer goods and services
Financial services Energy Other
Source: NOREX
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Correlation with world index.
USD based price indexes
1
0,8
Dec 93 - 97
0,6
1998-2002
0,4
0,2
Denmark Finland Norway Sweden
Source: EcoWin / Financial Times
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FDI to/from the US. Total at end 2001.
Per cent of GDP
12
to US
10
from US
8
6
4
2
0
Sweden Denmark Finland Norway
Source: National Central Banks, IMF
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4 BIS Review 70/2002
The links with the US economy are many and complex. The US is one of our major trading partners.
But the ties are perhaps even more evident in the capital markets. All the Nordic countries have
relatively large direct investments in the US economy. In addition, US capital markets today have a
decisive impact on developments around the globe. American capital has also been important for
investments in the Nordic economies.
US direct investments in Norway.
End of year 2000.
Mining and extraction incl. oil and gas
Manufacturing
Retail trade, hotels and restaurants
Financial enterprises, real estate and business activities
Other
7% 1%
13%
12%
67%
Source: Norges Bank
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US companies have been pioneers in developing the Norwegian petroleum sector, which is crucial for
us. Last year, Norway was the world's third largest exporter of oil. Even today, two thirds of US direct
investments in Norway are linked to our petroleum sector.
The Government Petroleum Fund
Market value in billions of USD1). End of June 2002
50
45
Stocks
40
Bonds
35
30
25
20
15
1050
Europe US Asia and America ex
Oceania US
1)Bond figure for US incl. USD 3 bn dollar-denominated issued by non-US entities
Source: National Central Banks, IMF
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Total capital in the Government Petroleum Fund.
End of year. Per cent of GDP
100 100
80 80
60 60
40 40
20 20
0 0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Ministry of Finance. National Budget 2003
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Revenues from the petroleum sector have generated an annual fiscal surplus of some 10-15 per cent
over the last few years. Since 1995, the fiscal surplus has been invested in the Government Petroleum
Fund. The Fund invests only in foreign markets. Investments - all portfolio investments - are spread
between equities and fixed income instruments, as well as across countries. Approximately 29 per
cent of the fund is invested directly in the US stock market and in dollar-denominated bonds.
The size of the fund has increased rapidly over the last few years, and will reach approximately 90 per
cent of GDP by the end of this decade, according to estimates from the Ministry of Finance. This
implies further investments of considerable amounts, also in the US market. While the US economy
has always been an important trading partner, our investments abroad and the globalisation of the
financial system will further increase our interest in the US economy in the years ahead. The links,
already important, will expand further.