Comparison of two crises

We can compare both the crisis of ‘90s and 2008-2009 Great Recession in Sweden to see if the country managed to use its lessons and experience from the earliest crisis to overcome the latest. Both recessions had similar features and characteristics: a slowdown in foreign demand, a burst of a real estate bubble, negative economic growth, unemployment. However, the first one was more local and was partly created because of Swedish government’s imprudent policy years before. It hit the economy real hard, growth was negative for three consecutive years, and budget deficit reached 12%. The second crisis came mostly from global economic slowdown. Swedish exports suffered dramatically, the GDP growth rate fell of the cliff to -5.33% in 2009. However, the next year, 2010 it skyrocketed to +5.54%. Ten percent change in one year was an outstanding recovery, which suggests that Swedes had really learnt from the 90’s and taken steps not only to recover from the first crisis, but also to prevent it from happening again. The use of unique economic policies, known as the “Swedish Model” justified itself. In contrast to the rest of the world, or at least a big part of it, for the Nordic country the crisis of ‘90s was much more devastating and painful than the latest recession.

Conclusion

In this paper I looked at Sweden’s economic performance since the start of 1990’s. During this period of over two decades this Scandinavian country has faced two crises. I was interested in finding out whether the experience and lessons gained after the crisis of 90’s played a major role in defeating the Great Recession and recovering from it much quicker than other countries did. I analysed the effects of crises and the policies and actions, implemented by the government and central bank Riksbank to resolve the situation and ensure stability.

Sweden is currently one of the best-performing countries in the world. Having recovered from the recent crisis so quickly, while so many other countries, especially in Europe, are still struggling, raises a question – How did they manage to do that? In my report I found out that the through experience, which Sweden gained during the crisis in the 90’s, the actions taken to recover and to prevent it from happening again were indeed the key factors of Sweden’s capability to recover so quickly. Government was able to respond immediately, to solidify at most important and complicated periods. Banks, which were in financial trouble, were forced to disclose their books and financial information to the authorities and that also strengthened credibility of government and Riksbank in eyes of society. In addition, the policy was aimed at saving banks not their owners. This was the key point which made the banks to operate more prudently in future. Last, Riksbank switched from pegged exchange rate to floating. As a result of this policy Sweden increased its competitiveness and managed a boost of GDP.

The lessons learnt during the crisis of 90 have played a major role in quick recovery from the Great Recession.

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Date: 2015-12-17; view: 969