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IMF warns Nordic countries of surging house prices

September 5, 2013

STOCKHOLM (AP) — The International Monetary Fund warned Thursday that the Nordic countries’ large, shared banking sector, high household debt and property prices pose a financial risk for the region.

The Nordic countries’ “robust social institutions” and sound macroeconomic policies helped them recover more quickly than others from the global financial crisis, the IMF said, though it warned the banking sector is heavily reliant on wholesale funding.

Household debt in parts of the area is among the highest among developed economies and authorities need to restrict the availability of interest-only mortgages, the fund said. Because large parts of the banking sector are shared across the Nordic region, a sudden drop in housing prizes in one country could have negative effects on consumption and unemployment in the entire region.

To avoid this, it is important to maintain strong fiscal buffers and phase out preferential tax treatment of housing investments, it said in a regular review of the region.

Overall, the IMF commended the countries for their ongoing reforms and sound financial policies, and welcomed measures to set up mechanisms to deal with distressed banks.

However, it noted unemployment remains high in Sweden and that the government needs to stimulate demand for young and immigrant workers. It also urged Swedish authorities to relieve housing bottlenecks by providing incentives to invest in property construction and increasing land supply.

In a special report on Norway, it said there is a risk the economy there has become too dependent on oil and gas and that structural reforms are needed to enhance the competitiveness of other sectors. Priority areas should include labor market, pensions, trade in agriculture products and public sector services, IMF said. It also suggested sickness and disability benefits in Norway could be reformed further to improve efficiency and help contain future government spending.