Andersson: the economy is strong

Social Democratic Finance Minister Magdalena Andersson’s Friday began well as Statistics Sweden released its national figures for the second quarter. GDP rose by 1.7% on the previous quarter and by 4% compared to Q2 2016.

“The Swedish economy is clearly extremely strong… It stands out clearly if you make international comparisons,” said Magdalena Andersson.

The figures exceeded expectations and Andersson pointed out several contributing factors, including household consumption increasing by 1.1%.

Swedish data surprised on the upside

The Swedish krona weakened 5 öre against the euro when Prime Minister Stefan Löfven announced his Cabinet reshuffle on Thursday, although a number of economic indicators surprised on the upside.

Statistics Sweden reported that the employment rate, not seasonally adjusted, was 7.4% in June; analysts had forecast a rate of 7.5%. The seasonally adjusted employment rate was 6.4%, compared to 6.6% in May.

The National Institute of Economic Research (Konjunkturinstitutet) said its economic sentiment index had increased in July to 112.4, from 112.2 in June. Sentiment in the manufacturing industry had increased unexpectedly. However, consumer sentiment fell to 102.2, from 102.6.

The Institute reported labour shortages, which prompted SEB bank to question how long the Swedish central bank could ignore this trend.

Little market impact

Wednesday’s news that Sweden’s centre-right alliance parties are planning a vote of no confidence in three government ministers over a security breach at the Transport Agency had little impact on markets.

According to SEB economist Robert Bergqvist, the strong foundations of the Swedish economy and broad political agreement over the budgetary framework provide protection against political crises and a political vacuum.

Concerns about undermining monopoly

Backed by the Sweden Democrats and the other centre-right alliance parties, local Liberal politicians in Skåne have proposed to the government that wine producers in the region should be allowed to sell their produce at their vineyards for a trial period of three years.

Green politician Anders Åkesson opposes the idea, saying it would undermine Systembolaget’s monopoly. Two government inquiries have already concluded that such an initiative would put the state monopoly at risk

Thriving FinTech industry

Financial technology, or FinTech, has become a thriving industry in recent years with Sweden topping the league for FinTech investments per capita. New payment methods via mobile phones and simpler forms of identification mean that payments can be made from virtually anywhere. But the development of these new services is not without risk and Sweden’s Riksbank warned of growing uncertainty in its latest financial stability report from May. The central bank has warned that deposits could become more volatile, thereby increasing the liquidity risk.

Margin lower than expected

At a first glance, the Volvo group’s interim report looked set to ignite a stock market rally; the group posted a 22% per cent increase in orders and an operating profit of SKr 8,540 million in the second quarter and raised its forecast for the North American truck market and the all-important Chinese construction equipment market.

But, when the Stockholm stock exchange opened the group’s share price fell and at close was down 3.4%. The main reason for this was that the Trucks division, which is Volvo’s largest business area, reported an operating margin of 9.6% for the quarter, which was 1.1 percentage points lower than expected. The margin was weighed down by delivery disturbances, mainly in Europe, and problems in the supplier chain.

Volvo hopes to resolve the problem over the summer and expects the impact of the disturbances to be lower in the third quarter.

String of bad news

The honeymoon for Ericsson’s new CEO Börje Ekholm is over. A string of bad news brought Ericsson’s shares down by 15.6%, the biggest negative reaction to a report since Q2 2002.

For the eleventh quarter in a row, turnover fell organically, now by 16% and all three of the company’s business areas Network, IT & Cloud and Media shrank. Lower software sales brought down gross margins to 30%, adjusted for structural costs – the lowest level for a second quarter during the 2000s and for the third quarter in a row the company reported an operating loss, this time of 1.2 billion kronor.

CEO Börje Ekholm has said that the launch of Ericsson’s focus strategy to regain Ericsson’s leadership meant tackling costs. Now they are to be lowered by 10 billion kronor by next summer. “We need to be in more of a hurry than we previously thought. The ambition is more than those ten, but that is what we must deliver.” There will be staff cuts in Sweden and abroad.

Skanska takes a hit

During 2016 Skanska’s shares improved by 30%. It went particularly well for the construction company during the second half of the year after Donald Trump was elected president in the USA and promised investment in infrastructure.

However despite great hopes for 2017, profitability has not kept up. In the first quarter operating margins were only 1.6%. On Friday the company notified of a write-down of 420 million kronor for its civil operations in the USA and a write-down of 360 million kronor for its British operations.

The profit in the group’s construction operations was only 0.2 billion kronor, which means the quarter’s profits are expected to fall to 1.5 billion kronor from 1.7 billion during Q2 last year.

Lift for Swedish business

Prior to last week’s G20 summit Japan and the EU announced an agreement on a free trade deal. The Swedish government expects 97% of Japan’s and 99% of the EU’s tariffs will be scrapped. Ann Linde, the minister for EU affairs and trade, stresses the importance of the agreement, saying that two-thirds of companies exporting to Japan today are SMEs.

Five years ago a similar agreement was signed with South Korea, and since then exports have increased by 55%, according to the minister.

Sweden’s services, retail trade and food sectors could all benefit from the agreement, say experts Dagens Nyheter has spoken to.

Prosecutor ends inquiry

Prosecutor Alf Johansson has decided to end the inquiry into elk hunting trips organised by paper making giant Holmen. Anders Borg, the former finance minister, investor Fredrik Lundberg and Pär Boman, chairman of Handelsbanken, were among those questioned by prosecutors investigating allegations of bribery connected to the hunting trips.

Anders Borg expressed relief after the prosecutor ended the inquiry, saying: “I have been certain all along that I acted correctly, but it is still a huge relief that the process has come to an end”.

According to Holmen CEO Henrik Sjölund, the company intends to continue with its hunting trips.