The Swedish krona has weakened markedly in recent years; it traded at 8.30 against the euro in 2011, compared to today’s 9.70, all the while the euro has weakened against the US dollar. With the exception of a couple of banana republics, no other country has become so poor so quickly. No one seems to care, apart from Riksbank governor Stefan Ingves who is actually celebrating. Why? Well, the weaker the krona, the more expensive imports become, which means the rate of inflation will rise, and this is exactly what the head of the central bank wants. The fact that Sweden is becoming poorer by the day does not seem to matter to the fundamentalists, writes business daily Dagens Industri. Everything is being sacrificed at the altar of monetary policy.
The Swedish and Norwegian states have together sold 23 million shares in airline SAS (see SPR 13/10 Early Ed.).
Enterprise Minister Mikael Damberg says he is satisfied with the timing of the deal despite SAS shares falling by over 30% this year.
DN reports that the government wants to sell more SAS shares, and ideally wants the whole group to be taken over by another airline. “Our message is that we are not a long term owner of SAS,” he says.
Yesterday Ericsson issued a profit warning resulting in its biggest plunge on the stock market in nine years as the company shed 20.2% and a share value of SKr 40 billion went up in smoke.
According to preliminary figures Ericsson’s operating results for Q3 were SKr 0.3 billion. Growth in turnover was 14% as network income fell by 19-30% during the quarter. Organic growth has fallen eight quarters in a row. The gross margin shrank from 32.2% to 28.4%. It has not looked this bad for Ericsson since just after the IT bubble burst.
Acting CEO Jan Frykhammar blames poorer Brazilians, Russians and Arabs in the Middle East after the fall in oil prices and a stronger dollar. European operators are also putting their purchases of Ericsson’s software on hold.
Enterprise minister Mikael Damberg did not want to comment on the stock fall but predicts a few tough years ahead for the company while Moderate leader Anna Kinberg Batra says it is a reminder of the pressure on Swedish industry.
Handelsbanken’s head economist Ann Öberg has predicted an economic downturn just around the corner. In Sweden growth has already hit its peak and unemployment has reached its lowest level, predicts the bank.
Across the entire western world central bank interest rates remain minus or around zero. In combination with record high state, corporate and household debt, this makes an imminent downturn extra frightening, she warns. “Neither the central banks nor fiscal policy have any ammunition for a shrinking economy.”
She also expects unemployment to rise from its current 7% to 7.3% in 2018.
Recently researcher Joachim Landström warned the inquiry examining profits in welfare-service companies that a profit cap of 8% plus inflation of invested capital would mean welfare companies would need to issue millions of kronor worth of new shares. He said that in the long term this could risk putting many companies into liquidation.
Nevertheless the inquiry is going ahead making calculations on the same model. It is also carrying out comparisons of caps at 5%, 7% and 9%. Illmar Reepalu, who is leading the inquiry, does not agree that it puts any companies at risk. “I do not understand how Landström is thinking. We have not been able to seen any of that,” he says.
However Per Strömberg, professor in finance at the Stockholm School of Economics says the risk of liquidation is obvious.
In an interview with DI at the World Bank’s annual meeting in Washington DC, finance minister Magdalena Andersson says she is concerned about protectionist tendencies across the globe. “The big discussions are about what happens to global trade. There are signs that it is slowing. This could be due to the economic cycle but there are other reasons, such as the many countries undertaking more protectionist measures just now.”
She points out that this is not great from a Swedish perspective as it is a small, open economy. “Our welfare is based on there being the potential to trade,” she says.
She continues, “Not all individuals benefit from the world as a whole growing richer and we therefore must have policies that can compensate for that. Politics has failed there, especially here in the USA.” She considers this to be one of the reasons there is strong support for Donald Trump in the coming presidential election.
She is concerned about economic development if Donald Trump becomes president and points out that there is a huge difference between a leader in the USA with political experience and one without political experience who is, furthermore, extremely impulsive.
At this weekend’s annual meeting of the International Monetary Fund in Washington, head Christine Lagarde will be urging finance ministers around the world to implement reforms to spur on inflation and growth.
However, Sweden’s Magdalena Andersson has no intention of expanding policy. Ahead of her trip to Washington she tells SvD: “We are pursuing a tight fiscal policy. We have chosen a different path”. The minister does add though that the leeway has increased somewhat, given the move to lower the surplus target level in 2019.
She believes a fairer distribution of profits is needed if the vicious cycle of sluggish global growth, populism and protectionism is to be reversed. Highlighting the way in which the widening gap between rich and poor in the United States creates frustration, she says: “the only way to reverse this is for politicians to ensure that the gains to be made from globalisation and free trade benefit everyone”.
China’s Huawei, Ericsson’s main competitor, reported a 33 per cent increase in profits in 2015. Henrik Glimstedt, an associate professor at the Stockholm School of Economics, is impressed by the Chinese company, which is not listed and therefore has a long-term approach that is not dependent on investors seeking instant gratification.
He is concerned over Ericsson’s plight and critical of Investor and Industrivärden, which control the telecoms equipment maker. He believes the company’s main problem is its major shareholders, who do not seem to understand that the 5G development Ericsson has embarked upon is costly. With 5G, wired and wireless communications will use the same network, and suddenly Ericsson is facing competition from giants such as Microsoft, Google, Apple and Samsung, as well as Huawei, whose strategy is broader than Ericsson’s.
The professor believes there will only be room for three or four big companies in the telecoms industry in the future, and Ericsson is unlikely to be one of them.
Telecoms equipment maker Ericsson announced on Tuesday plans to cut 3,000 jobs and some 900 consultants in Sweden. Eight hundred jobs will be axed in research and development, 1,200 in administration and 1,000 in production.
The plant in Kumla, which once employed 4,000, but now has a workforce of 430, will only produce prototypes on a small scale in the future. CEO Jan Frykhammar was not prepared to comment yesterday on how the plant in Borås, which employs 700, would be affected, other than to say the cuts would be extensive.
Ericsson’s strategy to reduce costs is to concentrate production to Tallinn in Estonia, Nanjing in China, and to external partners, writes the newspaper Svenska Dagbladet, reporting that there are also plans to axe 175 jobs and end production in Oulu, Finland.
However, Ericsson did say it would recruit 1,000 research and development positions in Sweden in the coming years.
According to public service broadcaster SVT, Ericsson is to announce job cuts of between 3,000 and 4,000 later today. The plants in Borås and Kumla will be the worst affected.
The government has been informed of the cuts, but does not wish to comment. “We are in talks with the industry, but we will not comment any reports until Ericsson has made an announcement,” says Gösta Brunnander, press secretary to enterprise minister Mikael Damberg.
SvD reports, however, that Mikael Damberg has already appointed a group of state secretaries who will assist the affected municipalities.