“Inflation is dead”

imagesIn practice, inflation is dead in Sweden, which means that the central bank, the Riksbank, should act more forcefully, Anders Borg, the former finance minister, has said in an interview with business weekly Affärsvärlden.

He warned that Europe faces a long period of stagnation; price pressure will remain low as a result of a weak banking system, rapid digitalisation and globalisation.

Borg also said that irrational currency movements were to be expected as a result of zero interest rates, and that this was “extremely dangerous for export-dependent countries such as Sweden”.

Sweden lagging behind

In its latest Sustainable Economic Development Assessment (SEDA), the Boston Consulting Group (BCG) ranks Sweden in 5th place in a comparison of 149 countries. However, BCG finds that Sweden is lagging behind comparable countries such as Canada, Germany, Japan, South Korea, Switzerland and the US in terms of the infrastructure, education and economic stability.

“Economic stability should be taken with a pinch of salt. We’re talking about inflation expectations, but as far as the infrastructure goes, there is a big gap. And, as we are all aware, Sweden is lagging behind in education,” says Johan Öberg, MD of BCG Sweden.

Öberg is critical of government policy, saying no package has been presented to address the fundamental challenges regarding education and talent.

Telia in new corruption scandal

Azerbaijan’s presidential family is believed to have swindled the state out of the equivalent of SKr 6 billion, with the help of Nordic operator TeliaSonera, according to Swedish investigative programme Uppdrag granskning, the TT news agency and the Organised Crime and Corruption Reporting Project (OCCRP).

In 2008 the Azerbaijan state said it intended to sell its holding in TeliaSonera’s Azercell subsidiary. One of TeliaSonera’s holding companies acquired the state holding at an extreme discount; for USD 180 million, instead of the market value of USD 780 million.

In spite of the bargain, the Telia sphere handed over the whole purchase to a local partner, Cenay Iletisim, who has ties to the president’s daughters, and apparently without the partner having to spend a penny. Telia’s company financed the purchase and the local partner was paid back in dividends from the common activities.

Since 2008, the partner has received dividends of around SKr 2 billion. The partner also has the right to be bought out by the Telia company at the market price of SKr 6.8 billion, according to the latest annual report.

Billion kronor write-downs in pipeline

In the past two years state-owned Vattenfall has had to write down SKr 53 billion in the value of its business. Svenska Dagbladet reports this morning that CEO Magnus Hall is now planning new write-downs. In a worst-case scenario, Vattenfall may have to take an impairment charge of SKr 15 billion on its Swedish nuclear business, of SKr 15 billion on Nuon and of SKr 30 billion on its German lignite business.

Naïve Swedish firms

Swedish companies are naïve in their approach to corruption, finds EY (formerly Ernst & Young) in their annual fraud survey of corporations in Europe, the Middle East, India and Africa.

According to EY, Swedish companies fail to follow up on anti-corruption policies and also fail to give employees the necessary training to detect fraud. A mere 13% of Swedish firms run background checks on suppliers and other partners, while the European average is 18%. In addition, many Swedish firms have failed to build up a robust whistle-blower mechanism.

Low inflation paves way for new cut

Sweden’s CPI inflation reading for April was a negative 0.2% – down from +0.2% in March – while underlying inflation fell from 0.9% to 0.7%. Cheaper holidays, lower interest rates and falling electricity prices contributed to the downturn.

The Riksbank has low tolerance of negative surprises and it is feasible the central bank will cut its benchmark rate further in the coming weeks, particularly if the Swedish krona strengthens against the euro.

EU must take action

In a Confederation of Swedish Enterprise survey, 93 per cent of Swedish listed companies have said they have been victims of piracy, or lost patent revenues as a result of counterfeiting. In addition, 80 per cent believe counterfeiting and piracy will rise in the coming years.

China has long been the leading producer of pirated goods, but the industry is growing in countries such as Russia, Nigeria and Turkey, reports business paper Dagens Industri.

Piracy is a matter for the government, and the EU, says Patrick Krassén, IPR manager at the Confederation. “It’s about putting political pressure on these countries in international negotiations. Additionally, the issue needs to be put on the political agenda in Sweden,” he remarks.

Four of ten reactors face closure

58abf086e222355f25d1dc2ec923910dSweden’s nuclear industry is under pressure as a result of falling electricity prices coupled with rapidly rising energy taxes, waste fees and new security requirements.

Vattenfall is already seeking the early shutdown of two of four reactors at the Ringhals nuclear power plant, and now plans are being drawn up to close two of the three reactors at Oskarshamn, according to energy market consultant Christian Holtz.

The deciding factor could be new independent core cooling requirements which will demand billions of kronor in investment, says Holtz.

Expert: Alarming policy

Equity analyst Peter Malmqvist has described the Riksbank’s policy as “alarming”. He does not believe in negative interest rates as a means of bringing up inflation to target; all it does is to build bubbles in the economy.

“I am against the policy that has been pursued in the past few years. Property prices are rising, there are no homes, and the stock market is going up. All curves in Sweden are pointing upwards right now, apart from the interest rate,” he says, and suggests that the consequences could be grave when inflation starts picking up and the bubbles burst.

Vattenfall seeks early shut down of reactors

Vattenfall announced yesterday that it was seeking to shut down reactors 1 and 2 at its Ringhals nuclear power plant between 2018 and 2020, rather than in 2025 as was previously planned.

Energy prices are falling and Vattenfall CEO Magnus Hall has said he does not see any indication that they will increase in the coming years. At the same time, the utility is facing increasing production costs, and intends to trim 1,000 staff. The cuts will affect staff in Sweden, Germany and the Netherlands, according to the CEO.

Magnus Hall has also said that the decision had been made on a commercial basis and that no political pressure had been exerted. However, he admitted that reactors which ran smoothly would probably not have to close, were it not for the new and higher tax on nuclear power.

The decision to shut down the reactors must be taken by the Ringhals board and presupposes that co-owner E.On will agree to the plans.

Jonas Abrahamsson, E.On manager for the Nordic region, said yesterday that it must first analyse the proposal.

The book value of Ringhals 1 and 2 is around SKr 15 billion. Were the two reactors to shut down, Vattenfall and E.On will be forced to make extensive write-downs.

“We are looking at the financial impact and aim to submit a report on this in conjunction with the Q2 report,” Magnus Hall told the press.