With just over ten weeks remaining until the election in the USA more economists are warning of the effects of a Trump victory. Many dread that, as promised, he will tear up existing trade agreements. Arne Bigsten, professor in economy at the Gothenburg School of Business, says, “Sweden is very integrated and very dependent on the world markets being open.”
Willem Buiter, head economist at Citigroup, predicts that global growth could fall by 0.7-0.8% if Trump wins, but warns that the world is facing more protectionism whoever wins. Professor Bigsten agrees: “It could lead to some kind of more or less declared trade war in which we trade less with one another.”
The European Commission has lowered its growth forecast for the eurozone and the broader European Union. Gross domestic product is expected to land at 1.6% in 2016 and 1.8% next year, while growth in the region as a whole is expected to hit 1.8% this year and 1.9% in 2017.
Sweden will continue to fare well, the Commission said, upwardly revising its growth forecast for the Scandinavian country, from 3.2 to 3.4%. The budget deficit is expected to be 0.4% of GDP.
“Sweden is not in as deep a recession as the rest of Europe; unemployment is quite high but Sweden has the highest employment rate. This provides a good tax base and strong finances,” Swedbank chief economist Anna Breman has said.
According to a fresh report from Swedbank, if Britain decides to leave the EU it will likely lead to short term volatility on the world’s financial markets, which would strengthen the dollar and euro against the krona.
In the longer term Swedbank writes, “A Brexit will probably weaken the EU politically and economically. In turn this will affect Sweden negatively.” In particular the service sector, of which the UK is the third largest export market, will be sensitive. In 2014-2015 alone Swedish service exports increased by 44% to the country. Negotiating a new trade deal with the EU is also likely to take a long time, in the case of an exit.
Swedbank also considers there to be a risk that Sweden’s political influence in Brussels would fall. Sweden often votes with the UK and the bank deems that more power will be transferred to the eurozone in the case of a Brexit.
The government recently announced it wants Sweden to move towards a completely renewable energy system, a decision that has caused concern because of potential supply shortages for business if nuclear power is phased out. However, on Wednesday Energy Minister Ibrahim Baylan clarified that the new model does not necessarily mean the end for Swedish nuclear power.
If there is a strictly business line basis for building new nuclear power plants then this should be made politically possible, he stated. “There may be a situation where we produce 120% of our need and export the rest,” he says. However, he does not believe this will happen. “Nuclear power is experiencing difficulties with or without taxes and will sooner or later be phased out,” he says.
Instead Ibrahim Baylan considers hydropower to have huge potential to supply the basic industries. “We need to reduce the political risk so that the market is able to invest,” he says.
Following deductions for subsidies and benefits, residents of Sweden pay the second highest fee to the EU, according to a survey by europaportalen.se, which has found that each Swedish resident paid the equivalent of 2,600 kronor to Brussels in 2014.
Residents of the Netherlands pay the most; EU membership cost the equivalent of 3,600 kronor last year. Belgium ranks third, according to the website, with each resident paying just over 2,400 kronor.
Thousands of jobs are under threat, Sweden’s security is on the line and the state will lose out on millions. Unions and businesses are critical of the proposal for new rules on Swedish weapons exports.
A parliamentary committee set up to review exports controls on military equipment (Kexkommittén) submitted a report last year suggesting Sweden ought to have a more restrictive policy of weapons export to non-democratic regimes.
BAE Systems Hägglunds warns exports will decline, companies will become less competitive and profitability will fall. It also warns that shrinking investment in research and development will hit universities and colleges. Saab shares this view, warning of fewer jobs.
In a new report, the Organisation for Economic Co-operation and Development (OECD) finds that the Swedish labour market functions better than most others. However, the job security gap is widening between permanent employees and fixed-term employees, which is why the organisation recommends that Sweden relax its employment laws.
The OECD also recommends that Sweden invest in more training for the least skilled, and ensure that unemployment insurance is designed to cover all workers.
Volkswagen has said it will recall 11 million emission-rigged vehicles worldwide. In a statement issued on Tuesday, the company said it was working on a technical solution to correct the manipulated software in the cars with EA 189 engines. In Sweden, 224,746 Volkswagen, Audi, Skoda and Seat vehicles will be recalled.
The government has called representatives of Volkswagen’s Swedish division to a meeting today to seek clarification on local vehicles.
In a new forecast for the Swedish economy, GDP will grow by 2.6% this year, and by 2.7% in 2016. However export-led growth has stagnated and productivity is something of a disappointment. Additionally, tax revenue is less than previously forecast. As a result, the government is revising down its forecast over public savings.
To date Finance Minister Magdalena Andersson has said that the government’s reforms will be financed “krona for krona”. However, uncertainty in the euro area could force Sweden to increase its borrowing. “But we are not there yet, since reactions have been muted despite the Greek drama,” said Andersson on Tuesday
At today’s Brussels summit leaders will discuss the UK’s calls for EU reform, note Moderate economic policy spokesman Ulf Kristersson and Moderate foreign policy spokeswoman Karin Enström in a DI debate piece this morning.
The number of EU citizens living in Britain has increased two-fold in the past decade, and PM David Cameron has proposed that EU immigrants will have to work in Britain for four years before they can claim benefits. The PM has also signalled that he will lead Britain out of the EU unless the proposal is accepted.
It is of vital interest to Sweden that Britain stays in the EU, which is why the Swedish government should now work to ensure that the British focus on important practical issues, instead of seeking treaty changes in the short-term. The Swedish government should also work to ensure that the right to freedom of movement in the EU does not undermine the right of all countries to design their own welfare policy, state the two Moderates.