Weak krona impoverishing Sweden

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.

Sombre tone ahead of IMF meeting

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”.

Damberg has activated crisis group

After discussions with Ericsson’s chair Leif Johansson, minister for enterprise Mikael Damberg chose to activate a crisis group for handling potentially huge redundancies.
The news that telecoms giant Ericsson plans to move all manufacturing from Sweden, which would cost 3,000 jobs, was met with surprise and dismay by employees, politicians and unions.
Mikael Damberg spoke directly to chair Leif Johansson on Thursday and says that he has been given confirmation that there is no closure decision. However the conversation did not provide any further reassurance as the minister decided to activate a crisis group of several state secretaries afterwards. “It is a group that works with large changes in business, which is now being activated to be able to act if a decision in that direction comes from the company,” says Mikael Damberg.

Missed inflations targets could be made flexible

Despite lowering the repo rate to -0.50%, the Riksbank has failed to bring up inflation to the two per cent target, which the bank’s leadership has been criticised for. The Riksbank now says that inflation targets could be made more flexible and a divergence of a percentage point up or down from the target could be allowed.

  However Professor Lars Calmfors is critical. “This creates a greater uncertainty than what the Riksbank is aiming for. It is adapting to what has happened and increasing acceptance for divergence and there is no reason for that.”

  However Annika Winsth, head economist at Nordea, welcomes the Riksbank’s thinking. “This has been eagerly awaited. We have long said that it would be better with a flexible view on inflation. They have fastened onto something that does not benefit Sweden.”

Proposal not going to pass

It did not take long for reactions to come to the government’s proposal on Friday for a quota system for company boards and the proposal is likely to be outvoted in parliament.

  The message from the Moderates was clear: quotas are not the right medicine for increasing equality. “We believe that business can do better, but we do not believe that legislation is the right way to go,” says the party’s group leader Jessica Polfjärd.

  Centre Party leader Annie Lööf accused the government of making it harder for women to start companies in the welfare sector and believes they ought to be dealing with the equality issues that women meet everyday in their regular jobs and incomes. The Christian Democrats and the Liberals are also against the idea.

Sweden still hoping for TTIP

The free trade agreement between the USA and the EU, TTIP, has been declared dead by French and German ministers. German Economy Minister Sigmar Gabriel said that it was due to the EU not wanting to bow to American demands and French Trade Minister Matthias Fekl said that there was no will from the Americans to continue.

However the Swedish government, which would like to have an agreement, says that the negotiations continue and is still hoping to reach an agreement. EU and Trade Minister Ann Linde (S), says, “There is no information that indicates the negotiations have stranded.”

Supporters of TTIP consider the German comments to be a domestic political manoeuvre.

Economist warn of Trump victory

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.”

EU dashes hopes of rapid growth

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.

Brexit will affect exports

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.

Not necessarily the end for nuclear power

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.