Sweden posts record annual drop in industrial output

Industrial production in Sweden suffered a record year-on-year fall in January, according to new figures released on Tuesday, adding to fears about the health of the Nordic region’s economies.

• IMF warns Swedish economy 'vulnerable' (16 May 12)
• Sweden see off Czechs at hockey worlds (6 May 12)
• Sweden beat Norway in hockey worlds opener (5 May 12)

Industrial production has slumped across Europe as demand has dried up and banks refuse to lend money to businesses, with euro zone finance ministers saying on Monday things could still get worse.

Euro zone member Finland's industrial production adjusted for working days slumped 19.5 percent year-on-year after a 16.2-percent fall in December.

Industrial production in Sweden -- an EU member but outside the euro zone -- fell 22.9 percent while order books contracted 31.9 percent.

Both statistics offices said the declines were the worst since comparable data sets began in 1990.

"This (data) is horrible. It's a bad sign, as it's not just about Lehman and the financial sector troubles. It's an issue of lacking demand," Tiina Helenius, chief economist at Handelsbanken in Helsinki said.

With industrial production slumping, GDP figures have been ugly.

Finland's gross domestic product fell 2.4 percent in the fourth quarter, and Sweden is in even worse shape. Its economy contracted 4.9 percent against the same period in 2007, the worst fall since comparable data began being collected in 1993. The Swedish central bank thinks the recession will be the worst since WWII.

Denmark also saw a record contraction in GDP in the fourth quarter. Norway is now the only of the four big Nordic economies not in recession, though it is likely to be later this year.

Industrial production is likely to continue to fall, analysts said, though both Finnish and Swedish analysts said the pace of decline may ease in the coming months.

Interest rates -- set by the European Central Bank in Finland's case -- are also likely to come down further, to help boost struggling businesses and consumers.

Sweden's central bank has slashed interest rates to a record low 1.0 percent over the past months, and a majority of economists polled by Reuters on February 23rd see the Riksbank cutting its key interest rate a further 50 basis points in April.

Knut Hallberg, analyst at Swedbank, said the industrial production figures strengthened the view "the Riksbank will continue cutting rates as fast as possible".

The ECB is expected to cut rates in the second quarter by 50 basis points from the current 1.5 percent.

Sweden's central bank meets on April 20 with its decision on interest rates published the following day.

The European Central Bank will next decide on interest rates on April 2.