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Swedish economy hit by eurozone troubles

Swedish economy hit by eurozone troubles

Published: 29 Feb 2012 12:00 GMT+01:00
Updated: 29 Feb 2012 12:00 GMT+01:00

Sweden's economy contracted in the last quarter of 2011, shrinking by 1.1 percent compared to the previous quarter and showing the export-dependent economy's vulnerability to the eurozone crisis.

While Sweden's gross domestic product (GDP) actually grew by 1.1 percent during the fourth quarter of 2011 compared to the same period in 2010, the rate was well below the 2.6 percent estimated by analysts, according to new figures from Statistics Sweden (Statistiska Centralbyrån, SCB).

The GDP figures for the fourth quarter were weaker than what had been expected by analysts, who had been predicting a rise by 2.6 percent compared to the same period in 2010 and a 0.8 percent decrease compared to the third quarter, according to news agency Reuters.

“That is a weak figure, even weaker than we had predicted and a lot worse than anticipated by the Riksbank,” said head economist at Swedish bank Nordea, Annika Winsth, to news agency TT.

“The consequence will be that the Riksbank will have to continue to cut interest rates,” said Winsth, who predicts a drop in repo rate to 0.75 percent by September.

The report showed that Swedish household consumption expenditures rose by 0.7 percent and general government consumption expenditures increased by 0.8 percent during the fourth quarter of 2011.

Export increased by 0.6 percent and the import by 1.6 percent.

According to the report, Swedish export was affected by the the unstable international conditions and the net export showed a negative development for the first time since the second quarter of 2010, pulling down the GDP by 0.4 percentage points.

Seen over the whole of 2011 the GDP increased by 3.9 percent compared to 2010. Household spending rose by 2.1 percent. Transport costs and Swedes spending money abroad contributed most to the rise.

The figures also showed a rise in public spending by 1.8 percent over the whole of 2011, with export increasing by 6.8 percent and import by 6.1 percent.

Tor Borg, an analyst with SBAB bank, said that the growth figures, just as earlier inflation figures, were well below the Riksbank's prognosis.

“We are expecting them to cut interest rates by 0.25 percentage points at the next meeting, and these figures are endorsing that prediction a little,” Borg told TT.

The results for spending and export is what is especially worrying, according to Borg.

“Spending and export is somehow at the very centre of growth,” he told TT.

Two weeks ago, the central bank cut its key rate by 0.25 points to 1.50 percent, citing a weaker economic outlook due to dwindling growth in the neighbouring eurozone.

Europe accounts for 70 percent of Sweden's exports.

Ben May, an economist at Capital Economics research consultancy, said the fourth-quarter figure "brought the strongest evidence yet that the problems in the eurozone are taking their toll on Europe's healthiest economies."

Swedish finance minister Anders Borg also commented on Sweden's apparent economic slowdown.

"It's very clear that the Swedish economy stood still in October, November, December. They were very weak months," Borg told TT.

"This shows that Sweden is an open, small and dependent country. We are always affected when there is risk around us," he said.

He added that "several measures are being taken to stabilise the situation," but did not specify what those moves were.

Finance minister Borg said it was important to exercise caution and ensure that Sweden maintained maneuvrability in its economy, and said he saw two trends that were affecting the Swedish economy.

"On the one hand, the situation developed weakly at the end of last year, on the other hand, it looks like there has been a significant decline in uncertainty over the global economy."

Sweden has registered consistent growth since the second quarter of 2009, when it exited a one-year recession.

TT/AFP/The Local (news@thelocal.se)

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Your comments about this article

18:34 February 29, 2012 by skatty
"This shows that Sweden is an open, small and dependent country. We are always affected when there is risk around us," he said.

There is risk around us, there is risk inside of us, there is risk upon us, and there is risk under us; so what,

The Borg is boring, who has been considered the man of economy (the best one, the best as usual like anything else in Sweden!)
19:54 February 29, 2012 by viennacalling
I have just tracked the exchange rates with currency online

Swedish Banks Norway Banks and the British Banks have taken advantage of the Loan from the ECB Euros that is and they have converted it to their respective currencies, so this has weakened the Euro

the swedish, norway and british central banks did not counter by buying the Euro, So this is proof that the reserve banks are not doing a good job and are making mistakes continuously

I checked Denmark and they Pegged at the right time and so did the Swiss

I really think the Swedish British and Norwegian finance ministers need an education !
08:03 March 1, 2012 by Marc the Texan
The central banks of Norway, Sweden and even Britain are too small to help the Euro. And why should they? Germany and France created the problem, the ECB flooded the Eurozone with cheap money in the early 2000s to prop up Germany. This created huge inflation in southern Europe with too much liquidity. Now Germany won't return the favor. The problem is the Euro. It is so flawed that the Eurozone will continue to suffer until the single currency breaks up. Who knows how long it will take, maybe partially this year or they could probably continue to impoverish themselves and keep this up for years. Depends on how much pain they are willing to take. Sweden will feel it by proximity, but Sweden is lucky not to be part of the single currency.
16:06 March 1, 2012 by the fonz
@#2 when exactly did the Swiss peg their currency?

I would suggest it's not the Finance Ministers that need an education!
22:37 March 1, 2012 by mibrooks27
If you sleep with dogs, you'll wake up with fleas. Sweden needs a close relationship with the Scandinavian country's, not with the EU. Oh, and it should reclaim it's North American colony. The American's have shown no ability to run a country.
05:38 March 3, 2012 by Marc the Texan
If Sweden reclaimed their North American colony, I would move there. They need to send lots of emigrants first. That's how Mexico is claiming the southwest.
10:59 March 3, 2012 by viennacalling
Hi Fonz the swiss pegged at 1.20 last year and have held this mark since

the swiss bank leader acknowledged that 1.30 is preferred but they whould have had difficulty holding this mark
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