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FINANCIAL CRISIS

Is it time for Sweden to brace for an economic downturn?

With growth faltering nationally, and the prospect of hard Brexit and a global trade war on the horizon, is it time for Sweden to start getting ready for an economic downturn?

Is it time for Sweden to brace for an economic downturn?
Experts believe the trigger for a downturn in Sweden is likely to come from overseas. Photo: Fredrik Sandberg/TT
Ylva Hedén Westerdahl, head of forecasting at the National Institute of Economic Research, said Swedes should not think today's good times will continue forever. 
 
While external shocks like Brexit or a trade war will only hit exporters directly, indirectly they could push down house prices, destabilize financial institutions, make salary growth stagnate and cause rising unemployment. 
 
“When house prices fall, then house-owners start to feel poorer and so they cut their consumption and start to save more,” she told the TT news agency.
 
 
Another big worry for the property market is whether the large numbers of newly built houses shortly to come onto the market will be sold. 
 
“The question is how they are going to be sold,” Westerdahl said. “Overproduction means that housing investments and prices could fall even more.”
 
But banks are not as exposed to mortgages as they were in the run up to the 2007 and 2008 financial crisis. 
 
 

Ylva Hedén Westerdahl. Photo: Anders Wiklund/TT
 
John Hassler, Professor of Economics at Stockholm University's Institute for International Economic Studies, argues that households in Sweden are not generally financially overstretched. 
 
A bigger worry, he said, was commercial property owners, some of  whom could go bankrupt in a downturn. 
 
“That's the part of the loan portfolio which is a little more uncertain,” he said. 
 
If that leads to a confidence crisis in the housing sector, banks could star pulling in lending to households and other investment projects, he warned. 
 
“The blood flow in the system might ground to a halt and that's very serious.” 
 
 
If the crisis is serious enough to push any of the banks into a crisis, then that could hit the entire economy seriously, forcing the national government to come to the rescue and guarantee some banks' borrowing. 
 
Luckily, he said, Sweden's cautious fiscal policy over the past 20-25 years had left it with considerable firepower to bail out banks in the event of a crisis. 
 
“If we had the same debt levels as France or Italy we would have been toasted.”
 
 
Most economists see Sweden's next economic downturn as coming from external factors, such as a financial crisis in Sweden, a crisis in the Eurozone, or a trade war between the US and China. 
 
The first industry segments to be hit will be big exporters such as Scania and Swedish steel giant SSAB. 
 
How much their troubled hit the wider Swedish market depends on how willing they are to hold onto their staff despite drops in sales, Hassler said. 
 
“They were willing to do that during the [2007] finance crisis but not during the 1990s economic crisis, when companies realized they weren't competitive enough,” he said. 
 
If there are mass layoffs, he said, the weakest members of the workforce would be the worst affected. 
 
“It has been tough for those with a low level of edcuation or a foreign background to get a job even during an economic boom, and for them a downturn would of course be much worse.”

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EUROPEAN UNION

Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information:

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp/consumer-oriented-faqs-pan_en 

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp_en 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK. 

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