What does the coronavirus mean for the Swedish economy?

The Swedish government proposes an emergency package of 300 billion in the wake of the economic impact of the corona pandemic on Monday, March 16th. From the left: Minister of Financial Markets, Per B
The economic impact of the coronavirus pandemic has affected many areas of business with companies having to lay off workers in the worst-hit industries. This has prompted several measures from the Swedish government and Central Bank in order to weather the crisis.
The coronavirus pandemic has hit markets on a global scale, with stock markets taking beatings on a scale not seen since the global financial crisis in 2008. This has left governments scrambling to come up with financial aid packages and political solutions.
 
Sweden benefits from having had several years of a booming economy, but the coronavirus is nevertheless likely to hit the country hard, with some areas of business already having to lay off thousands of workers.
 
“The coronavirus will have extensive negative effects on jobs and the economy, with some of those effects already showing,” Swedish Finance Minister Magdalena Andersson said at a press conference on Monday.
 
“Many businesses, companies and employees are worried and frustrated. And we need to be frank. Sweden has a heavy and strenuous time ahead. The entire society will be affected economically, including businesses, organisations, individuals and the public sector. But because this affects our entire country, we will also get through this together,” she said.
 
“We will use our strong public finances to try and mitigate the effects on jobs and companies. We have been working hard to get forceful measures in place in order to reduce the economic impact of the virus.”
 
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Several economic measures have been proposed, or put in place, during the past week.
 
1. Government emergency package
 
On Thursday the Swedish government will propose a budget emergency package to the Swedish parliament of up to 300 billion kronor ($31 billion).
 
The main proposal is a new system for shortening work hours, while the employee will still retain 90 percent of their original pay. The state will foot a large portion of the costs, meaning that employers can cut their payroll expense in half. This new system will come into force in April but will be retroactively applied from March 16th. Both the employer and the employee need to be in agreement in order for the subsidy to be available.
 
The package also means the state will take on all the costs related to employee sick leave in April and May. Usually, sick leave costs are divided between the state and the employer.
 
And employers will be able to defer social security contributions, preliminary tax on salaries and value-added tax reported monthly or quarterly for 3-12 months. This will be retroactively available from January 1st, which means that they are able to get already-paid taxes back from the Swedish tax agency from the beginning of the year.
 
This is to help businesses maintain liquidity, so that they can keep paying out salaries.


Financial Markets Minister Per Bolund, left, and Finance Minister Magdalena Andersson, with economic policy spokespersons from the Liberal and Centre parties at a press conference on March 11th. Photo: Anders Wiklund/TT

2. Other economic measures
 
The karensdag or 'waiting day' for paid sick leave is removed between March 11th and May 31st, meaning that workers get sick leave pay from day one instead of missing the first day's pay.
 
The employee will need to apply for karensdag remuneration for the first day at the Swedish Social Insurance Agency (Försäkringskassan). This also applies to those who are self-employed. 
 
The governments budget also includes increased funding for smittbärarpenning, disease carrier's allowance, which is paid out by the Social Insurance Agency, since the number of people in need of that subsidy is expected to increase.
 
Municipalities and regions will be compensated for extraordinary costs related to the pandemic. These might include extra expenditures such as materials, staff costs, lab analysis and disease tracking (in Sweden it's the regions who have responsibility for healthcare)
 
And affected government agencies will get extra funding to cover expenditures connected to the pandemic:
  • 41 million – The Public Health Agency of Sweden (Folkhälsomyndigheten) 
  • 20 million – The National Board of Health and Welfare (Socialstyrelsen)
  • 5 million – The Swedish Medical Products Agency (Läkemedelsverket) 
Sweden's National Board of Health and Welfare will also get a triple increase in possible lending expenditure, from 100 to 300 million kronor, in order to buy protective equipment and coronavirus test kits.
 
3. Central bank measures
 
Sweden's Central Bank, the Riksbank, decided on March 13th to make loans of up to a total of 500 billion, available to businesses through the banks. Loans are given at the current base rate, reporäntan, at 0 percent.
 
“The turbulence on the financial markets risks otherwise healthy businesses' finances. In this case it is important that the banks continuously are able to lend to businesses so that credit supply isn't threatened. The measures taken in this situation should be seen as a form of insurance so that Swedish businesses – especially small and medium sized – can feel safe in that credit supply will continue flowing,” said Riksbank head Stefan Ingves in a statement.


Stefan Ingves, governor of the Swedish Central Bank. Photo: Claudio Bresciani/TT

Sweden's banks have promised to take responsibility for keeping the credit supply flowing according to Financial Markets Minister Per Bolund.
 
“I got a very clear message that they [the banks] are ready to shoulder their civic responsibility and also use capital resources made available to them in order to get Sweden through this difficult situation,” Bolund said to Swedish news agency TT.
 
The Swedish Financial Supervisory Authority (Finansinspektionen) has also proposed lowering the buffer rate requirements of banks from 2.5 to 0 percent, a reduction of around 45 billion, in order to increase lending capacity. The lowered rate will be applied on March 16th for at least 12 months.
 
The supervisory authority declared on March 16th that they will allow banks to fall below the liquidity coverage ratio (LCR) set by the EU's banking regulatory system. In normal circumstances banks are required to report falling below, or expecting to fall below, the LCR.

4. Swedish jobs and mortgages

The airline and hotels businesses are haemorrhaging jobs with the tourism sector having laid off more than 15,000 employees as of March 16th.

The airline company Norwegian has cancelled over 4,000 flights and has said it needs to lay off more than 50 percent of their employees. The company has also stated that it needs financial support within a few weeks in order to survive. Similarly, SAS has announced plans to make up to 10,000 staff members temporarily redundant.


The aviation airline Norwegian is close to bankruptcy. Photo: Johan Nilsson/TT

Several other airlines have also notified that they need to cut down on staff expenditures.

“I think we all realise that this is the biggest challenge the aviation business has ever faced, bigger than during the financial crisis,” Infrastructure Minister Tomas Eneroth told TT after meeting with representatives.

Many small business owners are also worried about having to lay off employees. As well as government aid outlined above, several private initiatives have been launched across Sweden to help small businesses. You can read more about them in this article.

Some banks, such as Nordea and Danske Bank, have promised their customers, businesses as well as individuals, deferments on mortgage and loan payments if they end up in financial difficulties due to the coronavirus crisis.

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