What impact will Swedish political crisis have on the economy and the krona?

Experts say Sweden's current political crisis should have little impact on the country's economy, however any dip in the krona will spell bad news for some people.

What impact will Swedish political crisis have on the economy and the krona?
The Swedish economy will not be affected the current political crisis, experts say. Photo: JESSICA GOW / TT.

Sweden was still mired in an unprecedented political crisis this week after Prime Minister’s Stefan Löfven’s government was brought down after he lost a vote of no-confidence in parliament.

With the impact of the Covid-19 pandemic already having hit Sweden’s economy hard there are concerns the political crisis could now hinder the country’s recovery, just as it has begun to return to a more normal situation thanks to falling infection rates and the vaccine rollout.

However economists believe the political rows and instability should not have too much of a negative impact on Sweden’s economy.

“Our assessment is that the political uncertainty going on right now won’t have significant consequences either on the economy or interest rates,” Michael Grahn, chief economist at Danske Bank, told the TT news agency.

“On the other hand, the krona may be affected in the short-term,” he warned.

The country is still waiting for Löfven to make his next move, which could result in snap elections or yet more fraught negotiations to form a new government, but Susanne Spector, Chief Analyst at Nordea Bank says the country is stable enough to avoid any major economic fallout. 

“We have a strong economy and a parliament that can still take decisions,” she told The Local. “The economic effect will be small or non-existent.”

However she did warn that if Sweden’s political crisis did run and run and impeded any government from being able to function then it will eventually take its toll.

“We could end up with weaker governments that aren’t capable of making the necessary changes,” she said.

Even if a snap election is held, Spector does not believe it will significantly impact the economy despite the estimated 400 million kronor cost of staging the nationwide vote.

“It is a small sum on the whole,” said the analyst.

Spector also believes that the Swedish economy will remain stable no matter which parties make up the next Swedish government.

She adds that the improving Covid-19 situation in Sweden means there are more reasons to be optimistic about the economy than downbeat. Spector says there is a strong economic recovery, with most adults soon to be vaccinated (though Sweden did push back its vaccine target on Thursday), stimulating consumption.

“Even though we’ve been wrong about the virus several times, the economic forecast has still been revised upwards time and time again,” Spector says, adding that Sweden has “good conditions regardless of the virus situation”.

Anders Bergvall, Senior Economist at Handelsbanken agrees: “Our public finances are strong,” he told  The Local, adding “more and more people are receiving the full vaccine dose. The situation looks good and we continue to open up.”

What impact will a weakening krona have?

The sudden political upheaval in Sweden initially prompted a drop in the value of the krona compared to the euro, US dollar and British pound before the Swedish currency recovered.

Spector says the Swedish krona is estimated to weaken this year due to the US dollar strengthening in the next few months.

But what will that mean in general?

Sweden is an export-orientated economy, and a low krona can make Swedish companies more competitive, since their products become cheaper to buy than those in countries with the euro. For companies that rely on imports, though, there are higher costs to reckon with, and this affects many export-focused companies too. 

But when it comes to individuals, those who receive a salary or pension paid in euros or another comparatively strong currency will get more for your money when spending in Sweden. Anyone planning a move or an investment in Sweden, such as buying a house, using savings from outside Sweden is therefore in a strong position.

Many savers in Sweden put their money into international funds and shares, which means returns are smaller when the krona is comparatively weak.

And a weak krona is not good news for those who are paid in the Swedish currency, intend to travel overseas, or send money overseas (for example, to family members in their home country).

A strong krona can also be bad news for some.

Anyone planning a move or an investment in Sweden, such as buying a house, using savings from outside Sweden is in a weaker position when if the krona strengthens against other currencies.

And a strong krona means trips to Sweden from overseas will become more expensive than usual – although the impact of global travel restrictions, limited flights, and other consequences of the pandemic will be more important. It’s fairly unlikely that the currency exchanges will be many people’s top priority when deciding whether or where to travel in the near future.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT