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How the Euro crisis eats deep in the heart of the Swedish economy

Saturday, 19 November 2011
As Sweden is the leading economy and the industrial power house of the Nordic region, it becomes imperative to look at to how the Euro zone crisis plays in its operation.

Sweden did not suffer much the effects of the last recession and recovered properly nicely when compared to others such as Denmark which is still reeling from the effects of the 2008 financial crisis.

As the Swedish economy was on track for impressive growth, the Euro debt crisis has hit now harder with big players such as Italy feeling sick. Sweden relies on the Euro market for its exports. It strength globally is not very strong as evident with reports yesterday that the performances of its companies it Asia is weakening. As such a healthier Europe is better for Sweden and vice versa is a deep kick in the groin.

So therefore a weaker and uncertain euro is aiming at swinging a very powerful blow to the Swedish economy – if it hasn’t already done so. But already our observation is that the euro crisis is already finding its way deeper and deeper into the Swedish economy.

Proof of this is higher savings, subdued house prices and weaker order intake for the industry which we have already reported in the weeks past. And the consequences are expected to be even more serious later on.
We have only seen the beginning. It is not until next year as the real consequences of the recent Euro-anxiety is expected to be felt. But for Sweden, already the impact in several areas can be identified.

According to a recent measurement of the economy by the Swedish National Institute for Economic Research (NIER) confirmed the picture of a subdued economy. All areas of the barometer from - manufacturing to residential customers showed that the situation has become darker and the activity in the economy is getting weaker than normal.

“Many Swedish companies developed strong third quarter of this year, but the fourth and first next year envisages weaker growth,” says Cecilia Hermansson, chief economist at Swedbank.

Already, new orders in industry has declined and the purchasing managers index, where 200 purchasing managers in industrial companies are asked about their specific economic situation, showed a result of below 50, indicating reduced activity.

In households, there has also been observed increased concerns especially shown in the increased caution and concern among households. Repressed by downturns in the stock market and interest rate hikes in the early years, makes it harder in the wallet than forecasters expected. Savings have increased and as a result can make its stiff for the retail section.

This in turn has led to the real estate market slowed, housing purchasing are among the first things that people become cautious as the economy shakes. It takes longer now for a house to sell as such prices have begun to fall slightly. In particular, a price in large cities where there is a general higher cost of living has declined most. For instance dominium prices in central Stockholm fell as 3 percent according to the latest three months data from the Swedish real estate association.

A sluggish housing market is in effect driving down investment in the construction industry.
“The construction industry can be expected to be the next sector to slow down as a result of this crisis,” says Jesper Hansson, head of research at the NIER.

Contribution to household disposable income has not gone up much in the past year. Inflation has eaten up some and no new jobs tax credits have been provided. This year, real wages fall. In addition, households have begun to worry about their jobs, making them more cautious.

One bright point is that Sweden is more dependent on the northern than southern Europe, where the debt agony is greatest. The big risk is if the financial system is knocked out and lending between banks is frozen inside. It would have consequences similar to the fall after Lehman Brothers crash in 2008. This will be a deep sharp knife pierced through the Swedish economy.

Authorities feel that what particularly characterizes the economy now is the great uncertainty about how indebted countries like Italy and Greece to resolve their problems.

As soon as there is evidence that these countries can put their public finances in order, it may ignite a rapid recovery in consumption and investment.  But the key is confidence and it will be enhanced only when the market believes that they are enforcing savings.

One other issues here identified is that countries such as China and the United States doing fairly well.
By Scancomark.se Team

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