The State of Sweden’s Economy At A Glance

Basically this post accompanies my earlier Swedish monetary policy and Sweden devaluation ones. First some theoretical structure from Claus Vistesen.

As we can see above, the idea is that as median population age rises the current account dynamics of a country change. The last ageing phase of the diagram is purely speculative at this point. Basically we simply do not know what happens after a society starts to dis-save at an advanced median age. We have, as yet, no experience with this phenomenon.

Now, as is well known, Sweden’s median population age has been rising steadily, and reached 41.3 in 2009 according to the latest estimates from the US Census Bureau. This makes it a little younger than Germany and Japan (ma circa 43) but still over the critical 41 threshold (which is itself a tentative first estimate, and still needs calibrating from case to case).

Also as can be seen below, Swedens external position underwent a structural shift in the mid 1990s, just as Claus’s model predicts. First positive balance – the submarine breaks water – in 1994, median age 38.4 (quite young in international comparisons so interesting). So so far so good.

Now for the empirical side. The Riksbank said the economic outlook had worsened further since its previous meeting, in April, and gave this as its justification suggesting the repo rate will now be held at 0.25 percent until autumn 2010. The central bank now forecasts the economy will contract 5.4 percent this year and return to growth of 1.4 percent next year. As can be seen in the charts below economic performance was weak throughout 2008, and the contraction was very strong in Q4 2008, but showed some evidence of weakening in force in Q1 2009.


However, we have seen a number of signs of stabilisation in recent months. Consumer confidence is now off the lows hit in the first quarter of this year, increasing for the second consecutive month in June (to minus 9 from minus 11 in May). The confidence indicator was minus 21 in April. Sweden’s business confidence indicator also improved – for the third straight month – in June, rising to minus 19 from minus 24 in May. Retail sales are also perking up, and according to Eurostat (harmonised) data sales rose 2.2 % year-on-year in May, slower than the 4.3 % rise in April, but still fairly healthy when compared with the very lacklustre performance between September 2008 and March 2009. Month on month, retail sales fell back a seasonally adjusted 1.1% in May when compared with April.


Industrial output is also performing less badly than it was. Output has stabilsed, although at around 85% of its 2005 level, and was contracting between January to May at around a 20% annual rate.

According to the Swedish Statistics Office during the three months from March to May, production decreased by 6.9 percent compared to the previous three months of December-February. Total industrial production (NACE B+C) was down by 2.7 percent in May as compared to April, while in April production decreased by 2.1 percent compared to March.

However, the recent improvements in the PMI reading have been very positive, and indeed the June manufacturing PMI was in expansion territory. Registering 50.5, following 43.7 in May.

Exports continue to be well down, even if there is still a net trade surplus (SEK 9.5 billion in May, up from SEK 8.8 billion in April, and only very slightly down from the SEK 9.6 billion reported in May 2008. Exports fell 24% year-on-year to SEK 78 billion, while imports dropped 26% to SEK 68.5 billion. On a seasonally adjusted basis, the net trade surplus amounted to SEK 8.3 billion in May, up from SEK 8.1 billion in April.

Inflation is now seen by the central bank as less of a threat to the Swedish economy than deflation. Annual consumer prices have declined for two consecutive months and fell 0.4 percent in May. Prices will fall 0.2 percent on average this year, according to the Riksbank. Year on year, headline consumer inflation is still holding in positive territory however, and was still up by 1.7% (still shy of the Riksbanks 2% target) thanks largely to the sharp knock administered by last autumns devaluation.

Curiously the inflation rate as measured by the Swedish statistical office methodology fell to -0.4% in May (-0.1 % in April), while the price index rose by 0.1% from April to May. The main difference in methodologies seems to relate to housing costs, with lower prices for repairs (-4,5 %) due to the introduction of a subsidy for home repair and maintenance and lower interest rates (-3,2 %) each contributing a negative impact of 0.1 percentage points according to the statistics office.

Also producer prices, which have been falling since August 2008 give some indication of the deflationary pressures which are now in the pipeline, and year on year they were up by only a threadbare 0.9% in May.

Rising unemployment is another indicate of the weak demand problem which is building up, and the seasonally adjusted rate hit 8.9% in May, according to Eurostat data.

Basically nothing here is easy, as we are all caught in a rather awkward place. Sweden’s Economic Activity Index – which gives a rough and ready measure of activity in the Swedish economy – decreased sharply again in May 2009. The trend decreased 0.4 percent compared to April, which corresponds – according to the statistics office – with an annual contraction rate of almost 5 percent.

As in April, the decrease of the Activity Index in May can mainly be explained by the decrease in exports of goods and industrial production. Indeed, even if the net trade situation is stable, both imports and exports are still falling (see chart below).

But Sweden does seem to have the advantage over many EU countries in that it has a group of people at the central bank who take the deflation threat seriously, and it is hard to disagree with the assessment from UBS economist Sunil Kapadia, when he says that Sweden’s economy will recover faster than those in the euro area. Capital Economics’s Ben May is also to the point, Sweden is the place we should look to find green shoots in the EU, if we are to find them anywhere that is.

This entry was posted in A Fistful Of Euros, Economics and demography, Economics: Country briefings by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

20 thoughts on “The State of Sweden’s Economy At A Glance

  1. Conventional wisdom in the blogosphere holds that the Muslims are soon to take over Sweden, if they haven’t already.

  2. Ed,

    Any chance that you could do a similar “at a glance” writeup on Finland?

  3. This is a terrible article. What does it even tell us? No analysis, just a list of facts and charts, finished with a conclusion that entirely misses the point. Negative depo rates with the Riksbank? Nowhere left to go for monetary policy? What happens when Swedbank and SEB get hit by the coming losses?

  4. Hi Pj,

    “Any chance that you could do a similar “at a glance” writeup on Finland?”

    I was thinking the very same thing myself last night.

  5. My guess would be that the graphs on Finland wouldn’t be much different. Same median age, same drop in industrial output at about the same time, unemployment rising at the same rate, same-same. The structural factors behind the statistics would be different, but the outlook would be more or less the same.

    Assuming that there should be any changes due to the Swedish devaluation, those are yet to manifest themselves. But I’d be interested if Edward could find any substantial differences simply from the graphs.

    Cheers,

    J. J.

  6. RTJ – would be great if you could just jot down your definitive analysis of Sweden for us then…

  7. “But Sweden does seem to have the advantage over many EU countries in that it has a group of people at the central bank”
    .
    Can we say that Sweden is living a kind of deja vu situation, something close to what happened around 1992?

  8. @ Will,

    “would be great if you could just jot down your definitive analysis of Sweden for us then…”

    In fairness, I suspect that what he means is that I don’t mention the banking crisis. Writedowns in the Baltics may cost them 5 percent of GDP, for example. But while this is a serious problem, it is not a life and death one. Sweden is a structural surplus country. The money has been lost from Swedish savings. This is a big advantage. Secondly, Sweden’s debt to GDP was 38 percent in 2008. The government can easily take on board some extra debt. Not ideal, but we are in a crisis. So I don’t see the issue with the banking problem. Please correct me if I am wrong.

    Also, of course, if costs are much higher than they are currently anticipating, printing money and devaluing can force inflation as long as positive GDP growth is restored (in the Swedish case, since there is no housing bubble to speak of domestically), and again, having positive GDP growth would keep the debt to GDP under better control. Not plain sailing, but better than most.

    Sweden and France are my pick for first out of the mire.

  9. @ Carlos,

    “Can we say that Sweden is living a kind of deja vu situation, something close to what happened around 1992?”

    Possibly, in the sene that you mean it, they have learnt something. This time the lending is external, then it was domestic. Many of the same mistakes have been made.

    But is another sense it is not simple dela vu, since the country as a whole is now older, as well as wiser.

  10. Hi Jussi,

    “My guess would be that the graphs on Finland wouldn’t be much different.”

    Well you’d be guessing wrong then, at least from where I am sitting. There are important differences in both the short run and the long run dynamics. The short run issues are less important, but the long run ones need to be addressed. The main difference is that Finlands external position has deteriorated, and this needs to be addressed. You can’t eneter a stage where you start to become an external deficit country on any sustained basis, or in ten years time you will look like Hungary.

    Also, there is a difference in male life expectancy which has an impact which is hard to quantify, but I feel may be important, see my post.

  11. Any chance that you could edit the spam protection filter. As it is, if you don’t remember to fill out the field and press “Submit” you’ll end up losing the entire post when pressing back.

  12. Now where was I?

    What’s your point with the male life expectancy? Sweden is at 78.5 and Finland at 75.5 (roughly)… are you saying Sweden is going to have additional problems when dealing with pensions?

    Another major difference that I see would seem to be the fact that the banks in Finland haven’t been doing anything as stupid as the Swedbank & co in the Baltic Lending Episodes. Actually all the research that I’ve done seems to point to the directly on Finnish banks having surprisingly reasonable leverage ratios (ranking from 12:1 to 20:1 or so).

  13. Hello PJ,

    “Any chance that you could edit the spam protection filter. As it is, if you don’t remember to fill out the field and press “Submit” you’ll end up losing the entire post when pressing back.”

    Sorry, this isn’t my end of things, but I’ll pass the request on.

    “What’s your point with the male life expectancy? Sweden is at 78.5 and Finland at 75.5 (roughly)… are you saying Sweden is going to have additional problems when dealing with pensions?”

    No, What I am saying, is that every euro (or krona) invested in a the upbringing and education of a Swedish child has a bigger economic return (ceteris paribus) than the same euro or krona invested in a Finnish child, since the child can work three years longer. That is, IMHO, one of the fundamental reasons GDP per capita is higher in Sweden. Finnish workers on average leave the labour force much younger than Swedish ones do, a point the OECD repeatedly draw attention to.

    If you can work longer, for health reasons, then you can have a better pension. I think its’ as simple as that. I’m not saying the Swedish situation is perfect, but it is a lot better than Finland’s. See my Finland post (up this afternoon, for more details on all this). Simple economics really.

    “Another major difference that I see would seem to be the fact that the banks in Finland haven’t been doing anything as stupid as the Swedbank & co in the Baltic Lending Episodes.”

    Definitely, I agree. But it is their own money they have been losing (since they are a surplus country) unlike say Spain (or the Baltics) who have lost a lot of other people’s money. I think Sweden can simply resolve this and move on. Though as I keep saying, nothing here is easy from now on. Again, see the problems Finland is having maintaining the trade surplus.

    But be careful. This is not a football match. I have no interest on one side or the other, I am just looking (from a certain theoretical perspective, that demography matters) and reporting what I see. I have no special interest in boosting Sweden or trashing Finland (which I hope I am not doing). I think nationalism is a big problem, since national sentiment puts emotion over reason.

    I started on all this when I saw the positive Swedish PMI reading. Incidentally, that’s another institutional plus for Sweden, since Finland is still using the old fashioned GDP indicator.

  14. Basically most of this stuff is incredibly straightforward, we just complicate it ourselves. The question isn’t that Austrian, Italian, Swedish and German banks were so stupid as to lose so much money, it is why they had so much money to lose in the first place. ie why their populations were saving so much. Claus’s little chart at the start of this post may help you see that, although this is probably the bit the guy said completely lacked analysis. Once you can get hold of this, then you can start to see why there are global imbalances, and then you can see why….

    Most of what we need to know is easily accessible in databases, it is knowing what you are looking for which is the hard part. Swedish participation rate between 55 and 65 is 70.1%, while Finland’s is 56.5%. And for males it is 73.4% for Sweden and 57.1% for Finland. There is your health and life expectancy issue, and there is the difference between Swedish and Finnish per capita GDP.

  15. > The question isn’t that Austrian, Italian,
    > Swedish and German banks were so stupid as to
    > lose so much money, it is why they had so much
    > money to lose in the first place. ie why their
    > populations were saving so much.

    You totally lost me there.

    Are you really saying that there’s a correlation between “money saved” and the “money banking industry lost”? What about Iceland or USA? Iceland lost _way_ more (in any proportion) than what they were saving and US has not been saving anything since 1960.

  16. Iceland and USA were net borrowers. They have young median ages. Look at the first chart. They were running current account deficits. They were borrowing and losing other people’s money. They had to, they were running an external deficit. They financed the deficit by borrowing money. This is how it works. Welcome to economics.

    Same case Romania, same case Bulgaria, same case Hungary, same case Ukraine, same case Croatia, same case Ireland, same case Spain, smae case UK.

    All these people were “experts” in losing other people’s money.

    And the irresponsible banks were in Austria, Germany, Sweden, were everyone was trying hard to save, and looking for returns on their pensions. On aggregate, of course.

  17. So who were the reckless “fools” here, the ones who lent, or the ones who borrowed. Oh well, in the end I suppose it doesn’t matter, since they will share the losses, and meet in the middle.

  18. Pingback: What Exactly Is Going On In Finland? | Purchase Euros

  19. how lovely that swedish are the richest europeans because greeks become poorer than albanians

    albania was the poorest country for many decades in europe
    now the award is taking greece the laureate of poverty

    in any case the members of muneral fund failed
    as the members of eurozone

    the only solution is the reconstructing of the naional debt and to donate 110 bilions euros like they did on ireland

    so if that happened there is a small possibility eurozone to survive with the survival of the greek economy

    the only logical that i heard from the members of the muneral fund is the greek governors to sell public estates because they are not capable to administrate them by themselfs

    it was and the only logical measure all the others deserved a nobel of irrationality

    they squize the greek nation like the jewish of aousvits thats why they didnt have the money on their accounts that they expected

    the second measure has to do with the expenses of the political system

    this system costs and it costs a lot for the point that greece reached

    it is not irrational a member of the greek parliament to receive 1000 euros instead of 15000 euros when others do no have anything to eat or they took 300 as a salary or they are not receiving anything at all

    they spent millions of euros for unexcusable dinners and capriches that even marie antoinette would have felt a jealousy
    when the people starves to death
    or whn they multiplied the beggars and the poors

    i expected that they would asked it from the muneral fund

    i never saw a such degree of intolerance the 32 years that i have lived on planet earth by greek government

    http://www.arelis.gr
    it contains erotonomicon for all people who have the appetite to read some juicy
    not like the unexistent juices of the muneral fund