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ECONOMY

Sweden posts record annual drop in industrial output

Industrial production in Sweden suffered a record year-on-year fall in January, according to new figures released on Tuesday, adding to fears about the health of the Nordic region’s economies.

Published: 10 March 2009 12:40 CET

Industrial production has slumped across Europe as demand has dried up and banks refuse to lend money to businesses, with euro zone finance ministers saying on Monday things could still get worse.

Euro zone member Finland’s industrial production adjusted for working days slumped 19.5 percent year-on-year after a 16.2-percent fall in December.

Industrial production in Sweden — an EU member but outside the euro zone — fell 22.9 percent while order books contracted 31.9 percent.

Both statistics offices said the declines were the worst since comparable data sets began in 1990.

“This (data) is horrible. It’s a bad sign, as it’s not just about Lehman and the financial sector troubles. It’s an issue of lacking demand,” Tiina Helenius, chief economist at Handelsbanken in Helsinki said.

With industrial production slumping, GDP figures have been ugly.

Finland’s gross domestic product fell 2.4 percent in the fourth quarter, and Sweden is in even worse shape. Its economy contracted 4.9 percent against the same period in 2007, the worst fall since comparable data began being collected in 1993. The Swedish central bank thinks the recession will be the worst since WWII.

Denmark also saw a record contraction in GDP in the fourth quarter. Norway is now the only of the four big Nordic economies not in recession, though it is likely to be later this year.

Industrial production is likely to continue to fall, analysts said, though both Finnish and Swedish analysts said the pace of decline may ease in the coming months.

Interest rates — set by the European Central Bank in Finland’s case — are also likely to come down further, to help boost struggling businesses and consumers.

Sweden’s central bank has slashed interest rates to a record low 1.0 percent over the past months, and a majority of economists polled by Reuters on February 23rd see the Riksbank cutting its key interest rate a further 50 basis points in April.

Knut Hallberg, analyst at Swedbank, said the industrial production figures strengthened the view “the Riksbank will continue cutting rates as fast as possible”.

The ECB is expected to cut rates in the second quarter by 50 basis points from the current 1.5 percent.

Sweden’s central bank meets on April 20 with its decision on interest rates published the following day.

The European Central Bank will next decide on interest rates on April 2.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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