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Economic downturn hits Stockholm businesses

The situation for businesses in Stockholm is now worse than it was following the bursting of the IT bubble, according to a report from the city’s Chamber of Commerce.

Published: 7 May 2009 16:02 CEST

The Chamber’s Stockholm Barometer finds that industries which remained unscathed during previous economic downturns, including the computer industry, are finding themselves struggling to withstand the pressures associated with the current period of economic doldrums.

The labour market in the Swedish capital is also worsening at a rapid pace. Employment is now at its lowest levels since the turn of the century.

Employment numbers are expected to drop in several industries for the second quarter in a row, with auto sales, as well as the construction and manufacturing industries expected to be the hardest hit.

The construction industry has weakened considerably despite several ongoing publicly financed construction projects.

Nearly 70 percent of the companies in the industry are building less, mostly due to reduced demand for new housing.

The Stockholm Chamber of Commerce wants to see a new approach to paying for infrastructure projects which allows the private sector to co-finance certain instances.

So far, the recently reintroduced tax deduction available for construction services related to home repairs and maintenance (ROT-avdraget), hasn’t had any noticeable positive effect on the industry overall, according the Chamber.

Daily retail trade, on the other hand, has resisted the economic slump relatively well, exhibiting strong growth during the first quarter.

Nearly 60 percent of companies marked an increased in sales volume at the start of 2009.

“People eat food even when the economy is weak,” said Chamber of Commerce analyst Johan Treschow.

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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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