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ECONOMY

The Swedish regions heading for a recession

Sweden's booming economy is heading for an economic slowdown, but some regions will be worse affected than others. A new report predicts where in Sweden the downturn will hit first.

Published: 24 September 2019 12:18 CEST
The Swedish regions heading for a recession
The Swedish economy is slowing down, but some will be hit harder than others. Photo: Fredrik Sandberg/TT

This article was written for Members of The Local. Read more Membership exclusives here.

“Growth in Sweden is expected to be bleak in autumn 2019, and it cannot be ruled out that we will be seeing negative GDP figures for one or several quarters. Employment is falling and unemployment is rising. Resource utilization will be lower than normal, which (the report defines as) a recession,” warns Nordic banking giant Nordea in a new report on the Swedish regional economy.

The Swedish national economy is expected to grow 1.3 percent between 2019 and 2020, which is a significant slowdown compared to previous years and follows an overall global downturn.

“Brexit and increased geopolitical tensions are putting a wet blanket on global development,” states the report, also singling out the ongoing trade conflict between the US and China as a risk factor.

And there are three areas of Sweden were things are looking especially bleak.

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The region of Småland and islands Gotland/Öland, northern-mid Sweden (which includes the Gävleborg and Dalarna regions) and northern Sweden are predicted to be hit the hardest in terms of their gross regional product (GRP), the market value of final goods and services produced in the region.

Småland's economy is expected to shrink by -0.2 percent this year, followed by -0.4 percent next year, while northern Sweden is set to see a downturn of -0.3 percent this year and -0.2 percent next year.

Northern-mid Sweden's GRP is expected to fall -0.1 percent this year and -0.2 percent next year.

Northern Sweden – or Norrland as the vast and diverse region is usually referred to in Swedish – is with its major raw materials industry sensitive to global market movements and is often seen as the canary in the coalmine for the rest of the Swedish economy, with national downturns often starting there.

Employment in Norrland has fallen by four percent since mid-2018, notes Nordea.

“Norrland reacts first, which indicates further deterioration during the autumn in the rest of the country. Meanwhile, the domestic economy has been stomping in the same spot for over a year,” said Susanne Spector, senior analyst at Nordea, in a statement presenting the report.

However, investment in Sweden's booming tech sector such as new data centres and the battery factory Northvolt in Skellefteå, which is expected to create hundreds of jobs for the region, creates a small light on the horizon, states the report. Tourism is also boosted by the weak Swedish krona.


The Northvolt battery factor is being built in Skellefteå. Photo: Henrik Montgomery/TT

Businesses in both Norrland and northern-mid Sweden are crying out for more employees, states Nordea, with the lack of skilled workers described as a major obstacle to growth in the latter region.

In Småland, comparatively high unemployment is a concern, with Kronoberg county recording the highest unemployment rate in the whole of Sweden in the second quarter of 2019 at 9.3 percent.

However, Gotland and Jönköping counties had among the lowest unemployment rates in Sweden in the same period. And the construction industry keeps growing with a lot of optimism for the future.

READ ALSO: 10 things Sweden should do to make life better for international talent

The report also highlights eastern-mid Sweden (which includes the Södermanland, Uppsala, Östergötland, Västmanland and Örebro regions) as a region performing comparatively well with falling unemployment. However, it notes that the region traditionally takes longer than the rest of Sweden to react to economic fluctuations, and predicts that it will eventually follow the others' slowdown.

Finally, it is worth noting that the report also predicts that a slight upturn in the economy in 2021 will stabilize the situation both for Sweden as a whole and for the worst-affected regions.

Read the full report (in Swedish) here.

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MONEY

Three ways Sweden’s slashed interest rate will boost your finances

Sweden's central bank, the Riksbank, in May lowered the policy rate for the first time in eight years. How could this affect the finances of those of us living in Sweden?

Published: 8 May 2024 12:01 CEST
Updated: 14 May 2024 05:44 CEST
Three ways Sweden's slashed interest rate will boost your finances

Lower mortgage rates

The policy rate is not the same as the interest rate on your mortgage, although they are linked. In a policy rate prognosis from March, the bank predicted that the policy rate could drop to as low as 2.75 percent by the end of 2025, a drop of 1.25 percentage points since the beginning of 2024.

If mortgage rates drop by the same amount, you could expect a drop in the monthly cost of a 3 million kronor mortgage of around 3,000 kronor a month, not including the tax rebate for interest costs.

Higher property prices

As mortgage rates get lower, the housing market is likely to improve, as buyers know their monthly costs aren’t going to skyrocket due to ever-rising interest rates.

If you already own a home and you’re planning on buying and selling at the same time in the market, this will affect you less, as the price of your new home will most likely go up at the same rate as the price of your old home, but this is good news for anyone planning on selling.

It’s worse news for first-time buyers, who will have to save a larger deposit as prices go up, but on the other hand they’ll get lower mortgage rates and a more stable policy rate makes it easier to plan ahead for the future without being surprised by ever-increasing rates.

A stronger Swedish economy

The Riksbank’s decision to lower the interest rate is proof that the bank believes inflation is over – for now at least. This means that we can expect to see inflation remain at a more stable level, and we’re unlikely to see anything close to the ten percent inflation we saw at the end of 2022.

Lower inflation means that Swedish monetary policy won’t need to be as cautious or restrictive in the future, as the government and the central bank no longer need to put all their efforts into fighting inflation.

That’s not to say that authorities will start stimulating the economy just yet – they’re likely to proceed with caution to make sure inflation really is down for the long-term – but Thursday’s interest rate announcement indicates that the “economic winter” Finance Minister Elisabeth Svantesson warned of in September last year could be drawing to a close.

Is it all good news?

In the short term, the value of the krona is likely to worsen somewhat, as the central bank has lowered Sweden’s interest rate ahead of other major central banks. The krona weakened slightly after the bank’s announcement on Thursday, dropping 8 öre in value against the dollar and 7 öre against the euro.

This is good news for people with income in other currencies, but bad news for those of us who are paid in kronor.

Having said that, a stronger Swedish economy is good news for the value of the krona in the long term, although it’s difficult to predict when the krona will start to gain in value and by how much.

At the end of last year, Riksbank governor Erik Thedéen described the krona as “undervalued”, and underlined the importance of having strong foundations in the Swedish economy.

“The Swedish economy is, at its foundations, well-managed, and sooner or later this will lead to a stronger exchange rate,” he said. “Sweden has strong finances, a well-educated labour force, responsible salaries and a good underlying level of competition.”

“As anyone who has tried to predict the exchange rate knows, it’s genuinely difficult to say exactly when it will go up and by how much, but it can also happen quickly when the trend is broken and the krona starts to gain in value.”

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