In Focus | Sweden
A steady course
Sweden continues to be one of the strongest European economies
- By Rachel Latham, Gulf News Report
- Published: 00:00 June 6, 2010
- Image Credit: Supplied
- Kungstradgarden in Stockholm.
For a country heavily dependent on exports it is no surprise that 2009 was a torrid year for the Swedish economy. A fall in GDP of almost 5 per cent for the full year amounted to the worst performance since the 1940s. Total exports, which account for close to 50 per cent of GDP, fell by 17 per cent in 2009 to 995 billion krona (about Dh468.35 billion). A glance at Sweden's main exports and markets goes some way to explaining the slide.
Firstly, despite a well-diversified economy that has seen a shift away from the production of raw materials towards high-tech and biotechnology sectors in recent years, the bulk of the country's exports remain in the more cyclical areas of mineral products, engineering and electronics, chemical products and forestry products, all of which tend to be harder hit in economic downturns.
Secondly, it is the economically challenged countries of Western Europe that account for 65 per cent of Sweden's overseas markets, with Germany taking 10.2 per cent and the UK 7.4 per cent. Notably, Norway, with its more stable economy, moved ahead of Germany as Sweden's largest market with 10.6 per cent of the total.
Positive signs
But there are signs that things are looking up. With long experience of operating in cyclical industries, Sweden's leading companies set to work during 2009 to improve productivity and efficiency. Their success is evident in thefirst-quarter results for 2010.
Electrolux, for example, recently named in the Forbes Magazine list of 130 Global High Performers and in the top five companies in consumer durables, reported operating income on a like-for-like basis of 1,326 million krona,as against a meagre 38 million krona in the same period last year. The company's CEO, Hans Stråberg, noted that it had recorded its bestfirst-quarter results ever, benefiting from"focus on innovative products, strong brandsand a cost-efficient production".
Volvo, another giant of the Swedish corporate scene, saw operating profits come in at 2.8 billion krona in the first quarter, as against a counterpart loss of 4.5 billion krona last year — here again benefiting from cost reductions and an improvement in capacity utilisation and productivity.
Building on hope
Upbeat results were also reported by Skanska, one of the world's ten largest construction companies, whose operating income rose by 74 per cent to 920 million krona. Taking the corporate sector as a whole, there was also encouraging news. Figures from business and credit information company UC showed the number of company bankruptcies in the first four months of 2010 down 19 per cent from the same period in 2009, with almost every sector reporting a positive trend, including the construction sector, which reported an increase in new orders for the first time in two years.
The good news was seen also in the �country's banking sector, which had been severely threatened by its considerable exposure to the troubled economies of the Baltic States.
In the lead
Nordea, SEB, Handelsbanken and Swedbank all announced improved operating results, with Swedbank and SEB, the two most heavily exposed to Latvia, Lithuania and Estonia, reporting that bad loans had been brought under control. The international rating agency Standard & Poor's (S&P) agreed that these banks were over the worst by revising the outlook of SEB and Swedbank's ‘A' ratingsto Stable from Negative.
Underlining the success of Sweden's leading companies in managing the global economic downturn was the fact that Sweden maintained its leading position in the European Union (EU) in the Geneva-based World Economic Forum's Global Competitiveness Report. On the global ranking it was fourth, behind only Switzerland, the United States and Singapore.
The study, which is based on indicators such as economic and productivity growth and research and development spending, concluded that Sweden and its Nordic neighbours were the "strongest European performers in the area of innovation, attributable to their companies' aggressiveness in adopting new technologies and their level of spending on research and development, and the high degrees of collaboration between universities and the private sector in research".
Sound policies
The public sector is on equally sound foundations. S&P stated last year that"Sweden's strong commitment to fiscaldiscipline and the longstanding recordof sound macroeconomic policy will continueto support its creditworthiness".
In this regard it is worth noting that although Sweden is not a member of the eurozone,having turned down the euro in a 2003 referendum, it is one of the few EU countriesto fully comply with the Maastricht criteriafor euro countries.
With public debt of only 42.3 per centof GDP, Sweden achieved the EU's lowestdeficit last year, at 0.5 per cent of GDP,and aims to return to surplus in 2012. �So what of the immediate outlook, bearingin mind the scale of the financial andeconomic problems seeming to persistin the European domain?
The latest government forecast is for GDP to grow by 2.5 per cent this year, 3.9 per cent in 2011 and 3.5 per cent in 2012. Unlike in other upturns the main driver is expected to be domestic consumption, owing to higher disposable income boosted by low interest rates, rising house prices and a gradual improvement in the country's high unemployment levels.
The National Institute of EconomicResearch has said that the economic outlook(i.e. Consumer Confidence Indicator) rose in April to the highest level since August 2007.On the back of this domestic confidence, it will be the service sector that stands most to gain.
Prudent fiscal policy
The traditional driver of the economy,exports, may take longer to recover, since despite growth in some parts of the world, notably Asia, Sweden's main markets in Europeand the US are likely to move more gingerly. Also, competitiveness is being held backby the strength of the Swedish kronor againstthe ever-weakening euro.
So, while the Swedish economy will unfortunately be held back by weakness among its fellow EU members, Finance Minister Anders Borg's remark that his country "has managed the crisis better than many, thanks to a prudent fiscal policy" appears something of an understatement in the current environment.
