Bloomberg News

Swedish Economic Prospects Darken as Borg, Ingves Predict Gloom

February 17, 2012

Feb. 17 (Bloomberg) -- Sweden’s economy, Europe’s strongest as recently as 2010, will hardly grow this year as the crisis that started in Greece spreads north, killing jobs, sapping confidence and tipping the housing market into a decline.

Swedish Finance Minister Anders Borg announced today the government will cut the economic growth outlook for 2012 to 0.5 percent from an August estimate of 1.3 percent as exports falter. Central bank Governor Stefan Ingves said in an interview house prices may slide further in the largest Nordic economy after almost halving his economic forecast for the economy.

“Judging by the central bank’s outlook, the Swedish economy has shifted down to a dramatically lower gear,” Anders Kjaer, a senior analyst at Nykredit A/S in Copenhagen, said in a note. “Growth in the fourth quarter looks to have been negative.”

The central bank yesterday cut its main interest rate a quarter point to 1.5 percent and abandoned plans to raise rates through the first quarter of 2013 as it predicted Europe’s debt crisis will hurt exporters more than first estimated. Sweden, which grew more than any other European Union economy in 2010, has been unable to protect its exporters from the fallout of the debt crisis, prompting the central bank to raise its forecast for unemployment as trade weakens.

“Sluggish growth in the euro area has subdued the demand for Swedish exports, which slowed down significantly in 2011,” the bank said yesterday. The weaker outlook means households are spending less, and companies are delaying investment, it said.

Rising Joblessness

Unemployment will rise to 7.7 percent this year and stay at that level until 2014, the bank estimates. The economy will grow 0.7 percent this year, compared with a previous forecast for 1.3 percent, it said.

“The Riksbank and the commercial banks estimate around 0.5 percent growth and it’s reasonable to believe that we also end up around there when we have finished revising,” Borg said. He expects a recovery to set in next year.

Sweden’s trade surplus shrank to its narrowest in more than a year in December as exports, which account for about half of the country’s output, fell for a third month. The 17-nation euro region shrank at the end of 2011 for the first time since 2009, as debt woes blunted demand.

Sweden suffered a deeper economic contraction in 2009 than neighboring Norway after the country’s exports fell 12 percent. Swedish output contracted 5.1 percent that year, versus a 1.8 percent decline in Norway’s economy, adjusting for its oil income. The average for the world’s industrialized countries was a 3.8 percent contraction in 2009, the Organization for Economic Cooperation and Development estimates.

Household Indebtedness

At the same time, Sweden’s property values are declining from what Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, last month characterized as bubble levels. The European Union on Feb. 14 said Sweden is under review for “increasing household indebtedness,” after debt as a share of disposable incomes rose to a 170 percent last year from about 100 percent in 2000.

“It’s not unreasonable to assume that house prices may fall a bit, or at least park at today’s level,” Ingves said yesterday in an interview in Stockholm. “The pace of lending is significantly lower now than before and we have a generally weaker economic development.”

The International Monetary Fund said back in June that Swedish homes “appear overvalued with enduring price falls likely.” Property values fell 2 percent last quarter, sliding from a record that had been fueled by tax cuts, historically low central bank interest rates and the fastest economic expansion in four decades in 2010.

Ingves said household debt levels remain “manageable” after borrowing slowed down.

--Editors: Jonas Bergman, Tasneem Brogger.

To contact the reporters on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story Jonas Bergman in Oslo at jbergman@bloomberg.net


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