Friday, November 28, 2008

Sweden is in a Recession

Sweden is officially in a recession. Not one of those let’s ask the public recessions but an economically defined recession of two quarters of negative growth in GDP. The second and third quarters in Sweden saw GDP fall by 0.1 percent.

That’s not good. Granted it’s not really surprising, but confirmation of a falling Swedish economy right before the Christmas season isn’t really what you want to see.

Basically, people aren’t spending any money. And when people aren’t spending any money, other people aren’t earning any money. And when those people aren’t earning any money, well, it’s a nice little spiral really. Apparently, one of the culprits is the fall in new car sales. Which I’m sure people in Detroit can empathize with.

It will be interesting to see how all of this turns out. Obviously, the financial markets worldwide are a mess right now. For various reasons. And Sweden is obviously not immune. Having been through a similar crisis of their own in the early ‘90s, people expected Sweden to be able to weather the storm, perhaps a bit better than others. These numbers would suggest that isn’t necessarily the case. And so Sweden finds itself in a recession. The first in quite some time.

Recession means negative GDP growth. The economy isn’t growing. In fact, it’s shrinking. It’s the definition of recession. But it also will play a part in the job market. If the economy isn’t growing, companies aren’t hiring. And if people aren’t hiring, people aren’t working. Unemployment will rise. Just a few months ago I read that Swedes in my age group were staring at an unemployment rate of around 15%. Good times. Plus, the layoffs that have already started and are sure to continue.

Some people are going to struggle horribly. Others might profit from this. Or if not profit, at least not feel quite the same pinch. One being low-cost retailers. Like IKEA for example. Which makes the comment by Ingvar Kamprad, the founder of IKEA, somewhat interesting. He said “det här är en ganska nyttig tillnyktring och ett behövligt reningsbad,” basically, “this is a pretty healthy sobering up and a well-needed cleansing bath.” That was a pretty poor translation but what it boils down to is that Kamprad thinks this will clean up the economy. I believe this man has actually been quoted as saying that recessions are necessary every few years just so that they will rinse out the bad from the economy. And he has a point. Recessions tend to be a natural piece of the economic cycle. And I’m sure it doesn’t hurt that IKEA probably won’t be hurting as much as your high-end retailers.

Anyway, to clean up the economy, like Kamprad hopes this recession will do, governments and economic policy makers have options. There are plenty of economic policies that can be used to try to improve the situation. Cutting interest rates. Injecting capital into the market. Bailing companies out. Some work better than others. Some just won’t work. And some end up in a political quagmire. But Sweden finds itself in a bit of a precarious situation because of its size and reliance on exports. And this size and reliance on exports suddenly ties Sweden to the US and the incoming President.

So despite the excitement surrounding President-elect Obama’s economic team, Sweden will have to wait and see. Many people seem to agree that the team Obama has assembled should do a decent job. For the American economy. What interests me is how this will impact the rest of the world. Mainly because of Obama’s very strong opinions on international trade. And his derision towards it. And it is with this in mind that Sweden could potentially suffer.

Closing down global free trade in order to buoy the American job market, as Obama campaigned to do, could have disastrous effects on countries such as Sweden. According to an article about the effect of Obama’s free trade views on Sweden, exports are equivalent to only a small percentage of America’s GDP. Right around eight percent actually. That’s not the case in Sweden. Exports of goods and services are equivalent to about 50% of GDP. Very simply then - if free trade is shut down by an Obama administration, Sweden is going to feel it.

And with a country that has already officially gone into a recession, shutting down free trade is not going to make it any easier to climb out of that hole. Unfortunately. Of course, when it comes down to it, the President of the United States should do what he believes is best for the country he is running. Not for Sweden. However, hindering global free trade is just stupid. There, I said it. Let’s just hope that someone on Obama’s economic team makes that clear.

Welcome to Sweden. Just another country in a recession.

To subscribe to A Swedish American in Sweden for free enter your email address:

Delivered by FeedBurner


  1. Now Swedes are crying why didn't they join happy Euro family, because it would have softened the crisis. Iceland is almost bankrupt with their own currency. Will the Swedish take Euro when this recession is over? Hell, no :)

  2. it is interesting to see how the euro has gained quite a bit of support in the past few months.

    will be interesting to see how this all plays out since no vote on the euro is in the works for a couple of years at least.

  3. I still think most Swedes wanna keep the krona. not because of economical reasons but just because we want to keep our own native currency!

  4. @anonymous - I would probably agree. mostly because of what I saw during the vote in 2003 when I was here. but I still think it is interesting to gauge the opinions of the country as the economy drops.

    @smek - yeah I think you had that one right

  5. I would say that Sweden learned something from the crisis in the 90s; we haven't had one single bank going belly up so far.

    Is there a discussion about the Euro going on? I haven't noticed it.

  6. oh they definitely learned something, that doesn't mean they are going to get through this unscathed.

    in terms of banks, there are a few swedish banks applying for government bailouts her ein Sweden. you've got carnegie selling itself off, so there are banks that are definitely struggling.

    in terms of the euro. yeah, there have been quite a few articles in the newspapers and online about the increasing interest in the euro.

  7. Those bailouts are only liquidity loans so far. That's a natural result when banks hesitate to lend money to each other, but it does not imply that the banks are on the verge to bankruptcy. But, yes, Carnegie is close to bankruptcy. Fortunately, it is a quite small bank.

  8. true, but it does speak to an underlying problem that would suggest that, while Sweden obviously has learned something from the 90s, and seems to be handling the current issues right now, the country still finds itself in a recession.

  9. Well, I think you've got it all around your back foot ;-)

    Sweden can't avoid being affected by the global finance crisis, which started where I live, the U. S. of A. Sweden is heavily dependent on its exports and when the economy of its largest trading partner, USA, tanks, then Sweden suffers, too.

    That apart, Sweden's finances are actually in much better shape than many other countries. Also, the fact that Sweden has its own currency is a good thing, this gives the country the ability to run its own money policy. The falling crown against the USD and EUR will soften the effects of the weakening economy, as exports get cheaper for buyers in other countries. It's not so popular with Svensson, because imports and travel abroad will get more expensive.

    The problems with Iceland's banks has nothing to do with their currency. The poorly regulated banking industry took on huge risks and grew large in proportion to the Icelandic economy as a whole, so their government has no chance of bailing them out.

    The Baltic countries, which have pegged their currencies against the euro, suffer from the inability to make their exports cheaper. Their banks are also in worse shape.

    I voted no to adopt the euro at the latest referendum, probably one of very few no-votes made at the consulate in San Francisco, and I don't regret it. Over time, as the European collaboration grows more intimate, it may make sense to adopt the euro but I feel this is not the time. National pride has nothing to do with it.

  10. @oaklandisk - I Know sweden is heavily reliant on exports, in fact, I am interested to see what will happen when obama takes office because of his stance on free trade and the extent that the swedish economy relies on free trade.

    and youre absolutely right, the falling SEK has really helped in terms of exports.

    sweden is in better shape than some countries. but there are financial issues here as well. some banks have over stretched themselves, companies everywhere are laying off workers, the country is officially in a recesion, and unemployment continues to rise what with the layoffs and all.

    the discussion about the euro, as you mention, really dones't play into this financial crisis that much. if anything it helps to dampen it, but that is what makes it so interesing in my opinion that suddenly the newspapers are bringing up the euro discussion again.

  11. Thanks for the reply, HairySwede!

    Without having followed the Obama campaign as intensely as some, I'm not real sure what in his campaign that people making that charge against him are referring to. All I can find is that he's made some critical remarks about NAFTA...but what I can find he's actually said on that makes a lot of sense to me. The following paragraph is from a CNN article:

    Obama also argues that "there are costs to free trade": He notes that under NAFTA, a more efficient and modernized U.S. agricultural industry displaced Mexican farmers, producing more immigrants. We "can't pretend that those costs aren't real. My job as President is to take those into account." Otherwise, he says, it feeds "the protectionist sentiment and the anti-immigration sentiment that is out there in both parties."

    I think the article could have added that it is heavily subsidized agricultural products (some are, not all), such as corn, that has flooded the Mexican market and made it impossible for many subsistence farmers to make a living on farming. So, they become a large pool of cheap and very exploitable labor in the factories along the border and as illegal farmworkers on the fields California. Not a healthy situation.

    I think it's great that Obama says he he will "take these things into account" but I suspect that's as far as it will go. He appears to me to be highly intelligent, and very careful and measured. I really doubt we'll see any hasty changes to NAFTA or any other free-trade agreement.

    I believe many of his supporters have such high hope in him that I think they will be disappointed. There will be changes, but not as radical as some seem to believe.

    So, I don't believe there be much or any change in free trade against Sweden or Europe at all. I'd be interested in hearing if there is anything else that points toward that.

    What I have to say about layoffs in Sweden is this: At an economic slowdown, there will be layoffs, naturally.

    But it is also common that companies decide to implement structural changes in their organization at a time like this. These might have been planned long before, but because of the disruption they imply, companies haven't gotten around to implementing them during the good times. It was more important to keep production going, and simply adding more workers, than making their processes more efficient. As the market tightens, these changes become urgent. It is also much easier to push these things past the labor unions at times when the future of the company looks uncertain.

    So, I believe some layoffs are because of the economic slowdown, but it is also because the CEO opened his drawer and pulled out the Business Transformation plan.

    On the euro: I think it's just the newspapers looking for something to write about. The first effect that people have noticed is that travel abroad has become a lot more expensive, and Swedes care about their travels.

    Sorry about the length of this, but I enjoy the conversation!

  12. As a general rule I hate when people do what Im about to do and just plop out a bunch of links and say here, read this, but here,:

    read this.

    anyway, that was quite a bit. Basically they all just discuss some of obamas views on free trade and what impact those views could have. I think for the most part, most people would agree that obama has some isolationist or protectionist views when it comes to trade. The stuff that gets the most press is nafta.

    In terms of changes to those agreements, I hope not. But mostly because I quite like the free market. And think that changes to those agreements would put a damper on global trade.

    Im not really sure there is anything else that suggests there will be changes except for what obama has said and campaigned on. And considering he doesn’t have all that much experience I guess that is what people are working from.

    And I agree, there is bound to be a letdown when he takes office. Because expectations are just so very high. It will be very interesting to see how that letdown is handled both at home and abroad.

    In terms of layoffs, the number of layoffs here would suggest to me that it probably has more to do with the economic climate than wanting to implement structural change. Although I do agree that a lot of business do use economic downturns to clean house if it is something they had been considering. It gives them a sort of excuse.

    And the euro… youre probably right. Although it is interesting to note that none other than good old carl bildt was bringing it up a while ago. granted he said that the government would respect the loss in the referendum of a few years ago, but it was interesting that he felt the need to comment on it.

    I don’t think Sweden will go to the euro anytime soon. But I do think it will happen eventually. Lets say in the next 10 years or so. And I base that on absolutely no concrete information at all. Because Im pretty sure that’s what having a blog is all about.

    And no worries about the long comments. I love it. makes me think a little bit.

  13. OK, I read through most of it, and glanced over some... I think he got some people worried with what I believe is mostly campaign rhetoric. Too bad he nixed the South Korea trade agreement, it looks like that was a posture for home consumption only.

    That said, I believe there are some valid concerns about unbridled free trade, especially when it comes to how it had been implemented vs. the third world. The columnists you refer to and their likes don't want to hear there are any concerns at all. If we are to believe the free-trade gospel, environmental protection and labor laws are implemented by countries for the sole purpose of protecting their home markets. They are called trade barriers. They don't exist for any other reason like, oh, concerns about the environment or people's health and dignity at work.

    While NAFTA has probably been positive for the overall economies of its member countries, the unfairness of parts of the agreement (e.g. as I mentioned, dumping of subsidized corn) has had huge impacts on large numbers of people. Not to the people in Mexico that "matter", i.e. the rich and middle-class but the poor.

    I could go on about the IMF and World Bank, but I think the criticism is readily available though it's not mentioned in the financial media.

    I'm really not adverse towards free and global trade at all, as long as it is beneficial to everyone involved, and as long as costs of external effects (e.g. pollution) are reasonable or included in the balance. I think we should trade with all countries, but I as a consumer would like to know where and under what conditions something was manufactured. My personal concerns about sweatshop labor and other seriously exploitative practices has made me avoid goods from many third world countries unless they are fair trade labeled. That label is of course not a 100% guarantee but rather something than nothing.

  14. It’s true, that’s the big question though, what was campaign rhetoric and what wasn’t. Of course, it’s very easy to find columnists who would write the exact opposite and say global free trade is bad and not want to hear anyone elses opinion.

    You bring up some good points about trade, from a purely economical standpoint, free trade should be the way to go. Of course, no one really knows because free markets as a general rule, don’t really exist. For example, subsidies in and of themselves completely defeat the purpose of a free market.

    But you’re right, there needs to be a bit of a balancing act, but I don’t believe that closing down markets or going isolationist in terms of trade will help that at all.

    It’s so interesting to me that a lot of people who want global trade hindered in hopes of keeping jobs in the US are the same companies that so often rely on global trade.

  15. You are absolutely right, there are subscribers to the exact opposite views who wouldn't listen either, or who don't see the concerns of someone who comes from a different point of view. That is simply poor culture, and a lack of sophistication. A problem that afflicts many, regardless of their ideology.

    Then again, we should be able to read anyone's arguments, filter out the overtones and rhetoric, and make our opinion about whether they are guided by self-serving interest or genuine concerns that matter to others.

    Too often do discussions degenerate into a trench war between polarized points of view. I'm simply delighted to be able to have a civilized discussion without needing to deal with big egos or being bundled up with kooks who I don't necessarily care to represent.

    Your last sentence is poignant, and points to people's willingness towards double standards: They see fairness as whatever benefits themselves.

    A technical point: You used "companies" and "people" interchangeably. I think it is important to make a distinction between the two.

    Regarding the free-trade debate, I'm satisfied. I agree on principle that trade between nations is a good thing, though I have concerns about how it is implemented between nations of unequal strength.

    You have listened, I think I have listened, and we don't have to agree 100%. My congratulations!

  16. you're absolutely right. that was a slip up on my part when it comes to compaies vs people. they should definitely be described as separate entities.

    and I agree. I think it probably went so well because we are awesome. obviously.