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.