1. Andy Expat says

    Hi Ed, really like your blog and find it great that it has a Scandi twist at times.

    Maybe that Bloomberg segment paints a picture that’s a bit too rosy? I have lived in Sweden for 12 months now and still trying to figure out how the heck the pieces fit together in this “boom” economy.

    If the economy is so strong why does the Central Bank keep interest rates so low (0.5%), lower than the ECB (1%) and most other EU central banks?

    The housing market is fueled by variable rate mortgages (c.65-70% of mortgages are variable rate), the possibility of 90% financing, no requirements for amortization, and tax deductible interest payments (30%). All the levers that propel the property market are maxed out. And then there is the moral hazard aspect: anecdotal evidence (three dinner conversations) suggests that at least some Swedes expect the government to bail them out if the sh*t hits the fan. So the ones with the most debt wins. Maybe Sweden (like many other Western economies) has become an economy addicted to cheap money.

    In addition, while the Swedish public finances appear relatively healthy it is household debt which is the achilles heel of the Swedish economy. Just keeps growing and growing and now one of the highest in Europe. All in all an economy which is very exposed to interest rate increases, which is why is it unlikely that Ingves (Anders Borg really) is unlikely to make any meaningful hikes and deflate the bubble.

    Unemployment rate is close to 10% and rising, up 24,000 heads in July. Eurostat measures it differently therefore the c.5% in the table. But where are the attractive, high paying jobs going to come from? Just from the top of my mind: Sony Ericsson moving its R&D out of Sweden, AstraZeneca moving some of its R&D, Husquarna moving (some) manufacturing to Poland.

    It just smells like the US story duplicated: Inflate asset prices to disguise the fact that the manufacturing jobs that the economy rely on are dissappearing never to return. Sure corporate profits are up but how much was cost cutting vs top line growth. And how many new jobs will it mean for the Swedish economy?

    And are the Swedish banks really out of the woods re their Baltics exposure or is it a matter of creative accounting?

    Apologies for the ranty post – would appreciate any observations that could help my understanding.

    1. Edward Harrison says

      I am not nearly as bullish on Sweden as this post implies. I am on vacation and I wanted to put up a quick post on a Western Economy that is doing relatively well (in contrast to the US or the UK). I have written a lot on the Baltic connection and Swedish house prices have risen far too high. Time will tell where this heads.

      Thanks for the input, though Andy. I tend to agree

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