Mundus Brief – April 2021

The pandemic heralded a year of global disruption. In addition to bringing activities like travel to a temporary stop, it accelerated changes already underway, such as the digital and green transitions. Sweden’s corporates tended to do quite well, especially in the latter half of the year, and the 1Q reporting season flattered. Now, as Sweden begins to emerge from the pandemic, the question is, where does the future lie?

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The economy? Not bad. Not bad at all

This week, Mundus News reported that Statistics Sweden’s February GDP indicator showed a month-on-month growth of +0.7% and that GDP was only 1.1% lower than a year ago, up from January’s -3.4%. Nordea says that this means Sweden’s 1Q21 GDP outturn will come in at 0.5%, a little down on Nordea’s January forecast, but well above the contraction that the Riksbank foresaw. Nordea also commented that February figures for household consumption showed consumption taking off, rising by 2.0% m/m (the year-on-year figure stood at -1.9%.) The bank says that “conditions are indeed in place for continued and strong recovery in household consumption.” Hence, despite the pandemic and some of the most stringent lockdown measures, Sweden’s economy is currently doing OK. 

Two weeks ago, we wrote in Mundus Business Insights; “Political and business leaders face challenging decisions in the weeks ahead, as the economy is being driven with one foot feathering the accelerator, while the other foot is standing hard in the brake. In the short-term Sweden’s domestic economy sputters along, with the hospitality and some sectors of the retail trade depressed, while exporters do OK. But for those with the time to lift their head and glance over the horizon, tsunami waves of economic optimism could be about to dump on Sweden’s shores, with the Chinese Five Year Plan expecting 6% GDP growth and the Biden stimulus package supercharging the US economy. The pandemic economy is now likely to drag on a quarter longer, but by the time that Europe begins to pull out of the slump, it will be aided by vigorous growth elsewhere. For an export-led economy like Sweden the restart after summer could be quite an experience.” If anything, we think that this view holds even more. The IMF now forecasts that Chinese GDP growth will hit 8.4% this year – great news for Sweden’s exporters. 

Much attention has been pegged on the automobile sector’s recovery and transition. Volvo Cars, for instance, reported strong February and March figures, powering ahead with a 27.8% increase in sales compared to the same period last year, which is predominantly driven by a 160% sales jump in China. Electric and hybrid cars accounted for 26% of the company’s global sales and 44% of vehicles sold in Europe. But this has now hit a speed bump, as the Geely subsidiary announced cuts in its production lines amid an ongoing global electronics shortage which sees semiconductor output hit rock bottom. 

The future for battery start-up, Northvolt also looks good, after it secured a new deal with Volkswagen after the German car-maker placed a USD14bn (SEK120bn) order. These examples highlight the powerful reformation that is ongoing in Swedish industry, as it senses new opportunities in the green transformation.

If one adds the strength of the tech sector and housing markets to this, the picture builds towards an economy that could surge once the foot is taken off the brake. 1Q21 data reported in April in Mundus Business Insights shows record after record falling in the housing market, with house prices up 2% nationally in March alone. The price of villas in the suburbs is rising at an annual rate of 20%, with people searching for more room than available in their city apartment. Although this will be a drag on city centres it implies a continuing building boom in the suburbs. March also witnessed a staggering SEK 14 billion invested in Sweden’s tech sector – more than half of the total investments of SEK 27 billion made during all of 2020. Klarna raised SEK 8.5 billion for continued growth within the US market, and Epidemic Sound took in SEK 3.8 billion.

Sweden’s economy undergoes pandemic transformation

All of this points to the need for more economic analysis of how Sweden’s economy performed during the pandemic. Much of the reporting in the last year was about Sweden having made a trade off opting for livelihoods over lives. But that is too simplistic, as there are many levers available to governments to affect both X and Y parameters. For instance, Australia’s GDP held up, sustained by a virus elimination strategy and massive government subsidies. But Sweden’s GDP performance was amongst the best (least worst), with only relatively minor government cash injections. We think that this will be a subject of considerable interest from economists, as we presage the arguments in “Sweden’s Economy Undergoes Pandemic Transformation” in the latest Monthly Policy Review. 

“Sweden has built a technological Ferrari that so far has only been driven at 20 km/hour”

Kjell A. Nordström, Economist

One memorable quote comes from Economist Kjell A. Nordström, who says “Sweden has built a technological Ferrari that so far has only been driven at 20 km/hour,” noting that the broadband is wide, everyone has a computer and a smartphone, before concluding that, “now the Ferrari has had to stretch out and proved to work very well.” To continue the metaphor, Mundus would add that the Ferrari seemed to perform pretty well around the curves, but how will it go as the terrain levels out. Will it gun it down the straight? 

Influence inside the Brussels Bubble

International trade is becoming increasingly challenging and politicised but Sweden seems to have found its voice in Brussels. Last summer, European leaders negotiated a recovery fund, aiming to blow new life into pandemic-struck industries and economies using a basket of cash grants and loans. Sweden flexed its muscles as part of the Frugal Four, seeking accountability and democracy in return for the financial package. Now Stockholm is channelling this newfound activism into the EU’s new trade policy, which tries to take a holistic approach, purporting to advance agendas in sustainability, multilateralism, transparency and modern global trade rules. By promoting Agenda 2030 goals, Sweden was able to integrate its signature cross-cutting issues like climate and the environment, gender equality and human rights into the Common Market’s new trading guidelines, as explored in the story “Sweden and Sustainable Trade” in the Monthly Policy Review. Sweden was also very vocal on the Commission’s taxonomy proposal, as covered in Mundus Nordic Green News, with recent indications that Sweden has found success in defending its forestry interests. 

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Jockeying prepares for a new Swedish political landscape

March saw some major changes in the Swedish political landscape. The Liberals – a party proud of its anti-fascist stance – decided to campaign for a centre-right government in the 2022 election, opening the door to cooperation with the Sweden Democrats (SD). The Centre Party’s Annie Lööf said she was willing to join either a left-leaning or right-wing government, adding that under no circumstances would the party cooperate with SD. Our flagship article in the April edition of the Monthly Policy Review examines the increasingly fraught political landscape where the centre-right, spearheaded by M and KD, flirts with the far-right SD, precursing new tensions and compromises ahead of next year’s election.