Mundus Brief February, 2019

Mundus Brief February, 2019
Following a Christmas lull, news began to emerge in early January that the political parties were negotiating parallel tracks. On the one side the leaders of the Alliance (M, KD, C & L) were working on a document to ensure that the Sweden Democrats (SD) did not have any political influence under a Ulf Kristersson Moderate-led government. However, that possibility was trashed by the Sweden Democrats. Jimmie Åkesson commented in a Facebook post that, “Of course, it is not reasonable for SD to pass a Prime Minister who actively intends to prevent the SD voters from gaining influence.”
 
With the Kristersson option unlikely to pass the Riksdag, the Social Democrats (S) were also entertaining demands from the Centre (C) and Liberal parties (L), to allow a Löfven-led government to pass, which they would support. On January 11, four parties (S, MP – the Greens, C & L) released the details of their proposal a compromise of a S-led, centre-left government, implementing right-wing, liberal economics. The bombshell rocked politics across the spectrum, creating great emotion and heated reactions amongst Swedes.
 
A week later, on January 18, Stefan Löfven was voted in for a second term is PM. After more than four months of uncertainty, confusion and speculation, the political direction was fixed. The motivation presented by Annie Lööf and others was to prevent fringe parties – V on the left, and SD on the right – from exercising any form of influence in the Riksdag. The four parties – S, MP, C and L – agreed to cooperate on range of issues – from budgets and climate change to increased support to farmers and school reform. But the deal did not create a typical coalition, with all parties taking up ministerial posts, because C and L will still sit in opposition, while S and MP form the government. Furthermore, C and L still claim, publicly at least, that the January Agreement is a second best solution, and that they still hope to succeed it with an Alliance government in the future.

The step to open for a liberal-left government taken fire from all directions – especially from the C & Ls previous partners, the Moderates (M) and Christian Democrats (KD). The Left Party (V) was jilted again by the Social Democrats, and at one stage it looked that Jonas Sjöstedt would vote against it – most likely sending Sweden back to the polls. The Swedish Trade Union Confederation, LO, is disturbed by the concessions S has made. Labour laws, market rents and redistribution politics are seen as particularly sensitive areas. “That question should be reviewed in a snap election. It would be better if the electorate were to have a say on that,” said LO’s leader.
 
Some pundits believe that turbulent times await the coalition, with policy disagreements leading to government instability. Some believe that the Alliance is dead, and a new constellation will emerge on the right, with M and KD leaning towards SD. Like others, Mundus finds the constellations rather unusual, making it hard to forecast far into the future. Instead, in our blog Sweden Inc.- Open for business? we look at what the government can achieve. The January Agreement is an ambitious and wide-ranging political manifesto, and if the government delivers on even half of this it will have achieved far more reform of Sweden’s economy than either of the last 2 governments. In our view, it is a fair bet that Löfven will deliver – see the Mundus Blog, with Löfven saying in his Statement of Government Policy, “the reform pace will be high, cooperation will be sought widely. The January Agreement between C, L, MP and S must be fully implemented.”

Business and economic news
The main business and economic news was naturally the formation and policies of the new government. One of the first impacts to be felt was the savaging of the Swedish Public Employment Service (Arbetsförmedlingen), which will fire 4500 employees, one third of its’ workforce. The Minister for Employment, Ylva Johansson (S), blamed the M+KD budget passed in December, although it should be noted that S agreed to restructure the Service with C & L.
 
Another reform proposed in the January Agreement is to the housing market. But, free market-based rents on newly built properties are wildly unpopular amongst Swedes. Only 23% of voters interviewed like the proposal, while 48% deem it a bad idea.
 
This month, Mundus Business Insights reported that the number of unemployed in Sweden is now at the lowest level it had been since 2008, reaching 7%. Although the economy is beginning to show signs of a possible slowdown, unemployment is forecast to remain low. Stable growth is credited for the reduction of unemployed.
 
Inflation is also stable. Statistics Sweden reported that the CPI at a fixed interest rate (CPIF) was 2.2% in December 2018, compared to 2.1% in November. Statistics Sweden also published the latest exports, imports and net trade balance, noting that the net trade balance was SEK -4.7 billion in December, with exports of SEK 110.6 billion (+1%) and imports of SEK 115.3 billion(+2%). Trade in goods with countries outside the EU resulted in a surplus of SEK 12.4 billion, while EU trade resulted in a deficit of SEK 17.1 billion.

But, the current direction of the economy is down. The National Institute of Economic Research published its monthly Economic Tendency Indicator. The indicator fell broadly across all sectors, except construction. In particular, consumers are pessimistic about the outlook for the Swedish economy over the next 12 months. Nordea and SEB also published their forward outlooks, with both expecting growth to fall (but remain positive), due to a variety of factors, including a weak domestic housing market, Brexit and trade tensions.
 
In the latest issue of the Monthly Policy Review
Given the dramatic news of the government, this Month’s Policy Review focuses on the government and the policies that it has promised to implement. Our first story, 131 Days, looks at the politics, and how the Alliance cracked under the pincer movement, with both S and SD achieving their strategies of splitting the centre-right. SD hopes that this will lead to a coalition with M and KD in the future. But for S, which needed to “give up its soul” to remain in power, the future is more uncertain.
 
Our next story is the January Agreement itself. We summarise the main themes in the agreement, including the green economic change, liberalisation of the housing and labour markets, immigration/integration and rural investments. Plus, an English translation of the 73-points of the January Agreement. This is the only English translation that we know of – non-subscribers can purchase a copy of the translation here ➢
 
In our third story, we look at the Löfven 2.0 administration, reviewing his ministerial selections and the appointment of State Secretaries.
 
Our fourth and final story looks at Folk & Försvar, the security and defence conference that takes place each January in Sälen. This year, China was also on the agenda, in addition to the long-term adversary, Russia.

Final thoughts
It has been a tumultuous and emotional 5 months since the September 9 election. But, Sweden is now through that phase, and we expect a significantly increased pace of policy development and economic change going forward. 
 
Our final thought is that while the solution was indeed unprecedented, the process was ultimately very Swedish in its nature. No shots were fired, there were no coloured vests protesting on the street. In the end major philosophical differences were reconciled via discussions and negotiations, with both sides giving a bit, so that Sweden could win.

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