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By the end of summer, a sense of relative calm had seemed to return to Sweden. Corona was, at that point, under control, the economy was doing better than feared and the global outlook looked OK. The assumption was that with opinion polls in the USA showing Biden well in front, the USA would return to a political disposition more favourable to Sweden, and businesses generally assumed that some sort of negotiated outcome would be agreed for Brexit. But on Wednesday morning, Swedes waking up early to grab a cup of coffee and switch on their news feed were faced with a situation where none of these four critical issues could be taken for granted.
All eyes on the US
Sweden and the world await for a definitive outcome of the US election. When it comes to America, Swedes have a conflicted set of emotions. On the one hand, many Swedes have a deep-rooted admiration for the Land of the Free. On the other hand, Donald Trump’s particular brand of bravery strikes a chill into the souls of lagom Swedes. This attitude is reflected quite openly amongst even senior Swedish political leaders, exemplified by Annie Lööf’s tough talk after the poll, or former PM Reinfeldt’s concerns that US democracy is under threat. Nonetheless, Sweden’s government is more diplomatic, and has made it clear that it will do business with whichever administration ends up in power. This position is necessary, not just because of the close business ties between the two countries, but also because of a growing defence dependency. US-Sweden relations is the topic of our second story in this month’s Monthly Policy Review. Non-subscribers can read a condensed version here.
The second wave breaks
As (possibly) the entire world knows, Sweden had a terrible start to its Covid-19 fight. Within weeks, Sweden’s hospitals intensive care wards were full (see FHM chart below). The death rate was amongst the worst in the world, and Sweden’s reputation and brand came under close scrutiny. As time went on, Sweden was able to get its unique pandemic fighting strategy to work, and the number of cases dropped and intensive care beds emptied out.
By the time that the October Mundus Brief was published a month ago, a lazy acceptance had worked its way into Swedish culture that seemed to say inwardly, we got it right. Amazingly, nightclubs in the centre of Stockholm were reopening. Despite clear evidence that infection rates were rising, Anders Tegnell dismissed any chance that this was a second wave. The timing was terrible, as a second wave was building in both Europe, and Sweden. As elsewhere in Europe, the second wave seems to have started amongst the young, with Uppsala, a university town being a clear hotspot. Infections then spread amongst the rest of the community.
As the second chart (below) shows, Sweden’s infection rate rose five-fold during October, and is now as bad as the US and worse than all its neighbours, including Germany. Some slight consolation might be that the situation is still quite a bit better than the UK, France and Spain. But with hospitalisations and mortalities trailing 2-4 weeks behind infections, the situation is destined to get worse before it gets better.
The 2020 Defence Bill
Our lead story in the November edition of the Monthly Policy Review was reserved for the Government’s new Defence Bill. With negotiations years in the making, and ultimately without getting prior approval from the opposition parties, the government had pressed ahead with a bill that aims to increase defence spending by 40% and increase the number of fighting personnel by 50%. We take a detailed look at what this means for the army, navy and the airforce, both in terms of the machinery that they would like to take into battle and the numbers of soldiery.
Sweden’s updated Artic strategy
Our third story is the Government’s new Artic strategy, which was last updated almost a decade ago. Now, with both climate change and great power rivalry heating up, the Löfven administration saw the need to reinforce prior positions. With international cooperation, stability and security being prioritised, Sweden believes that it can increase its influence through leveraging the EU’s influence, in combination with Swedish/Nordic expertise.
In other news
The events in October did not end there. Sweden’s relationship with China was further complicated when its Swedish Post and Telecom Authority (PTS) prohibited Huawei and ZTE –from participating in the build-out of the 5G grid at the request of the Swedish Security Service (SÄPO) and the Swedish Armed Forces. SÄPO says that it believes that the Chinese state could exert pressure on Huawei to support China’s spies, posing risks to Sweden. In doing so, Sweden joined other western countries, such as the USA, Australia and Britain in excluding Huawei, and drew a double-barrelled response from China. While China’s Ambassador, Gui Congyou denied that there was any risk to Sweden in allowing Huawei’s technology, he said that in banning the company, this threatened Ericsson’s participation in selling to China.
Meanwhile, in the background, the political survival of the Löfven government is at some risk, a critical fact that tends to get overlooked given all of the other issues in play. But it remains a genuine possibility, with Löfven personally committed to driving through policy change to Sweden’s employment laws. This was a key plank of the January Agreement which patched together his minority administration after the 2018 elections. Annie Lööf’s Centre Party is expecting reform, as indeed are the Liberals, and without the successful delivery they are highly exposed for giving their support to the left-of-centre Löfven Government, rather than their former partners on the right. But Löfven does not have a parliamentary majority on the issue unless he can get the Left (V) Party to agree. This is something the Left’s former leader, Jonas Sjöstedt, refused to agree to unless the unions accepted it. And with LO, the largest union organisation remaining opposed to the Government’s plans, Löfven must finesse a very tricky negotiation if he wants to avoid a no confidence motion.
Neither has crime gone away as an issue. Gothenburg’s Police Chief, Erik Nord, found himself in hot water for implying that the city was a Gangster’s Paradise. He denied it, saying that he was merely commenting a the title of a book, but received support a few days later when Sweden’s National Police Chief, Anders Thornberg, said that Sweden’s democracy could be threatened if the country fails to get a grip on gang violence.
The economy recovers
Fortunately, for the Government, the economy is currently performing strongly. A whole host of statistics published in October demonstrated that the economy had rebounded quickly following the pandemic-driven carnage earlier in the year. This included a number of outlooks published by leading banks and the Riksbank, labour market indicators and a variety of surveys of business confidence. Hence it was no surprise when Statistics Sweden published it flash 3Q GDP indicator on 5 November that the economy was reported to have grown 4.3% in the quarter. Given the 8% fall in 2Q, this left Sweden’s GDP 3.5% lower than 12 months earlier, a result achieved despite Sweden spending ‘only 7.5% of GDP’ supporting the economy, in comparison with the EU27 average of 11.4%.
It helped that Sweden’s export engines roared back to life. Our final story this month, Exports Amidst and Beyond Corona, looks at the recent export performance, and how the longer term trend of growing services exports and the growth of share in exports to Asia is helps when traditional European markets are weak. But, as we reminded last month, the happier outlook only remains for as long as key markets do OK. If the pandemic worsens further, Sweden’s exports and its economy are exposed.