The Mundus Take: Have both sides got it wrong on Sweden’s strategy?

Will Stockholm reach herd immunity?

As Mundus News detailed last Friday, wide-scale testing for corona amongst 60,000 Spaniards found that only 5% had antibodies, and the percentage of those infected had reached only 14% in its’ worst hit province. Tove Fall, an epidemiologist at Uppsala University, observed that “Spain is one of the hardest hit countries in the world. The fact that they are at such low proportions of estimated people who have gone through the infection is not good news for us.” Her logic was that if only 5% of the Spanish population had antibodies, at the same time as Spain having had one of the worst corona outbreaks, then Swedes level of exposure must be lower, and herd immunity was nowhere near. The result has sparked vigorous debate amongst Swedish experts, with some questioning the actual results of the study, whereas others debate whether one can simply read-across the results to Sweden.

The reason that the debate about Spanish antibodies is even relevant is due to the lack of testing in Sweden. Despite the WHO’s demand to countries in March to “test, test, test”, initially Sweden gave this a lower priority in its crisis response. As a result, while Spain has conducted over 3 millions tests, Sweden has done just 177, 000. Over time, the political pressure for testing in Sweden increased, and Sweden has recently tried to increase its laboratory capacity to do up to 100,000 tests each week. But so far, tests are only being conducted at a rate of around 30,000 per week, due to inefficiencies in sampling and getting the results to and from the laboratory. This is going to be a point of political pressure for the opposition against the government.

Eventually the number of tests in Sweden will increase to a meaningful level, and Swedes will have a clearer picture of what percentage of their population has antibodies. At that point, which might be as soon as this coming week, we will all learn if FHMs view that Stockholm is approaching herd immunity is correct, or not. One signal of where the evidence is pointing to emerged on Friday afternoon, with FHM admitting that  the mortality rate among those infected by covid-19 in Stockholm may be higher than they previously thought, and that FHM now estimated that 0.6% of those infected by covid-19 in Stockhom die. This is a much higher figure, double the 0.3% that FHM has previously estimated and six times what Johan Giesecke has at times told the media. The result of this is obvious – there will be a lot more deaths in Stockholm, and in Sweden. But we still need to wait a few more days to learn whether the pandemic will ease in Stockholm as herd immunity kicks in.

Will the Swedish economy have ‘a good war’?

Even at times of crisis and despair, some do well. Last century, it was fashionable amongst Brits to say that one had had a good war, if you had made the most of opportunities available during wartime. So far, Sweden has made a good start. When the world realises this, it will influence global perceptions about long-term responses to the crisis.

As the world looked with fascination at what has been going on in Sweden, individuals took sides on how wise Sweden’s strategy was. Many who saw the priority as being saving lives over livelihoods jumped on the ‘evidence’ that Sweden’s economy was not going to be any better than those of its Nordic peers or other European nations with stricter lockdowns, as a justification that the answer was obvious – ‘save lives’! Last week, the FT published a story under the headline “Sweden unlikely to feel economic benefit of no-lockdown approach”. The story considered various economic forecasters views on the future. Unfortunately, the FT continued the trend of simplistic headlines about Sweden’s response being repeated as accepted fact a few days later. Those who read the full story (its free to the public), would have understood that reality is more nuanced than the headlines suggests.

In response, Mundus argues that the FT has gotten it wrong on two counts. Firstly, the right question comparison is not whether Sweden has done as well as other Nordics, but whether Sweden would be better off if it had had a stricter lockdown. Comparing Sweden’s tech-led and manufacturing economy to Norway’s oil-driven growth makes it obvious that such a comparison is troubled. But, as the ‘Sweden with lockdown’ experiment will never be run, perhaps one should infer something by looking at the Danish and Finnish economies? We believe that comparing forecasts from economic models that are being used way outside the parameters for which they are calibrated is not helpful. Or, to put it simply, the models are educated guesses, at best, as the European Commission makes clear in its Spring 2020 Economic Forecast. Comparing two guesses is dangerous.

Mundus suggests that it is more appropriate to look at the hard, real-time data that is available. In our April Mundus Take, we compared Google’s activity data for leading OECD economies to Sweden. The results suggested that the Swedish economy was holding up much better.  Below we show the same data set, but for the Nordic economies for May 4-7, with the UK and Netherlands as benchmarks. The results suggest that there is more in common between the Nordic countries’ behaviours than there is between the Nordics and other European countries. But, even within the Nordics, Sweden has more economic activity going on than its peers in measures such as time spent doing retail and recreation activities and time spent at workplaces.

This high-frequency indicator of economic activity is supported by other more direct measures, such as credit card transactions, where Sweden has had less downside than Denmark. And as Swedbank’s card data shows, Swedish consumers are bouncing back, and are now down only 7% compared with February spending.

Finally, we turn to 1Q20 GDP numbers, which were also released this week by the Commission. EU27 GDP was down 3.3% overall, and it was worse in the Eurozone. In the Nordics, Sweden’s GDP fell just 0.3%, whereas Denmark’s was down 1.9% and Norway by 1.5%. Finland actually did slightly better – up 0.1%.

Naturally this data set comes with caveats, in that it is measuring what happened several months ago, with much of it even before the crisis hit. However, as it confirms the other real-time data, we argue that it demonstrates that Sweden’s domestic economy is holding up better than the other Nordics. The other part of the equation is what happens to exports. For a small, trading economy like Sweden, these will be critical to its medium term future, and the country has far less control on the outcome. At the present time, the hit to exports is unknowable, which is the reason that economic forecasters are needing to make wild guesses about Swedish GDP.

The Swedish media has started to understand both what the hard data is saying, and the political significance of it. This Dagens Industri article, Sweden – the best loser in the virus crisis begins Forecasters believe that the Swedish economy is falling as much as in the rest of the EU. Forget it! The Swedish corona strategy facilitates our economy.” It makes the point that while Swedish industry is about as pessimistic as the Eurozone, Sweden’s services sector (tjänstesektorn) is far more confident (see chart’s below).

Expect to hear a lot more about this in the days ahead!

Source: Dagens Industri

Sean is responsible for Mundus’ strategy and commercial activities. He began his career in the oil industry Australia. After working internationally in commercial roles with BP in South Africa, the UK and Singapore he moved to Sweden with his family in 2009. He worked in business development and then as the Strategy and Growth Director for NASDAQ Commodities from 2009 to 2015. Sean holds an engineering degree from Adelaide University and an MBA from the Darden Business School at the University of Virginia.