The Mundus Brief October

The Mundus Brief October

Each month, Mundus International produces a monthly brief. It’s your chance to read a summary of what happened in Sweden last month and our chance to let you know what we’ve been looking into. 
 
We try to keep the Mundus Brief brief and entertaining; a counterbalance for our more serious Swedish news and analysis. We hope that you enjoy it.
/The Mundus Team

Groundhog Day

In last month’s edition of Mundus Brief, we offered a Churchillian reference to political events, quipping. “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the beginning of the beginning.”  Unfortunately, we were correct, and a month later, Sweden is still without a government to take it forward. Worse still, to keep the analogy going, it is not even clear if we have reached the end of the beginning.

Politics is stuck in a series of repetitive, unfruitful cycles, where the Speaker appoints a leader to try to form a government, but the political parties are not prepared to negotiate. Some days later the leader returns to the Speaker to declare their initiative dead. A new leader is appointed, and the process repeats. Groundhog Day.

To date, we have had two formal attempts – those of Kristersson and Löfven. In effect, it has really been three, with Annie Lööf’s try over before it had even started. At face value, very little is being offered by politicians or parties to create a meaningful dialogue. There is a sense of going through the motions. What is happening behind the scenes is difficult to discern, but it is apparent from the Speaker’s press conference on Monday that he does not sense much more than their public comments. Norlén chose his words carefully. “I thought we would have gone further by this time … My hope is, of course, that there is a new dynamic between the parties [as] the tools I have in my toolbox are about to end.”

Does this matter? The country continues to operate efficiently, and in some ways politics feels like a surreal side event. But look deeper and you will see concerns. Civil servants sit around languidly awaiting political direction, which at a minimum is a waste of taxpayers’ money. Soon, the Riksdag must vote for a 2019 budget, which as things stand will serve no political purpose or strategy. And, of course, there are a large number of international issues where Sweden can not participate fully with a caretaker administration – especially COP24 in December and Brexit negotiations. If no rabbit is pulled out of the hat, things could remain this way for months, until the country is forced to go back to the polls.

The initial task of the November Monthly Policy Review is to look at what happens next. We review the four government coalitions currently under discussion, and the procedure being followed.

We also analyse the results of municipal and provincial elections, where there have been some dramatic changes after the election, perhaps indicating the path for the nation. With 18 of the 21 county councils now formed, the Red-Greens govern in only one, compared to over half last mandate period. A clear trend is also emerging at municipal level. With administrations now formed in 252 out of the country’s 290 municipalities the Centre Party has negotiated a role in 177 of the governing coalitions. The party has been very successful in converting its swing politics into power – further evidence that Annie Lööf is a politician to watch.

The third story covers the political and policy arguments being fought over the LAS, or Employment Act, which is one of the major policy differences between the Social Democrats and the Centre Party. The Centre Party (and Alliance) want to see lower salaries for entry-level jobs, whereas the Social Democrats have had little interest in this. Instead, they believe that newly-arrived and school-leavers can be facilitated into the labour market via establishment jobs and government subsidies. However, during his attempt at negotiations to form a government, Stefan Löfven seemed to open the door for compromise on LAS. This brought an immediate negative reaction from LO, the union organisation.                                                                        

Economic Highlights

Recently, Mundus News quoted Atlas Copco’s chairman, Hans Stråberg, saying, “Swedish industry is on steroids,” by which he meant that companies were performing well in excess of their natural capacity. According to Stråberg, the consequences of negative interest rates over a prolonged period have been short-term benefits for Swedish exporting companies, inflating both their value and their share prices. “Everyone is little geniuses,” as Stråberg went on to say.

But economists continue to highlight a number of issues that politics has been unable to solve, as these stories, reported in Mundus Business Insights during October highlight.

 

Record-high lack of labour in Sweden
Swedish companies are searching high and low for competent talent, according to a fresh economic tendency survey from the National Institute of Economic Research (NIER). Omni reports that the lack of labour within industry has risen to a new record level in 3Q18.

Simultaneously, Swedish households expect a worsened Swedish economy in the coming year. Nonetheless, the values in the tendency survey regarding the Swedish economy are stronger than normal, despite the consumer confidence indicator dropping 4.0 points in October, according to the Economic Tendency Indicator.

Sweden losing unemployment race in Europe 
Sweden has dropped from 12 to 18th place in the ranking of the EU countries with the lowest levels of unemployment over the last four years, reports Europaportalen. This is a development that is in stark contrast to the Löfven government’s target of having the lowest unemployment rate in the EU by 2020. Since September 2014, unemployment has shrunk faster in the rest of the EU than in Sweden. If this development continues, unemployment in Sweden could soon surpass the EU average. According to the Minister for Finance, Magdalena Andersson (S), Sweden’s drop in the ranking is because a surprisingly large number of people want work now, compared with previously. “If one looks at what has happened on the labour market these years, it is that the supply of labour has surprisingly increased, more people are on the labour market,” said Andersson.

Bloomberg writes that unemployment is back to haunt Sweden after years of an employment boom. “Even amid the longest expansion in four decades, unemployment in the largest Nordic economy still hasn’t got back to pre-financial crisis levels. The jobless rate is hovering at more than 6%, far above the level in its Scandinavian neighbours and in global economic powerhouses such as Germany and the U.S.”

Rentals becoming increasingly expensive
housing in SwedenRenting accommodation is becoming more expensive, according to Nyhetsbyrån Direkt, which cites a new report by Boverket. The rent for a second-hand “bostadsrätt” condominium is now 139% above the rent in the first-hand rental market. For “hyresrätt”, the rent level is, on average, 65% higher than the first-hand rent. Since 2009, rental rates have increased by 84% for bostadsrätter and 59% for hyresrätter.

According to SvD, the differences between cities are significant – in Stockholm the average second hand rent for a one-room bostadsrätt is around SEK 13,000. Corresponding figures for Gothenburg and Malmö are SEK 7,400 and 6,800, respectively. A hyresrätt in Stockholm is considerably cheaper – at around SEK 10,500 – but in Malmö and Gothenburg, prices are in line with a bostadsrätt.

Economy booms. Big issues need addressing. None bigger than housing

As statistics are starting to make very clear, in addition to the challenge of integrating immigrants into its labour market that is the subject of the LAS debate, Sweden has problems getting enough talent and building sufficient accommodation for them to live.

It is the accommodation issue which we turn to in our last Monthly Policy Review article. The data reflects some truly astonishing inefficiencies in the housing market. If you are renting “second hand” from someone who has a contract on the apartment, then you will be paying 65% more than Swedish officials think that you should. And if you are renting from someone who owns the apartment, then you are paying double that. Insiders are capturing a huge margin from young people, immigrants and expatriates. For Sweden’s booming companies, looking to bring in foreign talent this can mean an extra cost to subsidise employee accommodation or a barrier to getting staff to move. Naturally, the problem is most acute in Stockholm, with its tech industry. The Stockholm Chamber of Commerce has declared the issue to be a crisis, affecting people’s potential for a dignified life, and affecting the growth and competitiveness of the region. Our analysis explains the causes and dynamics of the problem, and what solutions are available to the next Swedish government.

Where next?

The politics moved into a new phase this week, with Speaker Norlén forcing a vote on a Kristersson government. Political pressure is being applied that reflects a rising frustration that Swedes are beginning to feel towards politicians. So, we have probably reached the end of the beginning. The middle phase will require an increasing level of pressure and temperature until the political impasses begin to melt. While no one can predict confidently how long this will take, our best view is that this is going to take time – weeks or even months. Mundus will be covering it, every step along the way.