The Mundus Take: Corona Crisis an Economic Snapshot

In our March Brief, Mundus highlighted the words of Swedish epidemiologist, Johan Gisecke – “The reason Sweden’s strategy distinguishes itself internationally is because everyone else is wrong.” That was definitely not a lagom statement, and perhaps one of the more un-Swedish statements that Mundus has heard, comparable to some of the utterances from former PM, Carl Bildt.

Sweden continues to confound the rest of the world with what many consider is a weird and dangerous response to corona. And yet, most, or at least many Swedes don’t consider it that. Rather, the no lockdown policies, which were initially attributed to the epidemiologists, have now received strong support from the PM and the government, and the population seems to accept them as a sensible, pragmatic way to get through a bad situation.

So while the rest of the world is transfixed by the medical outcomes of what many are dubbing Sweden’s “control experiment”, Mundus has looked at the real-time economic indicators. It is clearly too early to be definitive. But, a story is beginning to emerge. Sweden’s economy is suffering, but the effects are not as deep as they would be with firmer social restrictions, which would have economic consequences.

Mobile phone data indicate Swedes are more economically active

Google has provided data that enables benchmarking of how active Swedes are now, relative to their pre-corona baseline.

Given the timing of Easter, Mundus has adjusted the headline numbers, but the trends are clear. Swedes are spending 30-40% less time than they used to at work, at bars and cafés and commuting about. The trends and figures are similar for the Stockholm region as the nation as a whole. Where are they spending their time? Mainly at home, but also vastly more in parks – which are up 40% in Stockholm and 60-80% nationwide. That would confirm a trend that Mundus witnesses, with large amounts of people out walking, trying to get fresh air, sun and exercise.

Swedish data for “Retail & Recreation” shows a similar decline to that in the USA, Australia and the Netherlands, supporting Swedish politicians’ assertions that Swedes can follow guidelines. It is also similar to the Nordic neighbours – Denmark (-31%), Norway (-43%) and Finland (-51%). This is very bad news for the entertainment industry, pubs, restaurants and cafés, and we look at that next.

But, relatively, Sweden’s domestic consumer-driven businesses are nowhere as badly hit as European economies that have suffered the worst of corona, with full-on lockdowns. Here the UK has a reduction of 81%, France and Italy 86%, and Spain is almost completely closed – 92%.

Swedes are also spending relatively more time at work compared with other countries. Compared with the baseline, Swedes are spending around 30% less time at their workplace. But, of the countries Mundus looked at, only South Korea (-7%) is spending more time at the workplace. The other Nordics are spending 50-55% less time at their workplaces, alongside the Netherlands and the USA. Badly affected European countries such as the UK, France and Italy are seeing 60-70% reductions at the workplace, and for Spain workplace attendance is down 75%. Even countries that are relatively lightly affected by corona, such as Australia (-41%) and Singapore (-51%) are seeing far higher reductions at work. MENA countries, such as UAE (-45%), Rwanda (-60%), Turkey (-75%) and South Africa (-75%) are all spending much less time at the office. The likely economic outcome of this should be that Sweden will experience a reduced supply-side shock to its businesses, relative to other countries.

Unemployment data

Swedish unemployment figures have spiked, which has been widely covered in the news. There has been a wave of corporate failures, restructuring and employee stand downs and terminations. The most obviously affected industry has been hotels and restaurants, with 568 companies giving their employees notices in March alone, affecting over 13,000 staff. Other industries have also been affected, in particular real estate, manufacturing and vehicle manufacturing. However, to put this into perspective, not all those given notice will eventually lose their jobs, and the number of notices and numbers affected in April are not as high as in March. Hence, the government forecasts Sweden’s unemployment rate to increase from 6.8% in 2019 to 9.0% in 2020. Other forecasters are expecting that unemployment will increase to 10% by summer. But, currently there are few expectations of a depression-like outcome.

Growth outlook

In April, the IMF updated its economic forecast, predicting a global recession, with world GDP shrinking by 3%. Swedish GDP was forecast to fall by 6.8% in 2020, rebounding by 5.2% in 2021. If true, this will be a very nasty recession. Other European countries are forecast to experience similar reductions, except for Italy (-9.1%) and Spain (-8.0%). The US economy is expected to shrink by 5.9%.

However, the Swedish government also updated its economic outlook this week. The government is expecting Swedish GDP to fall 4.2%, which although very bad, is a significantly better scenario than the IMFs.

Also, it can be noted that to date, the government’s stimulus announcements are not as large as other economies (in terms of % of GDP). Parts of business and the other political parties are clamouring for more stimulus, which the government rejects, saying it wants to wait to see if this is necessary.

Conclusions?

Mundus infers that the Swedish government is quietly confident of their strategic response to the Corona Crisis. The government will be in close contact with all Swedish institutions and key employers, keeping its finger on the pulse of the economy to see if more stimulus is required. At this stage, our assessment is that ministers feel that there is a floor to the short-term drop in manufacturing and the domestic economy. If exports hold up, Sweden will start to chart a new course for growth. But if the export engine fails, then the government wants to keep financial headroom to administer more stimulus.

In the March edition of the Mundus Brief, we reasoned that Sweden chose its corona response strategy instinctively, given the national culture and due to the hard-wired role of experts and institutions in its system of government. The job of the epidemiologist experts is to make the trade-offs of health and other important societal outcomes – including economic ones. The human health sacrifices have been hard. Deep down Swedes are hoping not so much that everyone else is wrong, but that they have got it right.

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.