Sweden has not closed, but the economy to plunge anyway

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STOCKHOLM, SWEDEN —
Unlike most countries, Sweden has never closed its doors during the coronavirus pandemic, which keeps businesses largely in business, but the economy still seems to be taking a hit. As part of the Scandinavian country’s controversial approach to the virus, cafes, bars, restaurants and most businesses remained open, as did schools for under-16s, with people being asked to follow social distancing and hygiene guidelines.

Whatever the hope that this policy will soften the economic blow now seems dashed.

“As in most countries in the world, there will be a record decline for the Swedish economy in the second quarter,” said Olle Holmgren, economist at SEB Bank.

‘A LONG TIME’

A rebound was probably in the latter part of the year, but “we expect it to take a long time before the situation normalizes,” he told AFP.

To be fair, Swedish officials insist that their strategy was always aimed at public health, and never specifically at saving the economy.

The idea was to ensure that hospitals could keep pace with the epidemic and protect the elderly and at-risk groups.

Sweden succeeded in the first, but admitted failure to the second, with more than three quarters of virus deaths occurring among nursing home residents and those receiving home care.

“When we decided what steps to take to prevent the spread of the virus, we had no economic considerations. We have followed the advice of our (public health) experts on this issue,” Finance Minister Magdalena Andersson told reporters at the end of May.

Nevertheless, the authorities acknowledge that maintaining business opening was also part of a greater public health consideration, as high unemployment and a weak economy generally lead to poor public health.

Sweden, a country of 10.3 million people, reported 4,639 deaths of COVID-19 as of Friday.

This gives it one of the highest virus mortality rates in the world, with 459.3 deaths per million inhabitants, four times more than neighbouring Denmark and 10 times more than Norway, which has both imposed stricter containment measures.

At first, Sweden’s export-heavy economy appeared to be doing well, with GDP actually growing by 0.1 per cent in the first quarter.

But today, the country is expected to follow the same path as most of Europe, with its contraction of the economy for the whole of 2020 and the surge in unemployment.

GDP DOWN, UNEMPLOYMENT ON THE RISE

In April, the government forecast a 4% decline in GDP in 2020, compared to its growth forecast of 1.1% in January.

While the European Commission is forecasting a Swedish contraction of 6.1 per cent (compared to -6.5 per cent for Germany and -7.7 per cent for the euro area), the outlook presented by the Swedish central bank is even more dire – it forecasts a fall in GDP of up to 10 per cent.

Some economists see Swedish growth rebounding as early as the second half of 2020, but the finance minister warned that things could get worse before they improve.

Before the crisis, the Swedish labour market was in good shape, with strong job creation and a falling unemployment rate.

Today, the government expects an unemployment rate of 9% for 2020 and 2021, compared to 6.8% in 2019.

It forecasts growth of 3.5% in 2021.

EXPORT-BASED ECONOMY

Sweden’s sharp recession is largely due to its dependence on exports, which account for about 50 per cent of GDP.

“70% of Sweden’s exports have come to the EU. Closures in Germany, the UK and so on are expected to significantly affect Swedish exports,” the government said.

In March, some of the country’s largest companies, such as carmaker Volvo Cars and trucker Scania, halted production in Sweden.

It was not because of local restrictions, but because of problems with supply chains in Europe and the rest of the world. Their activities have since resumed.

Meanwhile, consumption fell by 24.8 per cent between 11 March and 5 April, according to a study by four economists at the University of Copenhagen.

“Sweden is paying the same price (as Denmark) for the coronavirus pandemic. The explanation is that when you are in a spiralling crisis, consumers pull the emergency brake, whether restaurants are closed or not,” Niels Johannesen, one of the four economists, told Swedish daily Helsingborgs Dagblad.

In mid-March, the government announced nearly $32 billion in measures to help businesses.

Since then, more money has been allocated and new measures have been added, including a reduction in employer contributions, as well as payment of business costs for dismissed workers and sick leave.

“Given the state of public finances, there is room for a more expansionary fiscal policy to come,” Holmgren promised.

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