Gerry Gajadharsingh writes:
“On Wednesday Sweden’s estimate of GDP for the 2nd Quarter will be published. David Oxley, a Nordic specialist at the consultancy Capital Economics, said: “Sweden does appear to be outperforming many of its European peers and reaping the benefits of not introducing a lockdown similar to the UK’s.”
Oxley expects Wednesday’s data to show that the Swedish economy shrank by 4% in the second quarter. Germany declined by 10.1% over the same period, while America posted a figure of 9.5% last Thursday. Having avoided a furlough scheme and other costly emergency measures, the government may not have to resort to tax rises.
It has been said that we are living through both a health crisis and an economic crisis, never before seen. Like in medicine there is a risk benefit analysis to be made for every situation we encounter and every decision we make. Lockdown suppressed the virus, as expected, releasing lockdown has caused an increase in positive cases, as expected. It may be that number of cases will go up and then down due to a variety of factors for months if not years. We have to learn to live with the virus and keep risk in perspective.
Only time will tell how countries have coped, both with managing morbidity and mortality (COVID and non COVID) as well as the impact on their economies and how we are ever going to pay for the whole thing, with an enormous monetary debt likely to be affecting us, our children and grandchildren for generations to come with higher personal and business taxes etc.
Fear is an understandable emotion, especially when we don’t understand it. And there is no doubt the novel coronavirus produced excessive amounts of fear, personally, for many people and in the institutions that govern us, with some countries less so, perhaps like Sweden. The consequences of those actions will be felt for generations. Making decisions are never easy but somebody has to do it, based on the “evidence” and their “gut feeling” but we also have to be brave and follow our convictions, sometimes going against the grain, as in Sweden’s case.
Hindsight is a wonderful thing, but sometimes we need to trust those who are making these decisions, if not them, who else? They will make some good decisions and some bad decisions, no one gets it right all the time!”
This week’s most important piece of data for the British economy will be published not in London, but 890 miles away in Stockholm.
Sweden rejected lockdown when Covid-19 arrived, keeping open schools, most shops, offices and factories with what was billed as a “commonsense” approach.
Evidence has been building that the country’s economy sustained less damage at the height of the pandemic and is recovering more swiftly than Britain and elsewhere in Europe.
This Wednesday, when the first estimate of Sweden’s gross domestic product for April-June is announced, we will find out whether the gamble worked — and, by implication, whether the strict lockdown in Britain may have caused needless damage to businesses, jobs and the public finances.
If Sweden’s second-quarter number is significantly stronger than its peers, Boris Johnson and other leaders may find it harder to make a case for future lockdowns.
So, just how well is Sweden’s economy firing? Swedbank, the country’s oldest retail bank, reported profits of about £430m for Q2 — 40% higher than analysts had predicted.
Another leading lender, Handelsbanken, which has more than 200 UK branches, also performed better than forecast. “Household lending, household deposits and corporate deposits all continued to exhibit stable growth,” the bank said.
Stockholm-based mobile-phone giant Ericsson managed to increase profits during Q2. Home appliances group Electrolux, also based in the capital, broke even over the three months rather than posting the huge loss that had been expected. In western Sweden, the industrial heavyweights Volvo, Alfa Laval, Trelleborg and SKF all fared better than forecast.
David Oxley, a Nordic specialist at the consultancy Capital Economics, said: “Sweden does appear to be outperforming many of its European peers and reaping the benefits of not introducing a lockdown similar to the UK’s.”
Oxley expects Wednesday’s data to show that the Swedish economy shrank by 4% in the second quarter. Germany declined by 10.1% over the same period, while America posted a figure of 9.5% last Thursday.
“The decision to keep schools open seems to have been very significant, not obliging workers to stay at home to look after children,” Oxley added. Only 20% of Swedes said their work hours had dropped after the virus took hold, compared with more than 50% in Italy, Spain and Greece.
Sweden’s economy was well-placed to weather the impact of Covid-19. The country is far less densely populated than Britain, France, Italy, Spain, Germany and even America. Also, more people work from home and broadband is better than some other EU countries, such as Italy.
Having avoided a furlough scheme and other costly emergency measures, the government may not have to resort to tax rises.
Its “lockdown light” response to Covid-19 has come with a price, however, as Sweden has one of the highest per capita death rates from the virus in the world. There has been criticism at home and abroad for allowing bars and restaurants to remain open and for requiring only healthcare workers to wear masks. As in Britain, the government has been vilified for allowing care home deaths to soar.
Not everyone is convinced that Sweden’s handling of the pandemic has helped its economy.
Paul Harper, an equity strategist at the Norwegian investment bank DNB Markets, said the better-than-expected results of Swedish companies were because analysts had been excessively bearish. “Aside from the banks, most of the largest companies are big exporters, so they provide a barometer of the international economy rather than demand at home,” he added.
Also, these exporters benefited from the krona weakening significantly in the run-up to the second quarter. Harper said: “The reality is that it will take at least a year for us to know whether Sweden made the right call on lockdown — or not.”