Sweden Now The Worst-Performing Economy In Scandinavia Due To Eurozone's Woes

March 1, 2012Swedenby EW News Desk Team

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Sweden’s over-reliance on exports to the eurozone has turned the country from the best-performing economy in the Scandinavia region to the worst, claimed a report by Bloomberg on Thursday.

The largest economy in Scandinavia have been particularly vulnerable from the eurozone debt crisis as more than 70 percent of its exports are sent to the region, with many manufacturing jobs depending on exports.

“It will get worse before it gets better,” said Andreas Jonsson, an economist at Nordea Bank AB in Stockholm. “We will see rising unemployment during most of 2012.”

While the Swedish central bank, the Riksbank, has forecasted a 0.7 percent growth rate for the country, compared to 3.9 growth last year, Jonsson said there is a likely risk that the Swedish economy could contract this year, particularly if demand for its exports continue to drop.

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Sweden is more vulnerable to a slowdown in exports because the country “is heavily dependent on cyclically sensitive investment and intermediate goods,” said Tina Mortensen, an economist at Citigroup Global Markets Ltd. in London. “Private consumption is also set to decelerate markedly.”

On Thursday, the Riksbank chose to cut down on its main repurchase, or repo, rate from 1.75 percent to 1.5 percent, in order to shield the economy from further damage from the eurozone.

"Growth prospects have deteriorated in large parts of the euro area, partly as a result of new consolidation measures and signs of a tighter credit situation," said the Riksbank in a statement cited by the Wall Street Journal.  

"The economic outlook in Sweden has weakened as a result of developments abroad. Sluggish growth in the euro area has subdued the demand for Swedish exports, which slowed down significantly in late 2011,” the Riksbank added.

According to Anders Brunstedt, an analyst at Svenska Handelsbanken AB in Stockholm, further interest rate cuts could also be expected in the near future, with Handelsbanken cutting its forecast of unchanged rates to as low as 1 percent.

Riksbank Deputy Governor Lars E. O. Svensson also expressed scepticism for the future of the eurozone, and by extension the Swedish economy, claiming that “the forecasts for the euro area and thus demand for Swedish exports are too optimistic.”

 “The forecast for Sweden is also too optimistic,” said Svensson during the central bank meeting on Thursday.

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