Nordic pain

Swe­den hit by record eco­nomic fall, de­spite its light-touch lock­down

The Daily Telegraph - Business - - Front Page - Tom Rees

Swe­den’s light-touch lock­down failed to spare its econ­omy from a his­toric plunge in GDP as Covid-19 trig­gered a col­lapse in ex­ports and spend­ing.

Out­put con­tracted by a record 8.6pc in the sec­ond quar­ter com­pared with the pre­vi­ous three months, but the Nordic na­tion suf­fered a much smaller hit than many Euro­pean economies. De­spite some of the most re­laxed Covid-19 re­stric­tions in the world, its ex­porters were hit by tum­bling global de­mand and house­hold spend­ing slumped as the virus struck.

“The eco­nomic crunch over the first half of the year is in a dif­fer­ent league en­tirely to the hor­ror shows else­where in Europe,” said David Ox­ley at Cap­i­tal Eco­nom­ics.

It is “still likely to be among the best of a bad bunch this year”, he said, point­ing to signs of a re­bound at the start of the third quar­ter. While the hit to GDP was lower than the 12pc slump in the eu­ro­zone in the sec­ond quar­ter, Swe­den’s Nordic neigh­bours have man­aged to avoid both a health and eco­nomic cri­sis.

The fig­ures come amid de­clin­ing sup­port in Swe­den for the strat­egy not to use a manda­tory strict lock­down to con­tain the virus. The con­tro­ver­sial ap­proach re­lied on vol­un­tary so­cial dis­tanc­ing, bans on large gath­er­ings, care home re­stric­tions and ta­ble ser­vice in bars and restau­rants.

Swe­den has recorded al­most 6,000 Covid deaths com­pared with about 250 in Nor­way and just over 600 in Den­mark, giv­ing it one of the world’s high­est death rates. Ste­fan Löfven, the prime min­is­ter, has launched an in­quiry into the han­dling of the pan­demic. “We have thou­sands of dead. Now the ques­tion is how Swe­den should change, not if,” he said when an­nounc­ing the in­quiry in late June.

Tor­b­jörn Isaks­son, chief an­a­lyst at Nordea Mar­kets, warned that it was “too early to eval­u­ate how dif­fer­ent strate­gies to deal with Covid-19 have af­fected the economies”.

“Swedish GDP con­tracted much less in the first half of the year than for in­stance in the euro area, while some of our Nordic neigh­bours prob­a­bly fared bet­ter than Swe­den,” he said.

The Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment has pre­dicted Swe­den will suf­fer a 6.7pc plunge in GDP this year if there is only one sig­nif­i­cant Covid wave. Nor­way and Den­mark ex­pect a smaller 6pc and 5.8pc hit while also con­tain­ing the virus. There is grow­ing ev­i­dence that stem­ming the health cri­sis is the key to strong re­cov­er­ies, with life re­turn­ing to rel­a­tive nor­mal­ity in coun­tries that suc­cess­fully stemmed out­breaks.

House­holds could slam the brakes on con­sump­tion if they fear the virus is surg­ing. Wor­ried con­sumers in the US, for ex­am­ple, have curbed spend­ing as cases surge, while some states have been forced to roll back re­open­ings. The same could hap­pen in Europe if fears of a sec­ond wave on the Con­ti­nent are re­alised.

For now, how­ever, the re­cov­ery in Swe­den is tak­ing shape. Neal Kil­bane, at Ox­ford Eco­nom­ics, said the Swedish econ­omy had bot­tomed out and was start­ing to grow.

“Pri­vate sec­tor pro­duc­tion ended four con­sec­u­tive months of de­cline by ex­pand­ing by 0.7pc month-on-month in June, while July’s com­pos­ite PMI in­creased above 50 and into ex­pan­sion­ary ter­ri­tory for the first time since Fe­bru­ary,” he said.

Swe­den will avoid the col­lapse in out­put seen in much of Europe, but its Nordic neigh­bours have shown that con­tain­ing the virus does not nec­es­sar­ily trig­ger eco­nomic col­lapse. Whether try­ing to spare the econ­omy was worth al­low­ing the virus to rip through the coun­try is a ques­tion Swe­den is still try­ing to an­swer.

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