Daily Management Review

The Swedish economy is weakening without immigrants


The Swedish krona is falling free (the currency become cheaper by almost 10%, to $ 0.1135, since April).

One of the largest companies in the country, telecommunications giant Ericsson, is having serious problems and planning massive cuts, Bloomberg says.

The agency notes that the Scandinavian economy used to be wide open to immigrants, attracting a significant part of the workforce. As a result, the country had been growing twice higher than the euro area had.

Now, many countries in Europe and the United States have embarked on protectionism and nationalism, so the Swedish economic growth recipe has become a little outdated. The ruling political elite is developing measures to limit the influx of migrants and to lower popularity of rising powers of ultra-right movement.

Swedbank’s Chief Economist Anna Breman believes that the new restrictions are bad news. She is convinced that immigrants became one of the main drivers of economic growth in the last decade. During this time, more than 500 thousand jobs were created in Sweden. It’s quite a few, given that the overall working-age population is estimated at 5 million people. Two out of three new jobs were taken by immigrants.

Currently, the authorities are not succeeding in stimulation development of the national economy. The Central Bank has just a few tools after introduction of negative interest rates and announcement of launch of large-scale asset purchase program to stimulate inflation (it barely crossed the mark of 1% in August). In turn, the government decided to raise taxes, even though previous tax relief has increased net income of the population by 25% in 10 years, Bloomberg writes. The authorities are also encouraging citizens to fully pay their mortgages, which is expected to calm real estate market spiraling out of control.

Minister of Finance of Sweden Magdalena Andersson said that the government is perfectly aware about the current situation, and is taking measures for resuscitation of the economy. They invest in education and infrastructure, increase number of jobs in the public sector, and simplify process of hiring people who have not worked for a long time.

Now, the European Commission predicts that GDP in Sweden will grow by 3.4% against 1.6% in the euro area in 2016.

Swedbank and Danske Bank does not share this optimism. They are convinced that growth in the current year, based on low and stable inflation rate, will be no more than 1.5%. At that, exports is standing still, even though the krona has fallen against the euro to the lowest level in six years. "This is a sign that we are not as competitive as we think," - Danske Bank experts say. 

Head of the Bank of Sweden Stefan Ingves doesn’t think so. He said that lowering the base rate to 0.5% has created a number of problems for commercial banks, yet caused the economic boom, notes Financial Times. "Everything went smoothly. Different countries expressed their concerns about our decision, but all of them did not materialize,"- said Ingves, stressing that the Swedish banks is showing good profitability and a small percentage of "bad" loans, in contrast, for example, to Deutsche Bank.

Recall that the Central Bank of Sweden was one of the first regulators, who used negative rates after 2011. Subsequently, his example was followed by central banks of Japan, Switzerland, Denmark and even the European Central Bank (ECB).

bloomberg.com, ft.com