Swedish economy

Swedish economy

29 April 2019 from Mikael Syding

But it's even better with gasoline!
The Riksbank may be right in spite of everything - it is at least predictable
As I wrote in the latest update on the Swedish economy on February 7 this year, it is unlikely
that the Riksbank will accept positive interest rates. Very correctly, the members took a step
back this week from (the hypothetical) plans to raise interest rates, to instead focus on making
food purchases and trips abroad more expensive for ordinary Swedes.

What is behind the Riksbank's actions? How is the Swedish economy really doing after 10 years
of extremely stimulating monetary policy, stock markets at all time highs, and synchronized
global boom?

Are negative interest rates and asset purchases the only reasonable alternative, given the state
of the economy?

Let’s look at the latest statistics on the labor market, the growth of the economy and inflation.

To start, I can reveal that it has never been better.


New record for Sweden's employment rate
The employment rate in Sweden rose to a new all-time high of 68.9% in March 2019. During the
previous two overheating periods in 2001 and 2008, the previous record was set at 67.1%. As a
small comparison, the EU-28 average was 60.4% for 2018.

Based on the proportion of Swedish people who have a job, it has never been better for
Sweden. The numbers are almost as high above the previous top as that top was above the
previous bottom. Today's boom is almost twice as strong as the last bout of euphoria that soon
led to a global financial hangover


Another way of expressing this is that at the bottom at 64.1% in the beginning of 2010, when
some expressed that the world was crumbling, was 3 percentage points below the absolute
peak. A decline to an average employment rate of about 66% would mean an equally
monumental crash for employment.

It is mainly in the group 55-74 years that the employment rate has increased, so I guess we can
all forget an early pension.

If one measures the job market from another vantage point, one can see that un employment is
indeed low, but does not really send the same signals of overheating as the employment rate.
With 6.3% officially unemployed and a modest measured inflation, perhaps one can understand
the Riksbank's stimulants. There are simply more people to put in work even though record
numbers already work.

Furthermore, Modern Monetary Theory is spreading over the world, which states that as long as
prices rise at a modest pace, it is fine, even an imperative, for states to print unlimited money for
public projects. As long as the (central banks) do not care about actual and relevant costs for
the residents, or are thinking about the effects of a falling currency and what it means for
imported inflation in the following period, the Riksbank thus only follows its mandate, albeit as
gracefully as a rhino with a fly in the ear.


But perhaps the Riksbank still misses the goal when it chooses to pursue the world's most
expansive monetary policy and aims to make the krona one of the weakest currencies in the
world. The wage trend seems to be on track as soon as possible, which is also exemplified by
the ongoing strike among SAS pilots whose union demands a 13% increase.


GDP growth
The quarterly growth in the most recently reported period (Q4 2018) was 1.2%, which is in the
upper range of the interval over the past 40 years. It is, of course, a natural consequence of
record numbers having employment, but it is nice to have it confirmed as well.

Not least since 2014, the private sector has also increased the pace of its investments, which
underlines the widespread optimism and drives growth. Since the effects come with some delay,
there is no reason to believe any slowdown in the near future.


Proper and stable inflation is the best of worlds
Everything seems to be going our way now. This applies not least to inflation. It is hard to say
anything other than that the official inflation rate is benign. The level of just under 2% is
generally accepted as the dream of all governments, where growth, wage negotiations and
more run with the least possible friction without disturbing the information function of relative
prices too much. In addition, it has remained quiet at this level a few years, which underlines the
stability of Sweden's economic situation.

Predictable after all
In summary, it is going very well for Sweden now.
There are even joints to say that it has never gone better. But shame whoever is not aiming
even higher, and that is exactly what the Swedish central bank does, by maximizing the
stimulus at the peak of burning boom.
Even if the Riksbank's members do what they can to mislead the citizens, with permanent ones

forecasts and warnings of increased interest rates, so they no longer fool anyone after 8 years
of missed forecasts. In this way, they may not do any extra damage.

Everyone has already understood and adapted to the fact that the interest rate will be kept more
or less permanent, as long as the market does not force the "state" to anything else. Since the
low interest rate policy has led to extremely high borrowing, one has painted in a corner where
increased interest rates would lead to a consumption collapse and a deep recession. Thus, we
can all calmly count on low-interest policy in the foreseeable future.
On the other hand, it is completely incomprehensible why the Riksbank deliberately chooses to
pursue an overheating policy, which can only be explained by political influence, or rather a
hedge fund-inspired permapessimism for the future.
With a tail wind of unusually high growth and completely normal inflation, it is almost impossible
to defend anything other than a policy rate of around 4%. When the Riksbank chooses a
negative interest rate, as well as asset purchases on top of it, it represents a fantastic (albeit
short-term) gift for everyone who has the opportunity to take risk.
As an investor, take the opportunity to leverage everything, from driving licenses and holiday
homes to cars and useless educations, to buying export-dependent growth companies with bothhands.

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19/05/2019 19:17:48


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