What Is Going On in Sweden?

According to data released Monday from the Swedish statistical office, Sweden unexpectedly fell back into a recession in the fourth quarter. This adds to the impression that there has been a growth dip among Europe's economies, and raises further questions about the durability of the recovery in Europe.

Gross domestic product contracted by a seasonally adjusted 0.6 per cent in the fourth quarter of 2009 (when compared with the previous three months), despite analyst expectations for growth of 0.3 per cent. In addition, the third-quarter figure was revised to a 0.1 per cent quarterly decline (down from an original 0.2 per cent gain) which means that Sweden is now back in a recession.

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YOY GDP was down by 1%, following a 4.8% fall in the fourth quarter of 2008. That is to say, Swedish GDP is now down by just under 6% from GDP in Q4 2007.

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Exports seem to be a big part of the problem, despite the earlier devaluation in the Krona. In this sense my earlier optimism was misplaced.

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In fact, exports have fallen in every quarter since the start of the long contraction.

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Indeed, far from this expansion being export-lead, it is household consumption and government consumption which have been the positive components in growth. Capital investment is still contracting, as it is almost everywhere in Europe, which is one of the obvious weaknesses in the recovery.

I wrote "what is going on" in my title, since I am at this very moment going through all of the February Purchasing Managers Index (PMI) results, and Sweden has come in, for the second month running, as the global leader, with a reading of 61.5.

This in theory suggests a strong expansion in the manufacturing sector, and it isn't only the January and February 2010 data which have been strong. If you look at the PMI chart (below), in theory, Swedish manufacturing has been expanding since June of last year.
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Yet if we come to look at the manufacturing output data as supplied to Eurostat, there is no sign whatever of any sort of recovery in Swedish manufacturing. Really I think SILF/Swedbank (SWDBY.PK) owes us all some sort of explanation for this state of affairs, since at the very least something must be way out of line in their methodology. And please note, this survey is NOT produced by Markit economics, whose PMIs are normally far more reliable.

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Disclosure: No positions

Comments

[bob adamson]

Buzzer –

I think you’ll agree that, just as there are several forms or manifestations of capitalism, some for which few would be enthusiastic (i.e. crony capitalism, casino capitalism etc.), what most North Americans would term socialism also covers a broad range with important differences within that grouping.

When you set your yardstick for a “successful economic and political model in societal organization” as the measure of “not [the] degree of equality but rather the standard of living of the majority of the population”, I take this to mean that there must be optimal growth and innovation as well as equitable distribution. While you and I may well differ in the details of what this would entail and how it could best be promoted at any given time in our shared country Canada, I don’t disagree with the utility of your yardstick. I also agree with your implied position that democratic state socialism as exemplified by the UK Labour Government industry nationalization programs of the 1940s and 50s sacrificed growth and innovation.

My point, however, is that the Scandinavian social democratic tradition (which I differentiate from democratic state socialism) largely avoided this fixation on nationalization of the leading industries. Rather, the focus was on leaving industry largely in private hands and encouraging its owners and their managers to innovate and market to the world while, at the same time, ensuring that
(a) employees gained a fair share in both the operation of the workplace and capacity to bargain remuneration and working conditions, and
(b) optimal public services were made available in an efficient and effective way to promote personal development and social harmony in society at large.
Further, no attempt was made to stifle the capacity of more conservative elements in the political and business communities to effective critique and propose other alternatives to what was proposed and implemented by social democratic led governments.

In short, I suggest that, whatever the shortfalls of democratic state socialism elsewhere in Europe (and it had some successes as well), the experience of social democracy (with its emphasis on a mixed economy and open society) in Sweden, Denmark and Norway over the past 80 or so years fares rather well by your yardstick.

[BUZZER]

Bob

We do not see things that differently; the American health care system is a joke to the rest of the world because the practical economies of scale are disavowed by ideological tantrums by very ignorant people.

Socialized medicine is immensely successful. As an Engineer, economic feasibility trumps the artistic design of Architects but that is a left brain versus right brain distinction. Public works make absolute sense when the Financing advantages more than compensate for bureaucratic inefficiencies and scheduling and cost overruns.

Norway has the highest standard of living in the world if measured by PPP GDP per capita. The homogeneous populations of the Scandinavian countries probably is an important factor in the success of co-operative socialism (clan loyalty) in their societies.

My biggest objection to socialism is if it takes the form of a "union mentality" taken nation wide more as an ideology than a working public model of delivering services that the private sector would adulterate because of the profit motive dominating quality and safety.

Capitalism is efficient but Socialism is inclusive. A balance between the two would be my choice.

[BUZZER]

The beacon for socialism around the world falters.

[bob adamson]

Hi Buzzer –

Actually the situation is more complex (and casts Sweden’s social democratic traditions in a better light) than you suggest.

First, the measure of the success of a political tradition in any truly democratic country is not whether the party traditionally associated with that tradition consistently wins all elections over a long period of time (what’s democratic about that?). Rather, the measure is whether the keystone policies and institutions of that tradition remain in place (albeit with continuing reforms and adjustments by each party when it comes to power) regardless of which party is in power. In Sweden’s case, the political tradition of its Social Democratic Party over the past 100 years has been to foster
(a) narrowing income disparity across the population through tax policy and creation of a broad array of social programs provided through the co-op and labour movements and government,
(b) a broad based, engaged, educated and effective participation of the public generally not only within the narrowly defined electoral political process but decision making concerning economic and social issues, and
(c) reasonable and non-confrontational consultation and collaboration with business leaders and others outside the social democratic tradition.
Arguably the main centrist, liberal and conservative parties and the business community in Sweden do not fundamentally reject that tradition and, when in power, legislate and administer in ways that, broadly speaking, are consistent with that tradition (albeit with a more conservative perspective).

Second, the social democratic traditions (in the broader sense I’ve tried to describe) have worked well to date for Sweden. It has avoided the fiscal and economic problems of the past few years better than most advanced, mature economies and is acknowledged by many observers to have a very competitive, efficient and effective private as well as public sector.

[BUZZER]

My yardstick for a successful economic and political model in societal organization is not degree of equality but rather the standard of living of the majority of the population.

If we put this in terms of a bell curve distribution of proportion of population plotted against income levels on the "x" axis, then socialism will reduce the length of the tails to the left as well as to the right whereas capitalism raises the unit values on the "x" axis while broadening and flattening the bell.

As a Canadian I propose a compromise of removing the ridiculously flat tails, low and high incomes, while attempting to keep GDP per capita high. I find both the European and the US political models flawed in diverging too far from this middle ground.

[tashiejoe]

Not knowing much about economics and Sweden's economy, I humbly ask is it possible that:

Could you explain the "extent of the growth dip" (what caused it, gradual effects and identify possible areas for changes) in the quarter?
Was it so "devastatingly depreciating" that the growth for the past three quarters could not "balnce off"the economy ?

Is it so impossible for diversification of industries for export?

What about generation of funds internally?

[bob adamson]

Jimbo and che –

You’re quite correct to note that wealthy people tend to avoid high tax jurisdictions, Sweden included.

Similarly, polluting industries locate in jurisdictions with less onerous pollution control and inspection standards etc., etc.

Issues like these need to be considered when setting tax rates etc. but these shouldn’t be the sole consideration; in my view anyway. Happily everyone doesn’t seek out the lowest common denominator.

[BUZZER]

Facing a $50,000 tax bill can leave you taking the high ground but when it's a bill approaching $5,000,000 you would have to be a complete idiot to do your patriot duty.

[Jimbo]

Mr. Adamson: Oprah Winfrey owns a large estate in California but limits the number of days she is there to avoid the California State income tax. I seem to recall Bjorn Borg also living outside Sweden to avoid income taxes.

[bob adamson]

To describe Sweden as a prototypical socialist country (i.e. Cuba with blonds but somehow reasonably prosperous) is misleading. It has one of the lowest percentages of state owned industrial or commercial enterprises in Europe and some of Europe’s wealthiest entrepreneurs (for example, the founder of IKEA is among the ten wealthiest men in the world) are Swedish nationals who made their fortunes from Swedish enterprises.

Swedish social democracy stressed the promotion of social equality through broadly based state sponsored educational and social programs to encourage social equality. To achieve this end the focus of Swedish Social Democrats (and to a more limited extent the Liberal and the Farmers Parties) was to promote a vibrant open economy with ownership of the means of production remaining in private hands and to use this economic strength as a tax base to sustain ambitious and comprehensive social programs preparing people for remunerative employment. The idea was that international trade based on a highly skilled work force would provide both a strong Swedish economy and the tax revenue with which to establish and sustain a healthy, well educated, socially mobile and socially cohesive society. While some aspects of this Swedish social democratic model were modified in the 1990s with a tilt further towards free market concepts, the focus on maintaining a healthy, well educated and secure population remains. While the centre-right parties differ with the centre-left parties on the details of how best to maintain the wellbeing of people generally, the differences are generally ones of degree rather than basic direction.

One may or may not find the ‘nanny state’ character of the Swedish stated and society to one’s taste (I, for one, think that a modest move in that direction would suite my country, Canada. Others clearly would differ with me on that score.) however Social Democracy as manifested in Sweden is very different from either Democratic or Authoritarian Socialism based on a Marxist ideology.

[BUZZER]

bob adamson; I think our country, Canada, is in fact very close to Sweden in national character and communal cohesiveness with the added advantage of being the melting pot of many cultures in our multicultural mosaic.

However, economically we are part of the North American block and must stay closely in tune with our shared hopes and commercial success with our brothers and sisters in the United States.

[bob adamson]

Buzzer –

I agree with your first paragraph without reservation. Turning to your second paragraph, I agree that there is nothing to be gained by Canada stressing differences with the US where no real reason for such differences exists. However, I equally believe that there is no good reason why Canada should follow US leads in all things. Happily our relationship with the US and other countries is not predicated on uniformity in regard to these matters.

Canada will have its own array of social, political and economic policies (and, has historically been the case, these will very somewhat from Province to Province) and these will undoubtedly be different to some extent from those of the US and those of the various Scandinavian countries.

What is interesting about Sweden in this context is that its history in the 20th century was marked by its capacity to both follow its own unique path within its borders while maintaining friendly and mutually beneficial trading and cultural links with a wide range of other countries with widely differing social, economic and political agendas. A key for Sweden was to maintain a sound open international trading agenda with all nations. If a small country like Sweden can do this, why not Canada in its own way?

Both Canada and the US share a North American experience that sets them off somewhat from other nations but each lives that experience somewhat differently from the other nation. Each benefit from this capacity to be itself and from being able to adopt, adapt or decline to adopt practices in place in the other country as it sees fit. Happily both appear to appreciate that it is in their common interest that each country leads its own life in its own way.

[che]

bob, how many of those entrepreneurs actually live in Sweden nowadays?

[johngonole]

Has anyone noticed yet that if you disagree with Keynesism or have praise for Milton friedman or Austrian economics then you are labeled a "free market fundementalist".

The word fundementalist has been changed as it has been forever linked with people who blow themselves up. Then the left uses it to quackify everyone that opposes them. Damn the brain dead fascist media complex

[BullBear Trading]

Yes, socialist Europe is going down hard while quasi-Capitalist USA shows at least some signs of a pulse. Perhaps this hard reality will finally awaken populations to the abject failure that is Keynsianism and we can get back to real economics and sound money.

After a bounce in the Euro to the 50 EMA it will sell off again. Gold has performed well even as the dollar has remained strong and should do even better as the dollar (temporarily) sells off.

[BUZZER]

Spamming in the Mad Hedger's footsteps !!

[whidbey]

Washington is likely helping the Swedish government analyze things.
Crissy "regrets and wishes for better days", the Swedes could use that. BLS would suggest just lying and having it over with. The Fed would say to guarantee everything that moves and teach the Swedes to hum "Rates swing low for the foreseeable future" (Southern biblical style).

What happens is what happens when cancer come back after treatment. This recurring disease will exceed H1N1 flue as a worldwide threat to economies, and there is no known vaccine.

But it will come back time and again for no known reason, unless you happen to think final demand matters. The war may not be winnable, the patients may die in all cases.

[BUZZER]

Socialism's poster child in trouble ?? No way !!

[che]

it is a very alarming development for Sweden and a similar phenomenon is happening in UK. in fact, the consumption stability you mentioned rests on a mini credit bubble that is happening in sweden itself.

[Dogpound]

Ring Ring...Ring Ring...
- Hej
- Hello this is the US Department of statistics
- Yah
- Did you not get the memo we sent out last year about manipulating your statistics to elevate confidence?
- nej
- Don't let it happen again!
- Min dalag

[bob adamson]

Sweden and Finland are economically linked in many ways to the Baltic countries and Russia and this is particularly the case for Swedish banks. The steep decline into depression in Latvia, Lithuania and Estonia and the economic difficulties in most of the former Soviet bloc are undoubtedly having their impact.