Swedish Krona Slumps as Manufacturing Contraction Deepens

Sweden’s krona slumped after a survey indicated a contraction in the nation’s manufacturing industry deepened last month as exporters struggle to stay competitive against the fallout of Europe’s debt crisis.

An index based on responses from about 200 purchasing managers fell to a seasonally adjusted 43.1 in October, its lowest reading in more than three years, from 44.7 the previous month, Stockholm-based Swedbank AB (SWEDA), which compiles the index, said today. A reading below 50 signals a contraction. The average estimate of seven economists surveyed by Bloomberg was for a reading of 45.

The data “strengthen our fears that fourth-quarter gross domestic product will be very weak,” Anna Raman, a senior analyst at Nykredit Bank A/S in Copenhagen, said in a note to clients. It “makes a Riksbank cut in December almost a certainty,” she said.

The krona lost as much as 0.45 percent against the euro and traded at 8.6262 as of 10:21 a.m. in Stockholm, making it the biggest loser of the major currencies tracked by Bloomberg against the dollar, the yen and the euro. Versus the dollar, the krona sank 0.6 percent to 6.6724.

Exports Suffer

Swedish exports, which account for about half the nation’s economic output, fell 13 percent in September as demand from Europe falters. Manufacturing confidence last month hit a three- year low and the central bank in October signaled it may cut interest rates again in December to support an expansion.

In neighboring Norway, a manufacturing decline also deepened last month as the nation’s purchasing managers’ index slipped to 48.7 from a revised 49.1 in September, Oslo-based Fokus Bank said today.

Norway’s krone was little changed at 7.3872 against the euro, and fell 0.2 percent versus the dollar to 5.7127.

Both the Norwegian and Swedish central banks last month pushed back plans to tighten monetary policy after keeping their main interest rates unchanged.

Swedish economic growth will slow to 0.9 percent this year from 3.9 percent in 2011 as “ exports are being clearly dampened by the weak activity in the euro area,” the Riksbank said last week. That makes a rate cut this winter more likely than an increase, the Riksbank said.

Norges Bank

Norges Bank Governor Oeystein Olsen said yesterday he probably won’t start raising interest rates until March at the earliest, compared with a previous forecast for as early as December.

“We are now also starting to see ramification effects from the euro-zone woes into Norway,” said Shakeb Syed, chief economist at SpareBank1 Markets in Oslo. “Sweden doesn’t have the upside effects from the oil industry that Norway has” and is therefore “feeling the strain more than we are doing,” he said.

Sweden’s production sub-index fell to 40.3 from 43.9 while the order index fell to 40.1 from 42.1. The employment index was unchanged at 43 and the delivery time index fell to 40.4 from 45.2.

“The biggest contributor to the decline was production, followed by shorter delivery times and lower order intake,” Swedbank said in a statement. “The weaker demand is manifesting itself primarily in falling export orders, while the domestic market -- even though weak -- is faring somewhat better.”

In Norway, the PMI sub-index measuring orders rose to 49.6 from 47.3 in September, while the employment index dropped to 49.1 from 50.7 and the production measure decreased to 48.4 from 49.2. Inventories fell to 44.1 from 46.5.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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