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Sweden Manufacturing Shrinks as Job Cuts Grow on Krona Surge

Swedish manufacturing unexpectedly contracted in April as the euro area recession and a stronger krona weighed on output amid deepening jobs losses in the largest Nordic economy.

The krona fell 0.4 percent against the euro to 8.5553 as of 9:53 a.m. and slid 0.5 percent versus the dollar on increased speculation the central bank will need to cut interest rates again. The currency has gained 3.5 percent versus the euro and the dollar over the past 12 months, raising costs on exports.

An index based on responses from purchasing managers fell to a seasonally adjusted 49.6 from 52.1 the prior month, Stockholm-based Swedbank AB, which compiles the data, said today. A reading below 50 indicates a contraction. It was seen falling to 51, according to the median estimate of nine economists surveyed by Bloomberg.

“This is another nail in the coffin that the Riksbank will have to cut” rates at its meeting in July and to 0.5 percent by year end, said Par Magnusson, chief economist at Royal Bank of Scotland Plc in Stockholm.

The central bank last month pushed back plans to increase its main lending rate, in part as a strengthening krona has reduced inflation. The Riksbank predicts it won’t increase its 1 percent repo rate until late next year -- about a year later than it forecast in February.

A Breather

The production sub-index fell to 52.8 from 54.7, while the order index fell to 50.9 from 55.3. The employment index slumped to 42.6 from 44.2.

“The recovery in the manufacturing is taking a breather” as fewer companies see rising orders than a month earlier, Swedbank said in a statement. The reading “suggests companies are still cautious to hire new staff” as “production plans have damped,” it said.

Swedish unemployment has risen to 8.8 percent as companies such as Ericsson AB cut jobs to cope with the reduced demand from abroad. Sweden exports about half of its output, of which about 70 percent go to Europe. The European Central Bank predicts fiscal austerity means the 17-nation euro economy will shrink 0.5 percent this year before expanding 1 percent in 2014.

“The krona is strong and demand from abroad is weak so Sweden can’t grow in a vacuum,” Magnusson said. “Very weak growth in the coming quarters” will mean that an expansion will slow to 0.1 percent this year from 0.8 percent in 2012, he forecast. The Riksbank predicts it will pick up to 1.4 percent.

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