Sweden needs policies that will keep interest rates low and curtail the damage the surging krona is causing for exporters in the largest Nordic economy, its premier said.
“We have to make sure that our public finances are in order because that’s also the foundation for making sure that interest rate levels are low,” Prime Minister Fredrik Reinfeldt said yesterday in Stockholm. “That’s exactly what we’ll see if we can do this autumn. Do we have any room, can we do something to strengthen Swedish competitiveness, increase incentives to work.”
The krona has surged 27 percent versus the euro since the end of 2008, sparking calls from exporters to stem its gains. While policy makers, including Reinfeldt, earlier this year signaled little concern, they are now stepping up rhetoric to cool the krona as government from Zurich to New Zealand act to stem currency appreciation.
The krona’s 8.5 percent rise over the past 12 months is the best performance in a correlation-weighted basket of 10 developed-market currencies tracked by Bloomberg in the period, after the New Zealand dollar. The Norwegian krone, which has also benefitted from haven appeal, is up 3.5 percent.
Currency strength is triggering a shift in strategy from the region’s central banks and could also endanger the export-based Nordic model of growth. Swedish Finance Minister Anders Borg last week said that country would need to act should additional krona strength add to pain for exporters.
Reinfeldt said yesterday that the country, home to multinationals such as Ericsson AB and Hennes & Mauritz AB, will keep its focus on what has built Sweden.
“It has served us very well, our export-reliance, and it has built our riches and financed our welfare,” he said.
Riksbank Governor Stefan Ingves acknowledged last month the strong krona had undermined the efforts to achieve its inflation target as the bank delayed rate increases. Norway’s central bank, which kept rates unchanged this month, has eased twice in 2010 and 2011 to cool the krone, even as they risked fanning a debt bubble in Europe’s second-wealthiest country.
Norwegian Prime Minister Jens Stoltenberg yesterday declined to comment on the krone, while also reiterating that the country is doing better than the rest of Europe because it has “managed the oil revenue in in a responsible way.” Norway, western Europe’s largest oil exporter, will act as a beacon for the unemployed across Europe and the Nordic region, he said.
“We will continue to import labor from the rest of Europe -- people from Sweden, Denmark and elsewhere will continue to come to Norway to work,” he said. Norway’s unemployment rate was 2.6 percent in April.
Sweden this year cut its economic forecasts for 2014, citing the krona’s impact on exports and the labor market. The Riksbank on April 17 said it needs to delay monetary tightening plans until the second half of 2014 as it forecast price growth won’t reach its 2 percent target until 2015.
The economy will expand 2.2 percent next year, compared with a December estimate of 3 percent, the Finance Ministry estimated in April. Gross domestic product will grow 1.2 percent this year, he said. The economy grew 0.8 percent in 2012, according to the latest official figures.
Sweden generates half its economic output from exports, of which 70 percent are destined for Europe. The AAA rated nation emerged as a haven from Europe’s debt crisis last year, only to watch its currency appreciate more than most of its developed-world peers.
“We have a Swedish krona that’s priced by the market and weighs on big parts of our export industry, not the least all that’s related to paper pulp and forest,” he said. “We have tried to govern in a way that compensates for that by among other things improving the business climate given that the krona has become very strong.”