March 13 (Bloomberg) -- Sweden’s Prime Minister Fredrik Reinfeldt is adding his voice to billionaire investor George Soros’s in cautioning against complacency as he warns of a “very weak” recovery in Europe.
The region’s failure to deliver a convincing rebound from its debt crisis is hampering trade growth and threatening export-reliant nations like Sweden, Reinfeldt said yesterday in an interview outside Stockholm.
The development is “absolutely a threat to Sweden,” the 48-year-old said. “We’re still seeing very weak growth numbers, demand continues to be low.”
Soros warned yesterday that Europe is at risk of sinking into a Japanese-style cycle of economic stagnation that could last 25 years unless more is done to coordinate economic and financial policies. Reinfeldt urged Europe’s leaders to “deal with structural changes and get growth back in order” to avoid such an outcome.
Adding to Sweden’s headache is the nation’s strong exchange rate, Reinfeldt said. The krona is about 21 percent overvalued against the euro, according to a gauge of purchasing power compiled by the Organization for Economic Cooperation and Development. About half of Sweden’s economic output comes from exports, 70 percent of which are destined for Europe.
“The Swedish krona has become strong in a country that traditionally has been used to the krona weakening or falling as a result of various forms of worry,” Reinfeldt said. “That adds to the challenges that primarily the export-industry is facing.”
The krona weakened 0.1 percent to 8.8573 per euro as of 12:44 p.m. in Stockholm. Against the dollar, it gained 0.3 percent.
While some exporters such as Svenska Cellulosa AB, Europe’s largest paper-tissue maker, have complained about the strong currency and criticized central bank policy for propping up the exchange rate, the Wallenberg family’s publicly traded holding company takes a different view.
It’s “better” for the country to have a strong currency, Investor AB Chief Executive Officer Boerje Ekholm, whose firm holds stakes in about a fifth of the companies on the OMX Stockholm 30 benchmark index, said in a March 10 interview. “And then we have to solve the other situation with rationalizations and investments in companies instead.”
Reinfeldt, who faces national elections in September, has shielded the largest Nordic economy from the worst of the global financial crisis. The nation’s economic growth has outpaced the average in the European Union since 2010. Sweden’s 2.5 percent estimated expansion this year will be more than double the pace in the euro area, the European Commission estimates.
Reinfeldt said the combination of a strong currency and weak trade partners is now putting Sweden’s economic performance at risk. He cautioned against reading too much into fourth-quarter data, which showed gross domestic product soared 1.7 percent from the third quarter.
“It was a surprisingly strong number but the inventory component must be analyzed,” he said. “Did inventories build up for a good reason?”
Sweden’s $550 billion economy, home to companies such as Hennes & Mauritz AB and Volvo AB, has lost thousands of jobs as its biggest exporters look for ways to cut costs. Unemployment was 8.5 percent in February, not adjusting for seasonal swings, Statistics Sweden said today. That’s the highest rate in Scandinavia and a worse result than the 8.4 percent foreseen in a Bloomberg survey of economists.
Consumer prices fell 0.2 percent last month from a year earlier and the central bank cut rates in December to prevent deflation from taking hold.
After delivering five rounds of income tax cuts since taking office in 2006, Reinfeldt said last month that any new initiatives must be fully funded by matching revenue. An Expressen/Demoskop poll published on March 7 showed the government coalition is backed by only 34 percent of voters, compared with 53 percent support for the opposition.
For now, Sweden’s economy is “stable,” Reinfeldt said. Still, the nation “is very dependent on our vicinity” and “very export-reliant,” he said.
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