Mass Job Cuts in Sweden Belie Government Optimism: Nordic Credit
TeliaSonera AB (TLSN) yesterday became the latest in a string of Swedish companies to announce mass job cuts, prompting economists and unions to question the government’s forecast that unemployment will fall next year.
TeliaSonera, Sweden’s biggest phone company, said it will eliminate 2,000 jobs as growth stalls, declining to say how many cuts will be in its home market. That follows similar announcements from Volvo Car Corp., truckmaker Volvo AB (VOLVB), paper maker Holmen AB (HOLMB), steel manufacturer SSAB, and guarding provider Securitas AB (SECUB) as some of Sweden’s biggest companies reduce their workforces to stay competitive in declining markets.
“The mobile market has grown for 20 years, and suddenly you don’t see any growth anymore,” TeliaSonera Chief Executive Officer Lars Nyberg said yesterday in an interview. “No one can be surprised” about the job cuts, he said.
Yet the government of Prime Minister Fredrik Reinfeldt is predicting a drop in joblessness. Sweden’s unemployment rate will average 7.6 percent this year and decline to 7.5 percent in 2013, the Finance Ministry estimates. Economists say that forecast is too optimistic.
“Unfortunately things look pretty bleak considering that we’re in, or on our way into, an economic recession,” said Par Magnusson, Royal Bank of Scotland’s chief economist in Sweden. He predicts the jobless rate will average 8.5 percent next year. “We will see a long period of poor demand in Sweden. The economy will not have the kind of pace that will push down unemployment,” he said.
Rising joblessness will put pressure on the Riksbank to lower the benchmark repo rate, at 1.25 percent since September, said Robert Bergqvist, a former central bank analyst who is chief economist at investment bank SEB AB. The central bank is likely to lower the rate at its December meeting, also because of Sweden’s low inflation rate, Bergqvist said. The bank, which estimates unemployment will stay at 7.6 percent in 2013, announces its next rate decision on Oct. 25.
Riksbank Governor Stefan Ingves responded today by arguing there are risks in keeping interest rates low for a long time that “can’t be ignored,” and that policy makers need to take heed of financial stability and debt growth.
“Voices have been raised for lowering an already very low rate further to stimulate employment,” Ingves wrote in an opinion piece published today in Svenska Dagbladet. “Today’s unemployment is a problem but as Riksbank governor I can’t just act in a short-term perspective. I also have to take into account the long-term consequences of today’s monetary policy.”
March futures on the repo rate are at 0.99 percent, indicating traders are anticipating a 25 basis point cut by the first quarter. Overnight index swaps in Sweden yesterday showed no probability of a cut next week, compared with 22 percent before Ingves’s comments. The swaps now show a 10 percent probability of a rate increase.
SEB forecasts unemployment will average 7.8 percent in 2013, while Svenska Handelsbanken AB estimates the jobless rate will reach 8.2 percent.
Sweden’s heavy industry is hardest hit, with car manufacturers, paper and mining companies suffering the most. Half of Sweden’s economic output is generated by exports, about 70 percent of which are destined for European markets that remain subdued by the debt crisis. The 17-member euro area will contract 0.3 percent this year, the European Commission estimates.
Volvo, the world’s second-largest truckmaker, will close its bus production in Sweden, firing about 390 workers and consultants in response to weak European demand, the Gothenburg- based company said Oct. 3.
Volvo Cars plans to shed 600 temporary workers in production and research development, and will shut production at its main plant in Gothenburg in the week starting Oct. 29, in response to the “continued decline of the automotive market, primarily in Europe.”
SSAB (SSABB) said last week it will cut 450 jobs at its Swedish operations as the steelmaker accelerates a cost-savings plan. Last month it warned that demand for strip products was much weaker in the third quarter than it expected after European customers grew “extremely hesitant.”
Sweden’s construction industry is also struggling as the housing market stagnates.
Peab AB (PEABB), the Nordic country’s third-biggest builder, gave layoff notices last month to 75 workers, spokesman Niklas Brantingson said. The cuts were driven by a slow housing market in Stockholm and less demand for commercial properties elsewhere in Sweden, he said.
IF Metall, a blue-collar union with 350,000 members, forecasts unemployment will average 8 percent in 2013.
“The government is very optimistic, which seems weird considering all the job cuts we’ve seen,” said Erica Sjolander, a senior economist at the union.
Sweden’s Employment Minister Hillevi Engstrom defended the government’s outlook, saying measures taken to stimulate the economy, including a lower value-added tax for restaurant services and more funds for research and development, will support demand. The ruling coalition is also cutting the corporate tax rate for a second time since 2009, to 22 percent from 26.3 percent, and Reinfeldt’s coalition has promised to lower the tax on pensions for a fourth time since coming to power in 2006.
“We’ve offered an expansionary budget with more money for infrastructure, innovation and research,” Engstrom said in a phone interview. “That’s to get job growth going here in Sweden.”
Yet even Engstrom said the recent spate of job-cut announcements is cause for concern.
“I’m worried about the weakening demand in our important export markets,” she said. “It’s hurting our big base industries like steel and paper and cars.”
Reinfeldt told reporters yesterday that the government may be forced to revise its unemployment forecast in light of all the job cuts. “We always make a forecast based on the latest updated knowledge that we have,” he said. “It now looks like some of the downside risks are materializing and weighing on the Swedish economy.”
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