Krona Surge Aids Survival of Fittest, Swedish Export Lender Says
“The Swedish export industry is good at being effective and streamlining and in the long term that’s the right way to go,” Peter Yngwe, head of Stockholm-based export credit provider, SEK, said in an April 5 interview. “In the short term it’s, of course, tough with a strengthening krona.”
Yngwe, whose company last year lent more than $9 billion to support Swedish exports, joins Riksbank Governor Stefan Ingves and Prime Minister Fredrik Reinfeldt in taking a hands-off approach toward the exchange rate. The krona is the best performing currency over the past 12 months, gaining 6.3 percent on a correlation-weighted basis against nine currencies tracked by Bloomberg. It’s up about 5 percent against the euro in that period, trading at 8.38 on April 5.
The krona emerged as a haven from Europe’s debt crisis in 2012 and this year has drawn investors amid projections Sweden’s economy is rebounding from a drop in exports. Growth in the largest Nordic economy slowed to 0.8 percent last year from 3.7 percent in 2011. The expansion will reach 1.3 percent this year and 2.3 percent in 2014, Sweden’s National Institute of Economic Research estimated on March 27.
The 17-member euro area will contract 0.3 percent this year, the European Commission said on Feb. 22.
With exports accounting for half the $500 billion economy’s output, limiting the krona’s gains has become a contentious issue and made Sweden stand out. In Norway and Switzerland, policy makers have deployed monetary policy to stem currency gains.
The central bank in February, after holding its key rate at 1 percent, forecast it won’t have to cut its main lending rate again, citing signs of an improving economy. The European Central Bank last week kept its key rate at a record low of 0.75 percent as President Mario Draghi signaled readiness to ease policy if the economy deteriorates.
International banks such as Deutsche Bank AG, HSBC Holdings Plc (HSBA) and domestic lenders such as Nordea Bank AB (NDA) all predict the krona has further to gain. Henrik Gullberg, a currency strategist at Deutsche Bank, said last week that the “valuation won’t become an issue” until the krona reaches 7.75 to 8 per euro, which he predicts is unlikely to happen until “sometime in the second half of the year.”
“The krona is starting to return to a level where it was before, so fundamentals support that it’s about at the right level,” said Yngwe.
The Swedish krona appreciated 0.3 percent to 8.3561 against the euro as of 11:35 a.m. Stockholm time, and strengthened 0.4 percent to 6.4246 against the U.S. dollar.
Swedish exporters, including Europe’s biggest paper-tissue maker, Svenska Cellulosa AB (SCAB), have complained about eroding competitiveness. The appreciation will lead to plant closures and companies moving production abroad, Sverker Martin-Loef, chairman of Industrivaerden AB, told Svenska Dagbladet in an April 3 interview. Industrivaerden holds stakes in companies including Ericsson AB (ERICB), the world’s largest maker of mobile phone networks, and Sandvik AB, the biggest maker of metal-cutting tools.
According to SEK’s Yngwe, it’s not clear the krona’s ascent will harm all industries.
“Of course, those companies more focused on raw materials, forestry and mining are affected a lot by this, but the processing industry not as much,” Yngwe said.
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