From his gallery on the edge of a leafy park in the heart of Stockholm, Björn Wetterling can see signs of a slump. A year ago, an exhibition of work by the U.S. pop artist Jim Dine brought him $700,000 on opening night. In mid-April, another eye-catching opener of hot British contemporary artists, including Julian Opie and Gavin Turk, netted a disappointing $10,000. "When people are worried, they stop buying," Wetterling says.
Much has changed in Sweden since that Dine show. Thanks to Ericsson's expertise in mobile telecommunications and the Swedes' early embrace of the Internet, the country seemed destined to play a starring role in the 21st century economy, where mobile telecom would be king. Indeed, Sweden was the leading New Economy player in Europe, with 8.3% of its gross domestic product coming from information technology and communications--a far higher level of tech-driven activity than in France or Germany.
But the collapse of U.S. technology stocks and the souring of Ericsson's once sterling prospects have dampened Sweden's sizzle. The tech-heavy Swedish stock exchange is down 36% from its high a year ago. Swedes, who are big investors in shares, are suddenly realizing that their economy could be the most vulnerable in Europe to a U.S.-led world downturn.
BIG DROP. Economists are rapidly cutting back forecasts. Klas Eklund, chief economist of SEB, a Stockholm-based bank, now thinks Sweden will turn in 2.4% growth this year. That would be a big comedown from the roughly 4% Sweden notched in each of the past two years. It could also prove optimistic if the world's economies sink like stones. Exports account for 48% of GDP, and orders for Swedish products are vanishing. In January, export orders for telecom equipment, which accounts for about 20% of exports, fell by 43% compared with the previous month.
Ericsson's agonies have triggered something close to national hysteria, owing to the outsize economic and psychological role the phonemaker plays in Sweden. Following the sale to foreign corporations of such local jewels as Volvo's car operations and drugmaker Astra, Ericsson is now Sweden's undisputed corporate flagship. In recent years, it has accounted for about 15% of Swedish exports and close to 20% of annual economic growth. It is the largest private employer, with about 45,000 workers. Swedish suppliers may bring the total number of workers dependent on Ericsson to 100,000.
Now, Swedes who had counted on collecting paychecks at Ericsson for life are feeling insecure. Ericsson has announced cuts of 22,000 jobs, about half in Sweden. Suppliers are also likely to be hit hard. "Everybody's worried about their jobs," says one manager at Ericsson's 1960s-modern headquarters outside Stockholm.
So far, business is far more gloomy than consumers about Sweden's economic prospects. With unemployment at a recent low of 4.3%, they are still spending. But there are some early signs that shoppers could be feeling the chill. New-car registrations in March were off 17.5% from a year earlier. And Michael Treschow, CEO of appliance giant Electrolux Group, reports that retailers are slashing orders. "Retailers are being very careful, very conservative," he says.
Not only is a huge question mark hanging over Sweden's biggest company, but the small dot-coms that seemed to offer so much promise are mostly history. Johan Malmliden, managing director for Sweden of Internet consultant Icon Medialab, has watched as one client after another went to the wall. He has spent a lot of his time trying to collect the $15 million that companies owe Icon before they disappear. He has collected $10 million but says "it hasn't been a pleasant experience."
It's not likely to get better anytime soon. Venture capitalists are conserving their dwindling cash reserves, leaving little lucre for new startups. Of course, the lights aren't going to go off in Stockholm. New companies with sounder business strategies are likely to rise from the ashes. But it is a good bet that there will be plenty of unpleasant surprises before the year is out.
By Stanley Reed, with Ariane Sains, in Stockholm