Sweden’s Borg Sees Danger in Declaring End to Europe CrisisScott Hamilton
Sweden’s Finance Minister Anders Borg said it was too early to declare an end to Europe’s crisis as his government stands prepared to provide further stimulus to safeguard growth in the largest Nordic economy.
“I don’t think we should be overly optimistic about 2013,” Borg said in a speech in London today at the London School of Economics. “It would be dangerous to say the crisis is over. “We may come back to a situation where uncertainties about some member countries come back to the forefront of the market.”
Swedish growth is stalling as some of the biggest companies, including TeliaSonera AB and Volvo AB, have cut thousands of jobs in an effort to adjust to slumping exports. Sweden sells about half of its output abroad, of which about 70 percent goes to Europe.
Borg last month cut his economic outlook for this year to 1.1 percent, versus an earlier estimate for 2.7 percent. He said today that the government stands ready to provide stimulus for the economy should it be needed.
“Being cautions, keeping a safety margin, means that you can also continue to do stimulus measures if the crisis still goes on for longer,” he said. “We are ready to provide demand support in 2013, 2014, if that proves to be necessary.”
Sweden’s central bank last month cut its repurchasing rate for a fourth time in a year, bringing it to 1 percent.
Sweden will post a 1.3 percent deficit of gross domestic product this year, more than double its previous estimate, it said last month. The government in September said it will spend about 0.7 percent of gross domestic product on new initiatives next year including infrastructure, research and a corporate tax cut to 22 percent from 26.3 percent.
“We are seeing a bleak year, slow recovery,” Borg said. “Because of the high household debt levels, we need to be cautious. With our bond yields trading where they are, I don’t see any credibility issue.”
Sweden’s 10-year bond yield trades at 1.74 percent, about 16 basis points above benchmark German bunds. Yields on Italy and Spain are above 4 percent.