Biggest Nordic Economy Girds for Fallout of Putin Tactics

Scandinavia’s biggest economy is bracing itself for what may become a protracted standoff between Russia and Europe, according to Swedish Finance Minister Anders Borg.

“If the uncertainty persists in the global economy for a prolonged period it will hurt a small, open export-dependent economy such as Sweden,” he said yesterday, after delivering a speech in the southern Swedish town of Lund. “We still need to see what direction the situation is moving as we’re getting mixed signals on what the Russians intend.”

Global stocks slumped this week after pro-Russia forces took control of the Crimean peninsula. Markets fluctuated today as investors tried to gauge the intentions of President Vladimir Putin following his retreat yesterday from a full-scale military incursion into Ukraine. Sweden relies on exports for half its economic output, making it more vulnerable than most to any developments that put Europe’s nascent recovery at risk.

The MSCI Emerging Markets Index rose 0.3 percent as of 9:49 a.m. in London. It gained 0.6 percent yesterday after plunging 1.6 percent on Monday.

Putin said yesterday he’s not considering taking control of Crimea and would send in troops to Ukraine only in an “extreme” situation. U.S. Secretary of State John Kerry arrived in Kiev as the U.S. and its European allies sought ways to increase economic and diplomatic pressure to deter military escalation.

Russian Relations

Sweden yesterday deployed fighter jets to the Baltic island of Gotland, which the country’s air force said followed heightened activity in the region. Sweden’s benchmark OMX stock index recovered after sliding 2.5 percent on March 4, the biggest decline since June last year.

Borg said yesterday that Sweden now needs to review its investment and trade relationship with Russia and potentially increase defense spending.

“The uncertainty we have concerning the decision making in Russia makes it justified to move in that direction,” he said.

A report last week showed Sweden’s economic expansion accelerated in the fourth quarter, as both household spending and exports grew.

Gross domestic product rose 1.7 percent from the third quarter, compared with a revised 0.5 percent in the previous three-month period, Statistics Sweden said.

Recovery prospects have been brightening as the euro area, Sweden’s biggest export market, emerges from its record-long recession. The $550 billion economy, home to companies such as Volvo AB and Scania AB, sends about 70 percent of exports to Europe.

*T *T

Before it's here, it's on the Bloomberg Terminal.