Biggest Swedish Business Group Predicts Weak Krona Won’t Last

  • Stronger currency could have ‘fast and unpleasant’ effect
  • Says weak krona is masking need for bigger political measures

Swedish firms shouldn’t get too comfortable with the weak krona, according to the head of the country’s biggest business group.

The central bank’s record push to weaken the krona may backfire because the decline is papering over problems in the exporting industry that are bound to emerge once the currency is back to a more “normal” value, according to Carola Lemne, head of the Confederation of Swedish Enterprise. 

“In the short term, that brings some advantages for export companies,” Lemne said in a telephone interview. “But it’s also cause for concern, because it won’t last.” 

After falling amid massive central bank stimulus, the krona is now moving higher on rising speculation that the Riksbank is done with adding stimulus as the economy booms. Over the past 12 months, the krona was the worst performer after only the Brexit-pummeled pound among the world’s top currencies, according to a correlation weighted index.

The bank last month extended its quantitative easing program to June while keeping its benchmark rate at a record low of minus 0.5 percent. Governor Stefan Ingves had to use his tie-breaking vote push through the expanded asset purchases, quelling a revolt on the six-member board.

Even if the Riksbank is seen nearing the end of the road for stimulus and banks warn of a rude awakening, Ingves is still prepared to ease policy more if needed.

“The Riksbank is doing what it can, I’m not blaming them,” Lemne said. “But thanks to the currency level, for which the Riksbank plays a part, some structural problems are masked.”

Lemne said the weak currency may also be delaying needed political reforms.

The export industry has lost competitiveness, in part because labor costs have risen to among the highest in the developed world, according to Lemne. Once the krona becomes normally valued the effect, for example on jobs, could be “fast and unpleasant.”

It’s “very important” that wage agreements in 2017 are at a “good level,” she said. While the Riksbank is hoping for higher wage increases to lift inflation, Lemne agrees with LO head Karl-Petter Thorwaldsson in wanting to avoid excessive wage gains.

“In retrospect, we’ve allowed too high wage increases,” she said. “I don’t think we’ll see that much inflation.”

— With assistance by Niklas Magnusson

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