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Warning over ‘long-term’ Swedish export slump

The Confederation of Swedish Enterprise (Svenskt Näringsliv) has gone out guns blazing, criticizing politicians for not facing up to the challenges of "a lost year for Swedish exports" in 2012.

Warning over 'long-term' Swedish export slump

“Since the finance and debt crisis began, Sweden’s share of exports in relation to GDP has fallen nearly 5 percent,” confederation economist Björn Lindgren wrote in a commentary published on Monday.

“Only Luxembourg (which still has the highest share of all member states), and Finland (whose powerhouse Nokia has experienced difficulties) have performed worse.

“It is time for a wake up call to our national policymakers.”

In 2012, the overall value of Swedish exports dropped by 3.5 percent, resulting in a 1.2 percent decline in exports as a share of GDP.

“Moreover, these statistics show that Sweden is at best a mediocre exporter, and it is time for greater political awareness,” he wrote.

“This also indicates a paradigm shift where exports are no longer the growth driver for Sweden as they have been for 15 years.”

Lindgren said Sweden’s worsening export sector came as a result of many Swedish businesses moving production abroad, warning the decline was a “long-term trend”.

He went on to argue that because Swedish exports depend to a lesser extent on the crisis-ravaged countries in southern European, the drop in exports cannot be pegged solely to the euro crisis although the financial downturn was clearly taking its toll.

“From the early 1990s to 2007, when the financial crisis exploded, Sweden had a strong upward trend in the proportion of exports in relation to GDP. But now this trend has been broken and reversed to the current declining trend,” Lindgren explained.

In keeping with its pro-free market political heritage, the industry confederation advocated a review of labour costs in Sweden, while also discussing the impact of the strong Swedish krona, a topic which set the finance minister and the shadow finance minister on collision course as late as last week. Lindgren also urged corporate tax reform.

“Recently published data by the Statistisches Bundesamt [in Germany] show that labour costs in Sweden are higher than any other EU country,” Lindgren wrote.

“These costs are €42 per working hour in Sweden, which is €11 higher than in Germany and €14 than the euro area average.”

Lindgren noted that there was no sign that the Swedish krona would lose its strong standing on currency exchange markets any time soon.

“Which means that Sweden must be ready to improve its competitiveness even with these prerequisites,” he argued.

He further welcomed some recent changes to corporate taxes but said other countries had matched the reforms.

“The Swedish government must therefore continue to implement new measures that improve market conditions for Swedish companies that invest and create operations in Sweden,” he argued

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PROPERTY

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

The Swedish financial supervisory authority warned on Wednesday that rising interest rates could lead to house prices falling "quite sharply". How likely is it that this will happen?

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

What financial circumstances might make it difficult for borrowers to repay loans?

With an increase in the cost of living, including rising interest rates and rising electricity prices, there are plenty of circumstances that may make it difficult for borrowers – especially those holding large debts in relation to their income – to repay their mortgages.

Households with large debts are therefore more sensitive to an increase in interest rates, according to the Swedish financial supervisory authority, known in Swedish as Finansinspektionen (FI).

The agency published its annual Swedish Mortgage Market report on Wednesday.

“Large debts also mean a higher sensitivity if you were to suffer unemployment during an extensive recession,” said Henrik Braconier, the authority’s chief economist.

Other factors that could stretch borrowers’ finances include rising energy prices, higher food prices, and growing inflation.

“Apples, oranges, tomatoes have gone up by 30 percent,” said Américo Fernández, a household economist at SEB. “Wheat is coming from Ukraine and it’s getting harder and harder to get hold of.”

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Will homeowners become unable to repay their mortgage loans?

Not according to Fernández.

“One of the last things Swedish households will fail to make their payments on is their mortgage and their houses,” he said. “They would rather decrease their spending on vacations abroad, or restaurants.”

The FI report noted that most new mortgages include margins that allow for fluctuations in the borrower’s finances. This means that mortgage holders have a cushion that allows them to handle financial changes.

“Our stress test shows that they can handle increases in the interest rate and also loss of income,” said Magnus Karlsson, FI’s director of macroanalysis. “New mortgages have margins in them calculating discretionary income, and will be able to absorb increases in interest rates and loss of income.”

SEB foresees an interest rise of up to three percent over the next two years, Fernández said,an increase that can be absorbed by most households.

Both Fernández and Karlsson agreed that if homeowners have to cut back on spending, those cuts will not come from debt repayment, but from their disposable income – the money they might ordinarily spend on entertainment, eating out, or travelling.

So while household spending may have to change, financial stability is not at stake for most households.

What’s going on with the housing market?

Right now, a record number of mortgage-holders have loans that are worth more than 4.5 times their income. This year, more than 14 percent of new mortgagors took on such large loans, compared to 6.3 percent last year.

A “low interest rate, increase in housing prices, increase in disposable real income and a housing market that is not functioning well” are all factors in the large debts that homeowners have incurred today, Karlsson argued.

Fernández noted that there is an imbalance between the low supply of housing and the high demand for housing, which is in part responsible for the high housing prices we see today.

He said a decrease in price of a few percentage points would not be surprising: “We’re coming from two years of exaggerated prices.”

Will housing prices begin to decrease after two years of increasing prices?

Calculations for three different scenarios tested by FI show that housing prices will decrease, Karlsson said.

While the agency does not predict housing prices, its report shows that under three different scenarios – the first an increase in mortgage interest rate, the second an increase in energy prices, and the third a combination of the first two with a reversal to pre-pandemic housing preferences – prices will decrease.

The Local Sweden reported last year about increasing housing costs in Sweden, spurred on in part by a desire for bigger homes further away from urban areas during the COVID-19 pandemic.

Fernández called the two years of increasing housing costs “surprising.”

“10-12 percent two years in a row, that’s historical in these uncertain times,” he said, noting that prices were still increasing in figures for March this year.

What sorts of housing will see the largest price decrease?

The FI report also included various scenarios of how the price of different types of housing may fluctuate based on changes in the interest rate.

One scenario assumed a 1 percent increase in interest rates this year and a 0.5 percent increase next year, and predicted that while the price of apartments owned in a cooperative – called bostadsrätter – would fall only slightly, the price of detached houses would fall by 10 percent.

Another calculation that accounted for rising electricity prices and a decline in new housing purchases found that the price of bostadsrätter and detached houses risked falling by an average of 30 percent.

Is there a plan to let borrowers end their mortgage terms early?

“We believe it needs to be simpler and more inexpensive for households to repay their mortgages early,” FI Director General Erik Thedéen is quoted as saying in a press release published by the agency on Wednesday.

To that end, Thedéen said at a press conference that the agency had sent a request to the government to change the calculation model for how banks are compensated when mortgages are terminated early.

“When you terminate a loan agreement and the bank incurs costs, it must be reimbursed,” Thedéen said. “But at present the banks are overcompensated, that is what our calculations show. If the government follows our line and changes the model and follows our line, then the banks must simply adapt.”

When asked about the likelihood of this request being granted, FI recommended reaching out to the Ministry of Justice for comment.

What does this mean for foreigners in Sweden?

If you’re already a mortgage holder, then as Karlsson and Fernández assured, mortgage calculations include a cushion that allow for changes in your financial circumstances.

If homeownership is in your future, housing prices may begin to decrease in the near future, so it’s worth keeping an eye on your local real estate listings.

By Shandana Mufti

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