The chief economist’s blog: Sweden’s trump card in the pandemic is a strong economy, not the coronavirus strategy

The country's angle of approach regarding coronavirus restrictions was very different and, in the spring, the assumption was that the Swedish economy would benefit from this. Finland isolated Uusimaa, while the Swedes were enjoying the spring sun on terraces. Our western neighbour kept their cafés and restaurants open and people were socialising with each other. The Finns ate home cooked meals and the occasional take away. In Sweden, the number of diagnosed coronavirus cases clearly increased quicker than in Finland and the country is still distinctly ahead of us: on October 12, there were as many as over 98,000 registered cases in Sweden, while Finland has approximately 12,000 cases.

The Swedish economy plunged during the spring despite the diverging coronavirus strategy

The GDP growth numbers in spring revealed that the Swedish economy had taken an 8.3 per cent plunge during the second quarter of the year. At the same time, the Finnish economy only dropped 4.4 per cent. We were better, but only briefly. The steeper plunge of the Swedish economy is mainly explained by the fact that the Swedish motor industry went downhill during the spring as both Scania and Volvo closed their factories. The car factory in Uusikaupunki did suffer equally but the factory's share of the Finnish total export is much smaller than that of Scania's and Volvo's in our neighbour.

One would have thought that the diverging coronavirus strategy would have affected private consumption in a positive way. However, this did not happen. In Sweden, consumption decreased during the fourth quarter by 7.6 per cent, which was even slightly more than in Finland. This probably tells us that the virus situation affects consumer behaviour more than the restrictions set by the authorities. People are afraid of the coronavirus whether they can go to their local café and buy their morning latte or not.

The competitive export sector and the strong public economy will lift Sweden out of the coronavirus crisis

Even though spring was dark in Sweden, it seems that the industry has already taken a turn for the better. For the past four months, factory orders have increased on a monthly level and the orders for the motor industry, which particularly suffered during spring, are rapidly increasing. We have only just now seen the first restrained signs of a turn. The increasing orders support both the Swedish export sector and the job market.

The turn that factory orders have made tells us that the export sector in Sweden is more competitive. The trade balance in Sweden has been steadily positive during the past ten years. In Finland the number has been on both sides of zero. The country that benefits more from the growth of the global economy, is the country with the more competitive export sector. Sweden is playing first fiddle in this competition and Finland second - even though our economy according to numbers has been less hit by the coronavirus.

Behind the export sector is an exceptionally strong public sector. Due to a high employment rate and a moderate economic policy, the Swedish public sector (municipalities and the state) budget deficit has according to the current forecast already been caught up with in 2023. I have not yet seen a forecast that reaches far enough into the future that the Finnish public sector would accomplish surplus according to it. The Swedish taxpayers can expect distinctly lighter economical re-balancing measures.

During the coronavirus crisis, the Swedish economy momentarily suffered more than Finland. However, the Swedish economy was clearly stronger than Finland's economy before the pandemic.

Sweden's coronavirus strategy does not affect this fact. Stronger competitiveness gives better preconditions to do well in the global economic competition. Just like in times before coronavirus.

Lasse Corin lasse.corin(at)aktia.fi
Twitter:@lassecorin