Although the Swedish Central Bank (Riksbanken) had a darn cheery economic prognosis for Sweden earlier this month, a report from Capital Economics (a pretty huge, international, economic research company) predicts that the krona may sink to a new low by the end of the year – 11 kronor to the Euro. DN.se reports (bit.ly/DNekonomi) that Capital Economics has Swedish household consumption down 1% in May compared to last year – the largest drop in a decade. This bodes ill for the economy as a whole.
So why is the krona so weak? Why doesn’t it buy so much anymore? Why does so much seem so much more expensive? It’s good for people bringing over money, or if you’re a tourist, but it’s not generally good when you have to pay a lot more for things than normal.
Some people think that the krona has simply been overvalued before and this is the new normal (see Handelsbank’s economists on Affärs Världen ). Or, that it’s not really that bad – if you compare it to even smaller currencies. But if you don’t think that way, then there are a bunch of different factors to consider. DN.se’s Carl Johan von Seth had a few ideas a while back ():
- Low interest rates. You’ve probably noticed how nobody is getting any interest on the money in their bank account. It’s the same on a country scale. Other countries are simply not buying the krona because they won’t make any money on it, and if no one’s buying, it further weakens the krona. Snow, meet ball.
- Trump. Let’s just go ahead and blame him for this too, right? But we can! The dollar is super strong, and every time the Fed even thinks about raising the interest rate to keep things on an even keel, Trump is right there tweeting some really dark shade. The tax reform he implemented is also keeping the dollar strong (and possibly the economy good but that’s another, complicated, blog post). Plus, the trade war he’s engaged in with China makes people (read: economies) nervous, and nervous economies don’t buy weak currencies, like the krona. Especially when it’s known how dependent Sweden is on international trade.
- The European Central Bank. The Euro is pretty strong these days, (which also makes the krona look weak), but has an even lower inflation than Sweden. In that comparison, Sweden’s higher inflation is unfavorable.
- Sweden’s Minister for Finance, Magdalena Andersson. Some argue that Andersson’s relatively restrictive budgeting and the resulting budget surplus is part of the reason. If she had spent a bit more, maybe the krona would be stronger. (Then again, the budget surplus is a good thing to have if/when the economy weakens. Always an argument.)
- The Swedish Financial Supervisory Authority (“Finansinspektion”). The housing market is an acknowledged hot mess, and the Finance inspection’s new demand for paying off one’s mortgage and a higher down payment requirement has had both the desired effect (dampening the housing market) and an unwanted side effect (dampening the housing market). Less building can be good in some ways but also affects Swedish economic growth negatively. Exactly, contributing to a weak krona again.
Congratulations on making it all the way through this blog post. Now go out and spend some money to bring up our economy. Or save the money in your mattress for the worse days to come. No advice here, this is just a blog post.
