Swedish Economy Suffers From The Euro Zone Crisis

The euro zone crisis pushes one of the strongest European economies, Sweden, into recession. The country’s gross domestic product shrank 1.1 percent in the fourth quarter of 2011. The central bank estimates unemployment will rise to 7.7 percent this year and stay there until 2014.

A recession would follow the 3.9 percent expansion in 2011, when Sweden outgrew neighbouring Norway and Denmark. Finance Minister Anders Borg said last month that the government may cut its economic growth forecast to about 0.5 percent for this year, from a 1.3 percent estimate in August.

The EU is the biggest trade partner for Sweden, where it sends 70% of the country’s export. The economic recession in most of the euro zone countries weakened their demand for export, which had a severe negative impact on the Swedish economy.

Swedish output contracted last quarter while the economies of Denmark and Norway grew. All three countries carry AAA grades at the three main ratings companies.

Sweden’s central bank has lowered its benchmark interest rate twice since December, reducing it to 1.5 percent last month, and mentioned that the plan is to keep rates unchanged over the next year.

The government indicated that it may be willing to add stimulus should the economy continue to decline.

Source: Bloomberg

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