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Sweden’s economic model begins to crumble (Video)

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the liberal, model economy, of Sweden, which has recently taken a steep downturn and faces recession.

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Via The Local…

With growth faltering nationally, and the prospect of hard Brexit and a global trade war on the horizon, is it time for Sweden to start getting ready for an economic downturn?

Ylva Hedén Westerdahl, head of forecasting at the National Institute of Economic Research, said Swedes should not think today’s good times will continue forever.

While external shocks like Brexit or a trade war will only hit exporters directly, indirectly they could push down house prices, destabilize financial institutions, make salary growth stagnate and cause rising unemployment.

“When house prices fall, then house-owners start to feel poorer and so they cut their consumption and start to save more,” she told the TT news agency.

Another big worry for the property market is whether the large numbers of newly built houses shortly to come onto the market will be sold.

“The question is how they are going to be sold,” Westerdahl said. “Overproduction means that housing investments and prices could fall even more.”

But banks are not as exposed to mortgages as they were in the run up to the 2007 and 2008 financial crisis.

John Hassler, Professor of Economics at Stockholm University’s Institute for International Economic Studies, argues that households in Sweden are not generally financially overstretched.

A bigger worry, he said, was commercial property owners, some of  whom could go bankrupt in a downturn.

“That’s the part of the loan portfolio which is a little more uncertain,” he said.

If that leads to a confidence crisis in the housing sector, banks could star pulling in lending to households and other investment projects, he warned.

“The blood flow in the system might ground to a halt and that’s very serious.”

If the crisis is serious enough to push any of the banks into a crisis, then that could hit the entire economy seriously, forcing the national government to come to the rescue and guarantee some banks’ borrowing.

Luckily, he said, Sweden’s cautious fiscal policy over the past 20-25 years had left it with considerable firepower to bail out banks in the event of a crisis.

“If we had the same debt levels as France or Italy we would have been toasted.”

Most economists see Sweden’s next economic downturn as coming from external factors, such as a financial crisis in Sweden, a crisis in the Eurozone, or a trade war between the US and China.

The first industry segments to be hit will be big exporters such as Scania and Swedish steel giant SSAB.

How much their troubled hit the wider Swedish market depends on how willing they are to hold onto their staff despite drops in sales, Hassler said.

“They were willing to do that during the [2007] finance crisis but not during the 1990s economic crisis, when companies realized they weren’t competitive enough,” he said.

If there are mass layoffs, he said, the weakest members of the workforce would be the worst affected.

“It has been tough for those with a low level of edcuation or a foreign background to get a job even during an economic boom, and for them a downturn would of course be much worse.”

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john vieiraFreedom (to choose) GasPierre VaillantJan KarlssonBente Petersen Recent comment authors
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Slippery Slopes
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Slippery Slopes

Swedish ball bearings made in Quanzhou. Ouch

On the positive side, they could always officially join NATO (instead of just de facto) and move its troll farms to Trollhaten. But then, kiss bye bye to what’s left of SAAB and then how would Estonia survive?

Jan Karlsson
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Jan Karlsson

I live in Stockholm , Sweden. And, aside from agreeing that it is indeed a slippery slope here in Sweden reagrarding all the mentioned mechanism’s above, minus the fact that there is no overproduction of houses, apartments, condos etc…. In fact, there is a shortage of housing. It took me 9,5 years to get an apartment to rent here in stockholm ( through legal means ) When it comes to houshold debt ( depending on who you ask ) , private housing debt in Sweden is now about 300 – 338 % . State debt in relation to BNP is… Read more »

Pierre Vaillant
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Pierre Vaillant

Boom and bust cycles due to rent seeking and financialization existed well-before the introduction of fiat currencies.
Blaming fiat money for these things is like blaming paper and ink, because people write bad contracts with these things and accept such clauses due to ignorance / greed.

Bente Petersen
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Bente Petersen

Sweden and Denmark are very very different !!! Sweden has always been extreme… Denmark is not… even in the 60s…and 70’s they were extreme… and is something Denmark has never really grasped or agreed with how come why is Sweden so different… and you got to go back maybe 100 years and you find a country and economy that is NOT developed… it was taken brutally from a country where everyone was in their little villages… many in poor ”remote” and kind of up in the mountains… not a lot of infrastructure… brutally made into an ”industrial” country with people… Read more »

Jan Karlsson
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Jan Karlsson

Yes, Bente….. Sweden lost it’s backbone ( what little backbone was there to begin with ) during the transition between poverty / aggrarian society and the advent of industrialism. The process was to quick for a society that , more than others, had lived relativly isolated up in the north. The inate weak backbone of the Swedish culture made it necessary for Sweden and the Swedes to seek strong allies as compensation. As such, Sweden fell into the trap of apeasing Nazi Germany during the 2:nd world war and was thus never invaded as where many other countries in Europe.… Read more »

Freedom (to choose) Gas
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Freedom (to choose) Gas

Sweden may have become a dysfunctional schizophrenia posing as a nation but worse yet, Denmark has become lickspittle non grata to me.

john vieira
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There is another factor that no one dares talk about…but every European “welfare state” will crash due to the sheer numbers involved…and still growing. You figure it out!!!

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