Sweden

Slowly running roebucks

AA1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

GDP USD551,0317bn (World ranking 22, World Bank 2018)
Population 10,18mn (World ranking 88, World Bank 2018)
Form of state Constitutional Monarchy
Head of government Stefan LOFVEN (Prime Minister)
Next elections 2022, legislative
  • Highly skilled and educated labor force
  • High value-added manufacturing industries with one of the highest levels of R&D spending in the world
  • Very diversified export structure in terms of products
  • Sound public finances
  • Strong and effective institutions
  • Relatively low corporate tax rates compared to peers
  • High degree of openness to foreign investments
  • Excessive household debt
  • Steep rise in house prices
  • Weak governing coalition
  • Ageing population
  • High personal income tax compared to OECD
  • High unit labor costs; strongly regulated labor market

Slower economic growth, in line with the OECD average

In 2018, Sweden’s GDP grew by +2.5%, a relatively good performance compared to the OECD average (+2.3% in 2018). Over the past four years, the Swedish economy has consistently ranked first among Nordic countries, despite slowing down.

However, in 2019, the slowdown in the global economy will drive down the contribution of net exports to Sweden’s growth. Domestic demand is also expected to slow down as the labor market is cooling and investment is timid. Consumer confidence has been  in negative territory since November 2018 and the saving rate is increasing (17.3%). Real estate prices suffered from a small correction in the second half of 2018 as Sweden’s monetary policy embarked on a normalization cycle. The unemployment rate fell from 6.7% in 2017 to 6.4% in 2018, and should reach 6% on average in 2019. Labor shortages are countered by an active migration policy (600,000 incoming migrants between 2013 and 2018), which lowered slightly the wage pressure (from +3.1% y/y in December 2018 to +2.8% in April 2019).

Inventories are surging, affecting the working capital of Swedish companies

In 2018, Days Inventories Outstanding (DIO) increased by nine days in Sweden, the worst performance in the European Union. During Q4 2018, production increased faster than consumption, and the phenomenon continued in Q1 2019.

Payment terms improved by three days, which is good news but not sufficient to compensate for the rise in inventories. This has resulted in an important increase of the Working Capital Requirements (WCR) of Swedish companies: on average, WCR increased by six days in 2018 in Sweden, meaning they need more financial resources to operate. Along with Denmark, this is the biggest rise of WCR in OECD countries.

Company turnover growth in the manufacturing sector has slowed down since the end of 2018 (+6% on an annual basis from +8-9%), though profit margins remained broadly stable at 37.1% of the value added for non-financial corporations, albeit below the long-term average of 38%. Corporate debt remains at very high levels: 154% of GDP (against 88% of GDP for households), the fifth highest stock in Western Europe. 

Given the slowdown in growth, business insolvencies increased for the second consecutive year in 2018 (+13%). We forecast two additional years of a rising trend (+10% in 2019 and +2% in 2020).

Positive policy mix ahead

Sweden registered an inflation rate 0.2pp higher in 2018 than in 2017 (from 1.8% to 2%). This pushed the Central Bank, the Riksbank, to increase interest rates in December 2018, from -0.5% to -0.25%. However, the absence of inflationary pressures, and the dovishness of main central banks (the Fed, the ECB, Australia, PBoC) as a reaction to lower-than-expected growth, have pushed the Central Bank of Sweden into a dovish stance, likely pausing the normalization cycle until end-2020. The Swedish krona depreciated by 9% between January 2018 and May 2019.

A dovish monetary policy should prevent the Swedish housing market from seeing a strong correction. In a market that suffers from a lack of supply, the number of completed new buildings fell by 3.3% in 2018, compared to the level of 2017. Moreover, the number of order permits issued has consistently fallen for three years. A dovish monetary policy would prevent highly indebted households from starting to deleverage. Consumer confidence continues to be fragile.

The government has embarked on an increasingly accommodative fiscal policy: corporate tax was decreased in January 2019, falling from 22% to 21.4%; it will fall again in 2021 to 20.6%. This should boost the profitability of Swedish companies and could result in rising investments in the country. Household tax rates did not change but a tax reform should raise the revenue thresholds at which rates of tax rise in 2020, so the effective rate of tax for households would be lower. This should boost household purchasing power and thus consumption.

Overall, public spending should increase by +1.3% in 2019 after +1.1% in 2018 and +0.4% in 2017.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Norway 10%
1
18% Germany
Germany 10%
2
8% Netherlands
United States 7%
3
8% Norway
United Kingdom 7%
4
8% Denmark
Denmark 7%
5
6% United Kingdom

Trade structure by product

(% of total)

Exports Rank Imports
Road vehicles 11%
1
11% Road vehicles
Industrial machinery (others) 7%
2
9% Petroleum (and related products)
Paper and paper manufactures 6%
3
6% Telecom. and sound record.
Medicinal and pharma. products 6%
4
6% Electrical machinery, apparatus and appliances
Telecom. and sound record. 5%
5
5% Industrial machinery (others)

The payment behavior of domestic companies is good and domestic courts are fairly efficient in dealing with disputes in a timely manner, however collecting debt through pre-legal negotiation remains the most effective option.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Recovering debt becomes very difficult when the debtor becomes insolvent, even though debt renegotiation schemes allow up to 75% writte-off of the debt, clawback mechanisms and Retention of Title privileges. The priority rules set forth in liquidation proceedings make it unlikely for unsecured creditors to receive any part of the proceeds.

Download the entire collection complexity PDF:

Collection complexity Sweden

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