STOCKHOLM, Sept 14 (Reuters) – Need a cheap and reliable used car? Think Sweden. In Sweden, the local currency has depreciated sharply over the past 18 months, benefiting used car dealers and other exporters.
But not everyone is happy with the Swedish royal family’s 17.5% decline against the euro, 20 years after Swedes voted to leave Europe’s single currency. Many people in this country, who were used to a high standard of living, are now being forced to live in a harsher environment.
“Many foreign car dealers think there is a sale going on in Sweden,” says Joachim, senior key account manager at the Swedish branch of BCA, Europe’s largest car remarketing company, according to its website. Agren told Reuters. He said overseas buyers now account for the majority of auction sales, with their share doubling from 30% in recent years.
Purchasing power abroad declined along with the currency. Swedes were Spain’s 12th largest property buyers in the second quarter, according to the Registraradores de España. This is four places lower than two years ago, and it ranks second only to the Chinese.
Companies like KP Energy, which imports solar panels and sells them to contractors, cite higher purchasing costs and higher interest rates as a negative impact on household spending.
“If the crown depreciates against the euro or if the demand situation changes, it would have a significant impact on us,” CEO Philipp Wiqvist said.
KP Energy had predicted strong growth this year after doubling in market size in 2022, but now expects it to shrink even as Sweden and the European Union pursue ambitious climate change targets. Expect.
“The green transition will slow down sharply in the short term, partly because of the eurozone crown,” Wiqvist said.
A weaker currency boosted Swedish exports by 6% in the year to July, despite slowing global economic growth.
But Jan Soderström, CEO of Quintus Technologies, which makes advanced printing presses used in sectors such as aerospace and consumer electronics, said currency fluctuations have also disrupted plans for exporters. He said it was becoming difficult.
Higher import prices due to the fall in the crown mean central banks will have to keep interest rates higher for longer to fight inflation, potentially causing further pain for households and businesses struggling with loan repayment costs. be.
A further rate hike to 4.0% on September 21 is widely expected, with banking group Nordea saying another rate hike could occur in November before policy tightening ends.
This could deepen and prolong the economic downturn, which the EU already predicts will make Sweden one of the region’s worst-performing economies this year.
“The national banks are between a rock and a hard place. On the one hand they want to keep inflation down, but on the other hand they don’t want to collapse the economy,” said Annika Wins, chief economist at Nordea.
mystery
Swedes who feel beleaguered have shown some increased preference for the euro in recent months, but the majority want to hang on to the crown.
In a Demoscope poll this week, 42% of Americans voted “no” to join the euro, while 34% said they supported it. In the September 14, 2003 vote, 55.9% voted against membership, but no major party is pushing for a new referendum.
However, it is unclear why the crown has lost around 30% of its value against the single currency over the past decade.
Sweden’s economy is strong, its public finances are healthy, its government debt is the lowest in the EU, and its well-capitalized banks are among the most profitable in the region.
Accountancy firm KPMG said in June that Crown was “strangely weak”.
Analysts suggest several factors.
Like many central banks, Sveriges Riksbank’s key policy rate was at or below zero from 2014 to 2022, and it even threatened to intervene in the foreign exchange market in 2016 to weaken the crown.
SEB senior economist Robert Bergqvist said that although interest rates rose to 3.75%, in line with the European Central Bank, the market may still perceive the Riksbank as dovish. Stated.
The shockwaves of the 2008-2009 global financial crisis, COVID-19 and the war in Ukraine may also have pushed investors toward traditional safe-haven currencies.
Recent Riksbank asset purchases have made Crown securities less liquid and less attractive to foreign investors. Uncertainty over Sweden’s NATO membership, caused by Russia’s invasion of Ukraine and currently blocked by Turkey, could also be a negative factor.
The Riksbank says there is little risk to financial stability, but there are concerns about Sweden’s real estate market, which is struggling with rising interest rates and high levels of debt.
He also said the economic slowdown was not as severe as Sweden’s economy had outperformed its European peers during the pandemic.
“If you look at the pricing of bank stocks and bank credit default swaps, it appears that that kind of risk to the Swedish economy is priced solely in terms of the exchange rate,” central bank deputy governor Martin Floden said earlier. stated. this month.
The Riksbank believes the Crown is undervalued by about 20% and is hedging its own foreign currency exposure against future currency appreciation.
“We and many others are confident that the crown will be strengthened at some point, but we would like to see it happen soon, not in the long term,” Floden said.
Editing: Katherine Evans
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