Sweden slashes growth outlook for 2020 due to coronavirus

The coronavirus outbreak will lower Swedish growth this year by around 0.3 percentage points, Finance Minister Magdalena Andersson said, adding the impact could be greater if the outbreak is longer lasting or more widespread than currently expected.

Andersson said that the effects if the virus on Sweden’s economy had so far been limited, but that it would nevertheless reduce growth this year.

“Our assessment regarding Sweden is that growth this year will be 0.3 percentage points lower than it otherwise would have been,” Andersson told reporters.

“If the situation with the virus does not ease in China in the way we expect it to in our forecast or if the spread to the United States and Europe is wider, then the economic effects will also be larger.”

In January, the government forecast gross domestic product would expand 1.1% this year.

Growth has been slowing in recent quarters but the central bank nevertheless hiked rates in December, ending nearly 5 years in negative territory.

On Tuesday, Riksbank Deputy Governor Anna Breman said she did not think that the effects of the outbreak so far warranted a monetary policy response. If things get worse, the Riksbank is unlikely to follow the Federal Reserve in the United States, which cut rates by a half percentage point to a target range of 1.00% to 1.25% on Tuesday.

“I don’t think a rate cut is the first item on the to-do list,” said Cathrine Danin, senior economist at Swedbank. “They could cut rates, but I don’t think that’s the most effective measure. I think fiscal measures would be more effective.”

Danin said that if the situation were to worsen, the Riksbank would be more likely to introduce measures to boost liquidity in the banking system similar to those it used during the 2008-9 financial crisis. Those included accepting a broader range of collateral for loans.

Andersson said the government was well positioned to act if needed with debt at its lowest level since the late 1970s and announced a scheme to enable companies to put workers on shorter hours so as not to have to resort to redundancies.

The cost of the scheme was estimated to be about 350 million Swedish crowns ($37 million) per year for the government.

Should more be needed, Andersson said the most effective use of resources would be to increase public spending by, for example, handing over more money to local authorities.

Around 3,000 people have died as a result of catching the virus, mainly in China, where a widespread shutdown across parts of the country has hit supply chains and production for many western firms.

Sweden-based airline SAS said the coronavirus outbreak had a limited impact on its traffic in February, but repeated on Friday that it was cutting routes and capacity as demand drops.

“Due to the outbreak, SAS notes a reduced demand going forward,” it said after reporting that total capacity (available seat kilometers or ASK) and revenue passenger kilometers (RPK) grew 1.4% and 0.5% respectively from a year earlier.

Currency-adjusted unit revenue grew 1.1%, and passenger yield 2.2%, it said in a statement.

“Passenger growth, unit revenues and passenger yield showed good development in February as COVID-19 had a limited impact,” it said.

Like other airlines, SAS has seen its shares hit this year by uncertainty and falling demand due to the coronavirus spread. “To mitigate some of the negative financial effects, SAS reduces long- and short haul network capacity on routes with low forward booking,” it said.

On Tuesday, SAS cancelled flights to northern Italy and Hong Kong and withdrew its financial forecast for the year after the outbreak hit demand.

SAS shares were down 3%, in line with the wider market in Stockholm and bringing their fall for the year to date to 44%.

“Overall, even if we have a drop in Chinese flights in February, I still see a positive effect on revenues compared to February last year, but also remember we have a day extra more due to the leap year,” said Sydbank analyst Jacob Pedersen.

The epidemic could cost passenger airlines up to $113 billion in revenue this year, an industry body warned this week as airlines cancel flights and warn on profits. Finland’s Finnair, which has a strong focus on Asia, posted its first drop in demand in years on Friday while on Thursday the other main Nordic rival to SAS, Norwegian Air, scrapped its 2020 forecast.

Reuters