Wednesday, January 25, 2006

Sweden's Trade Surplus Drops Sharply

Today the Swedish statistical bureau came with a preliminary report that showed that the Swedish trade surplus in goods fell sharply in December, from 12.5 billion (roughly $1.7 billion) Swedish kronor in December 2004 to 7.0 billion kronor (roughly $0.9 billion) in December 2005, after imports surged 19%. Moreover, the surplus for the previous months of the year was downwardly revised by a total of 1.1 billion kronor. This means that the total surplus for 2005 fell to 140.9 billion kronor (roughly $19 billion) from 165.9 billion kronor (roughly $22 billion).

This will have two implications. First is that fourth quarter GDP growth in Sweden will probably be lower than most analysts have until now expected, although it will likely still be strong by historical Swedish (and Western European) standards as the drop in the trade surplus reflects a combination of strong consumer demand and increased investments.

Secondly, this is yet another symptom of the increasing monetary imbalances created by the inflationary policies of the Swedish Riksbank. Some analysts thought that the weak krona would mean that the trade surplus would if anything increase, but this effect have as we see now been overwhelmed by the strong increase in domestic demand from the interest rate cuts. Sweden still have a large trade- and current account surplus despite the recent decline, but behind this overall surplus we see large imbalances with some sectors still having a high savings rate but with others being driven by a inflationary credit expansion. The decline in the surplus reflects the increasing influence of the latter factor as the record fast increase in debt reflects.


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