Posts Tagged ‘Sweden’

file0001300785481Question, what does the Swedish economy and George Osborne’s dream have in common?

Answer: Setting aside that Sweden is still somewhat concerned about such issues as equality, welfare and workers’ rights, the Swedish economy is, quite probably, Mr Osborne’s dream.

Like the UK, Sweden once suffered a banking crisis. Unlike the UK, the Swedish crisis occurred a quarter of a century ago. Lots of dust has settled since, but today, Sweden is a country with a firm check on public finances. Today, Swedish public debt to Sweden’s GDP is just 44 per cent, roughly half of the UK equivalent. Since 1997, the Swedish government has targeted a one per cent budget surplus over the course of an economic cycle.

You could say that its prudence writ large. Sweden has become one of the most competitive economies in the world, a major technology hub and a centre for entrepreneurism, all this with a growth rate since 2008 that the UK can only envy.

So that’s austerity for you. Cut the size of the state, and the private sector can grow into the void that is left – at least that’s the theory. But maybe Sweden bears the theory out.

There is just one snag. Since 1997, household debt to disposable income in Sweden has risen from 90 per cent to a staggering, and very worrisome, 190 per cent.

It does rather seem as if the price Sweden has paid for reducing government debt is for household debt to rise. When you think about it, across the global economy, if savings are at a certain level, and governments are trying to cut debt, that must mean that private debt must rise, otherwise, all that money that is saved leaks out of the economy.  It’s a point that gets forgotten.

But George, or so it appears, has abandoned his dream.  It is no longer his target to create a budget surplus by 2020. Brexit has made this impossible.

The truth, of course, is that for all the talk of prudence, of how you can’t fight a crisis caused by too much debt by borrowing more, of how the Keynesian idea of demand stimulus in times of trouble is dead, Mr Osborne has done the opposite of what he said he was doing. Year in year out, targets for government finances have been missed. Borrowing each year was higher than was predicted the year before.  On the other hand, while household debt to disposable income has been rising of late, it is way below the pre-2008 level and nowhere near the level in Sweden.

And now, thanks to the Brexit vote, it appears even more targets will be missed.

Before the referendum, Mr Osborne threatened an austerity budget if Leave won. Instead, it appears we are getting more Keynesian stimulus.

If the Brexit supporters, such as Michael Gove and Andrea Leadsom, have a dream, it is for the UK to be like Singapore, a dynamic independent hub off a mainland. Can that happen? It is hard to imagine the whole of the UK being like Singapore, but London . . . well, if you squint your eyes, and apply a large dollop of thinking outside of one of those box things, then maybe London can become Europe’s Singapore.

And now George Osborne is talking about cutting corporation tax from 20 to 15 per cent, the lowest such tax rate amongst the world’s major developed economies. So is that good thinking, or has he boxed himself into creating a low tax haven even though social discontent was the main driver of the referendum result?

The Keynesians argue that in times of economic trouble you should forget about government finances and spend instead.

But the government tells us that this philosophy is irresponsible, that we must live within our means.

In reality, we are being told to forget about government finances and cut corporate taxes instead.

This article was originally posted on Fresh Business Thinking http://www.freshbusinessthinking.com/keynesian-osborne-opts-for-tax-cuts/

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So how good a driver are you? Chances are you think you are better than average.

Psychologists have investigated it. A fellow called Svenson questioned 161 students in the US and Sweden. He found that 93 per cent of the US students and 69 per cent of Swedish students thought they were better than average drivers.

The UK government is coming down harder on driving misdemeanours. It is remarkable how many people agree. We all have our pet hates. Drivers who tend to think the inside and outside lanes of motorways are for everyone else also tend to hate tailgaters. While drivers who like to intimidate other drivers by moving right up to their bumpers and flashing their headlights aggressively seethe over those who hog the middle lane. We support the new tougher stances on driving irregularities because we think they apply to someone else.

Yet where would we be without the illusion of superiority? How many entrepreneurs embark on a business venture because they are convinced they can do it – whatever it is – better than anyone else. Without that sense of self-belief they might never try, and the occasional spectacular success –picked out, perhaps by the force of randomness – would never happen. Maybe the predominance of the illusion of superiority explains why the US is more entrepreneurially minded.

It is just that when chance favours us we tend to see it as evidence that our initial feeling of superiority has been confirmed – and we never admit to the illusion.

© Investment & Business News 2013

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House prices might be rising in the UK, but that is not what’s happening across most of Europe.

According to new data from the EU Commission, house prices across the Eurozone fell 2.2 per cent year on year in the first quarter of this year. Across the EU they fell 1.4 per cent.

Among the Member States for which data are available, the highest annual increases in house prices in the first quarter of 2013 were recorded in Estonia (+7.7 per cent), Latvia (+7.2 per cent), Luxembourg (+4.3 per cent), and Sweden (+4.1 per cent), and the largest falls were seen in Spain (-12.8 per cent), Hungary (-9.3 per cent), Portugal (-7.3 per cent), and the Netherlands (-7.2 per cent).

In France they were down 1.4 per cent. They fell 5.7 per cent in Italy, 3.0 per cent in Ireland, and 0.4 per cent in Cyprus.

The latest data for Germany is not yet available, but in Q2 2012 they rose 2.3 per cent, year on year.

According to recent OECD data, when comparing average house prices to rent, they are 71 per cent above the historic average in Norway, 64 per cent more than average in Canada, 63 per cent more in Belgium, 61 per cent in New Zealand, 38 per cent in Finland, 37 per cent in Australia, 35 per cent in France, 32 per cent in Sweden, and 31 per cent in the UK.

Prices to rent are below the historic average in the US, Japan, Germany, Italy, Czech Republic, Greece, Ireland, Iceland, Portugal, Slovak Republic, Slovenia and Switzerland. In the case of Japan, Germany, Greece, Ireland, Portugal and Slovenia they are less than 80 per cent of the average relative to rents.

© Investment & Business News 2013

UK house prices may be rising again, but they are still too expensive. Or so is the inference from data published by the OECD this week.

In fact, suggests the OECD, UK house prices to rent are 31 per cent higher than the historical average since 1980, and to income they are 22 per cent above average. That may seem a tad worrying.

But then again in Canada, average prices to rent are 64 per cent over the Canadian long-term average, and price to income is 30 per cent over average. In Australia the extent of apparent over valuation is 37 and 21 per cent respectively.

The OECD data suggests that house prices are also more over-priced in Belgium, Norway, and Sweden than they are in the UK.
In France and Sweden, the ratio of price to rent and income, is at a similar level to the UK.

They are much cheaper in the US, Germany, Japan, and Ireland. Okay, as long as interest rates are so low, maybe house prices could be affordable in the countries where they are apparently overvalued. But what will happen if interest rates rise?

If interest rates go up because the economy is doing well, then that may be fine.

But supposing they rise because of external factors, for example because of rising wage costs in China, or because there’s less money sloshing around global money markets, or rates rise because as the baby boomers retire, they draw down savings. See: the Great Reset 

© Investment & Business News 2013

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It was the biggest UK trade deficit since last August, but maybe there was a glimmer of hope in the figures.

The UK trade deficit was £3.6 billion in February, compared to £2.5 billion in January. That was not very good. In fact you would need to rewind the clock to August last year to find the last time the monthly deficit was so bad.

The deficit with the EU rose, but worryingly so did the deficit with the rest of the world.

Forget about the month on month data, it is not usually very reliable. Instead look at the last three months. During this period exports to Germany fell by £677 million, and by £670 million to the Netherlands. Exports to Sweden were down by £211 million and down £97 million to the US.

On the other hand, the UK exported £326 million more to Belgium/Luxembourg, £262 million more to China, and £101 million more to Italy.
As for imports from the US, the three month period saw something of a crash, with imports from the US falling by £490 million. Imports from Italy, Belgium/Luxembourg and Germany also fell. Imports from the Netherland, China, Norway and Spain all rose. It was good to see exports to China rise faster than imports from the country.

On the other hand, total UK exports to China during the three month period were £2854 million. Imports were £7759 million, so the UK has a long way to go to bridge that particular deficit.

The trade figures may contain some bright points, but overall they are not good. But why is this the case when sterling is so much cheaper? You can see why the deficit with the Eurozone is worsening; after all, the region is going through an even more torrid time than the UK, but why have exports to the rest of the world fallen?

A falling pound does not seem to be working. What the UK needs is investment, and that can probably only happen if QE is directly more specifically at companies.

©2013 Investment and Business News.

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