Swedes Are Getting Much Poorer as Krona's Free Fall Continues

(Bloomberg) -- From economists to small business owners, Swedes are worried that their central bank’s policies are undermining their currency.

The krona has plunged more than 10 percent against the euro since the middle of last year, making imports considerably more expensive in an economy in which small businesses tend to rely more on buying goods from abroad than exporting. The currency’s slide follows the central bank’s decision to delay any exit from negative interest rates as policy makers argue they need more signs inflation will stick to a 2 percent target.

Swedes Are Getting Much Poorer as Krona's Free Fall Continues

But as the policy leaves Swedes poorer, more people are speaking out.

The central bank is “creating new risks,” said Anders Eklof, chief currency strategist at Swedbank AB in Stockholm. “Current policy generates inflation that withdraws purchasing power and generates soaring import prices during a short period, at the same time as the economy folds.”

According to the Swedish Federation of Business Owners, about a quarter of the country’s smaller companies are importers, while only 10 percent export. For Morsjo Deli, which makes crisp bread snacks, its U.K. marketing bill has jumped and other bills are ballooning beyond budget as the krona sinks.

“It feels like a threat, it doesn’t feel positive,” said Anna Godevarn, the company’s CEO and founder. “I wish something could be done to stabilize it a bit against the euro, pound and Norwegian krone.”

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Meanwhile, Swedes desperate to travel to sunnier climes are putting up with the extra cost rather than canceling their holidays. But that could come at the expense of the economy.

“Vacations are sacred for most people,” said Charlotte Hallencreutz, a spokeswoman at Ving, Sweden’s leading travel agent. “They prefer to not buy a new washing machine.”

The weak currency has also made Swedish companies a cheaper target. The number of merger and acquisition deals in the country is up more than 200 percent this year, with companies such as Victoria Park AB and Wilson Therapeutics AB being snapped up from abroad. By contrast, M&A is down 38 percent overall this year in Western Europe.

Jan Olsson, the chief executive officer for Deutsche Bank AG in the Nordic region, said “industry trends and dynamics will always be at the core” of such deals, but the exchange rate is a factor.

Meanwhile, Sweden’s political elite are starting to question the wisdom of a monetary policy that results in such a weakened currency.

Elisabeth Svantesson, the economic-policy spokeswoman for Sweden’s opposition Moderate Party, says, “long term it’s not sustainable to have the krona as weak as it is right now.”

“It’s up to the Riksbank to think about that,” she said in an interview. “But long term, it’s not good for Sweden.”

Sweden’s krona is worst performer among the world’s major currencies, though it’s forecast to do better by the end of the year, according to Bloomberg data. The krona snapped a nine-day decline on Thursday after Riksbank Governor Stefan Ingves said he doesn’t expect the currency to weaken further.

But Eklof at Swedbank has a word of caution for krona bulls.

“The Riksbank doesn’t seem to have a limit for how weak the currency can become,” he said. “When they communicate this time and again, it in some ways becomes a one-way bet.”

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