Sweden Needs to ‘Borrow Like Crazy’ to Ease the Economic Pain
(Bloomberg) -- Sweden needs to toss its budget surplus regime out the window and “borrow like crazy” to ease the pain of an economic slowdown and to prevent political upheaval.
That’s the view of one of Sweden’s most influential fund managers, Simon Blecher, a former newspaper columnist who now manages equities and bonds at Carnegie Fonder with about 70 billion kronor ($7.6 billion) under management.
The 42-year-old is part of a growing chorus of investors and economists calling for Swedish politicians to turn on the fiscal spigots after years of surpluses cut public debt to the lowest level in four decades. The $550 billion economy is cooling fast, but the government so far has kept its restraint, penciling in surpluses in the years ahead even as unemployment is on the rise.
“I can’t understand, what are politicians thinking?” he said. “Our public debt is lower than for most other countries in the western world. We have a fantastic country with lots of natural resources. It’s time to invest in infrastructure, railways, motorways, to add stimulus.”
Weighed down by the escalating trade war, economic growth has all-but stalled. Even the central bank, struggling to keep inflation at target, is signaling a growing disillusion with the fiscal inertia. Riksbank Deputy Governor Per Jansson this month blasted the obsession with surpluses and called for coordination between fiscal and monetary policy.
Finance Minister Magdalena Andersson has said that she’s keeping an eye on the situation, but sees no immediate need to step in with additional support.
For Blecher, whose Sweden Fund has returned 20% this year, the need for increased investments goes beyond the immediate need to support the economy. With an aging population and after having accepted a large number of refugees over the past years, Sweden faces massive spending needs to support its welfare state.
“This has nothing to do with political color,” Blecher said. “This is a chance in a lifetime to do fiscal stimulus and to bring order. Otherwise we’ll see too high unemployment and a divided society, and that is something no one wants, regardless of political views.”
In a situation where interest rates are at historic lows, Andersson should make better use of the country’s strong balance sheet, he said.
“The government should just start borrowing all it can,” he said. “It can borrow cheaply and long term as much as it wants.”
Those low rates are to a large degree the result of record monetary stimulus in the wake of the financial crisis. The unprecedented stimulus that has been unleashed, which in Sweden has meant cutting rates far below zero and buying up almost half the government bond market, has been criticized for stoking imbalances, but Blecher said that those slamming central bank policies are misguided.
“Perhaps the Swedish Riksbank has derailed a bit and gone unnecessarily far,” he said. “But most of the central banks’ policies have been quite okay. They’ve saved us from seeing a return to a 1930s situation.”
The Swedish central bank has been largely blamed for a plunge in the country’s currency. Blecher sees no let-up in its depressed state, especially since Governor Stefan Ingves and his colleagues will likely have to call off a planned rate increase later this year as the Federal Reserve and European Central Bank add stimulus.
“It will stay weak for quite some time,” he said. “There’s a big risk that companies forget how much they actually are benefiting from the weak krona, which is a big part of their revenue growth and profit. That’s something that gives me stomach pains at times.”
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