Sweden’s economy stands out as crisis reveals ‘striking differences’

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There’s one country whose economy looks set to fare better than others when it comes to the fallout of Covid-19: Sweden.

In a report on Monday, Capital Economics presented data that give Sweden an irrefutable edge. From peak to trough, Swedish GDP will shrink 8%; in the U.K. and Italy, the contraction is somewhere between 25% and 30%, according to estimates covering the fourth quarter of 2019 through to the second quarter of 2020. The U.S. is somewhere in the middle, it said.

“Even accounting for data problems, the variation in the extent of the economic damage inflicted by the virus on different countries is striking,” said Neil Shearing, group chief economist at the researcher.

Sweden has kept shops, gyms, schools and restaurants open throughout the pandemic. But the strategy, which the government says wasn’t shaped with the economy in mind, has resulted in one of the world’s highest mortality rates. Sweden’s state epidemiologist recently acknowledged he would have opted for a tighter lockdown with the benefit of hindsight.

Sweden says its approach was based on an assumption that Covid-19 will be around for a while yet, meaning severe temporary lockdowns will do little to prevent its spread in the long run. But Swedes themselves have started to lose faith in their government’s strategy as the death toll continues to rise.

“Sweden’s light-touch lockdown has been the subject of much debate and its effectiveness in terms of tackling the spread of the virus is unlikely to become clear for many months, if not years,” Shearing said. “But, so far at least, it does seem that its economy has suffered less as a result.”

Sweden’s government and central bank have also pointed to early signs that the economy has suffered less of a blow than its peers. Even so, Finance Minister Magdalena Andersson last month told her countrymen to brace for the worst recession since World War II, with GDP likely to contract about 7%.

Shearing also warned that more data is needed to get a full picture.

“The true extent of the contraction in output will become clearer as the hard activity data for April and May are released over the next month or so,” he said.