Financially solid Sweden feeling pain of heavy reliance on European trade - by Naomi Powell

Sweden wants to think “outside the European box” after its heavy reliance on trade with the region was blamed for a sharp economic slowdown in the fourth quarter.

Swedish trade minister Ewa Bjorling hopes to double exports by 2015 through measures that include pursuing export markets beyond the troubled European Union, such as Iraq, Africa and the BRIC countries (Brazil, Russia, India and China).

Despite solid government finances and an independent monetary policy, Sweden’s dependence on trade with Europe has left it particularly vulnerable to turmoil in the euro zone. After boasting the strongest economic performance among Scandinavian countries, Sweden fell to the bottom of the pack in the fourth quarter of 2011 when its economy contracted 1.1 per cent. The decline followed several quarters of solid growth and a stellar 2010, when GDP grew at a record-breaking 7.3 per cent in the final three months of the year.

So far, solid government finances have allowed the Nordic countries to weather the euro zone’s crisis relatively well. Now, with the exception of oil-rich Norway, those countries are expected to start feeling the pinch. SEB expects Denmark and Finland’s economies to grow 0.5 per cent in 2012. Though the bank had called for the Swedish economy to grow 0.7 per cent in 2012, it has since revised its forecast to 0.5 per cent.

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