Swedish krona falls as crucial services PMI drops to 7-year lows

Swedish krona falls as crucial services PMI drops to 7-year lows
Written by:
Crispus Nyaga
April 3, 2020
  • Swedish services PMI declined to 46.9, its lowest level since 2013.
  • The services sector is important because it represents more than 60% of GDP
  • The Swedish krona fell against the euro and the dollar after a report revealed the challenges in the services

The Swedish krona fell against the euro and the dollar after a report revealed the challenges in the services sector.

The report by Swedbank and Markit showed that the services PMI declined to 46.9 in March after rising by 56.4 in February. This was the lowest figure since July 2013. A PMI figure below 50 is a sign of contraction.

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The number is important because of the special role the services sector plays in the Swedish economy. Statistics show that services represent more than 60% of the Swedish economy.

The weak services PMI data came a few days after the country reported weak manufacturing PMI numbers. According to Swedbank, the manufacturing PMI dropped to 43.2, which was the fastest decline in history. The PMI dropped as more companies stayed out of business and as new orders declined.

Sweden hit hard by Coronavirus

Sweden has been hit hard by the current Coronavirus pandemic. Data from World of Meters show that the country has more than 5,500 cases and more than 300 deaths. Yet, Sweden has been the most relaxed country in Europe. According to the Economist, the country has not announced any measures to restrict movement and prevent the spread of the disease.

Meanwhile, many companies have announced significant layoffs. The government has said that it expects the rate of unemployment to reach 9% this year, up from the current 7%. In a statement, the economy minister said, “More people will become unemployed and that is also something we assess in these forecasts.”

In addition, the government expects the country’s growth to drop by 4% this year after growing by 1.2% in 2019. This will be the worst rate since 2009, when the economy fell by 4.2%.

Swedish krona weakens against dollar and euro

The Swedish krona has been among the most affected currencies because of minimal demand for the currency now that the economy is not operating as it should. YTD, it has fallen by more than 4% and 8% against the euro and dollar.

Swedish krona falls against euro and dollar

Swedish krona vs dollar euro

Riksbank reaction to Coronavirus

Riksbank, the country’s central bank has been on an easing cycle in a bid to cushion the economy. Last month, the bank, which had hiked interest rates in December, announced several plans to help save the economy from a potential recession.

The bank unveiled a program to lend banks more than $50 billion. The bank also launched an aggressive SEK 300 billion quantitative easing program in its bid to lower the cost of borrowing. In the program, the bank is buying assets like government, municipal, and mortgage bonds.

Additionally, the bank joined other central banks like RBNZ and RBA in a swap agreement with the Federal Reserve. This agreement means that the central bank can swap its local currency with US dollar. This gave the bank access to dollars, which it can then lend back to the financial sector. In the near term, there is a likelihood that the Swedish krona will continue falling if the pandemic continues.