March 4, 2020 / 11:25 AM / a month ago

UPDATE 2-Swedish finance minister cuts 2020 growth outlook due to coronavirus

* Fin Min says coronavirus to knock 0.3 pct pts off GDP this year

* Previous forecast was for 1.1% growth in 2020

* Says effect could be bigger if outbreak longer, more widespread

* Riksbank seen unlikely to cut rates due to lower growth (Adds analyst comment, background, graphs)

STOCKHOLM, March 4 (Reuters) - The coronavirus outbreak will lower Swedish growth this year by around 0.3 percentage points, Finance Minister Magdalena Andersson said on Wednesday, adding the impact could be greater if the outbreak is longer lasting or more widespread than currently expected.

Around 3,000 people have died as a result of catching the virus, mainly in China, where a widespread shutdown across parts of the country has hit supply chains and production for many western firms.

Andersson said that the effects if the virus on Sweden’s economy had so far been limited, but that it would nevertheless reduce growth this year.

“Our assessment regarding Sweden is that growth this year will be 0.3 percentage points lower than it otherwise would have been,” Andersson told reporters.

“If the situation with the virus does not ease in China in the way we expect it to in our forecast or if the spread to the United States and Europe is wider, then the economic effects will also be larger.”

In January, the government forecast gross domestic product would expand 1.1% this year.

Growth has been slowing in recent quarters but the central bank nevertheless hiked rates in December, ending nearly 5 years in negative territory.

On Tuesday, Riksbank Deputy Governor Anna Breman said she did not think that the effects of the outbreak so far warranted a monetary policy response.

If things get worse, the Riksbank is unlikely to follow the Federal Reserve in the United States, which cut rates by a half percentage point to a target range of 1.00% to 1.25% on Tuesday.

“I don’t think a rate cut is the first item on the to-do list,” said Cathrine Danin, senior economist at Swedbank. “They could cut rates, but I don’t think that’s the most effective measure. I think fiscal measures would be more effective.”

Danin said that if the situation were to worsen, the Riksbank would be more likely to introduce measures to boost liquidity in the banking system similar to those it used during the 2008-9 financial crisis. Those included accepting a broader range of collateral for loans.

Andersson said the government was well positioned to act if needed with debt at its lowest level since the late 1970s and announced a scheme to enable companies to put workers on shorter hours so as not to have to resort to redundancies.

The cost of the scheme was estimated to be about 350 million Swedish crowns ($37 million) per year for the government.

Should more be needed, Andersson said the most effective use of resources would be to increase public spending by, for example, handing over more money to local authorities. ($1 = 9.4581 Swedish crowns)

Reporting by Simon Johnson and Johan Ahlander; Editing by Niklas Pollard and Toby Chopra

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