When the local currency depreciates, imports become more expensive, so locals often buy fewer imported goods; on the other hand, exported goods cost less to international buyers, so their demand tends to grow. Fewer imports and more exports will reduce the trade deficit and could lead to a surplus.
The Swedish krona has reached extreme lows against the dollar and euro, with some national media labeling it a “junk currency”. Here’s what that means for Sweden’s international residents, and anyone pondering a move there; Sweden is an export-orientated economy, and the low krona can make Swedish companies more competitive since their products become cheaper to buy than those in countries with the euro. For companies that rely on imports, though, there are higher costs to reckon with, and this affects many export-focused companies too.
The krona has reached lows usually only seen in times of economic crisis, most recently in 2009. It’s 17 years since the krona was this weak against the dollar, while it’s at its lowest level against the euro in around a decade. At the time of writing, the krona was 9.58 against the dollar and 10.73 against the euro.
In a survey by Swedbank, around half of purchasing managers for Sweden’s 400 biggest companies said a fall in the krona had a negative impact on profits, while only a fifth said the effect was positive. Small and medium-sized businesses are generally the most seriously impacted, since their smaller size, fewer resources, and typically lower profit margins can leave them more vulnerable to fluctuations.
Dagens Nyheter has spoken to Lars Eriksson, CEO of the Swedish importing business Mikron. He explains to the newspaper how a weak national currency is affecting them: “We buy most of our products from Germany and are billed in Euro. Because of the more expensive Euro, our profitability decreases and our margins tighten. When I started working here, there were rarely negotiations about the prices. Now, every krona has to be considered before we make a deal. It is a lot tougher”, he says to DN.
Mikron is a relatively small company, with four employees. As of yet, no termination has been necessary, but they have been forced to be increasingly more considerate with their spending. They are nervous when they have to pay big amounts, and careful when making investments.
While some economist like Robert Bergqvist, believes there is no reason to be worried, others, however, claim that there are reasons to worry. Henrik Mitelman at Dagens Industri says we should ”give up all hope of the Swedish krona” and he partly blames Riksbanken, Sweden’s central bank, for how poorly the currency is performing.
Mitelman states that Riksbanken is desperately latching on to the inflation target, and therefore needs to force an increase in import prices by lowering the value of the krona.
This would mean that goods and services will become more expensive, benefitting no one but Riksbanken and some exporting businesses. Both Bergqvist and Mitelman would likely agree on the statement that importing businesses like Mikron needs to be wary, and careful with their spending.
For more information, visit: http://zonta21.nu/low-swedish-krona-equals-tougher-times-for-import-businesses/