What effect does Sweden's own corona rate have?

The terraces are full and everyone can go to the hairdresser. In the Netherlands we have to wait a little longer, but in Sweden normal life has hardly changed since the corona outbreak. The recovery of the Swedish krona indicates that currency markets are confident in that strategy.

We have to be patient a little longer. That was the message from Prime Minister Mark Rutte on Tuesday, who said that most corona measures have been extended until May 20. For working parents, it is a ray of hope that the children can partly go back to school after the May holidays.

In the meantime, schools and crèches have reopened in Denmark, while neighboring Germany is still keeping many shops closed. Each country chooses its own course. For now, Sweden takes the cake with the most idiosyncratic approach. While more than half of the European population is forced to stay at home, the Swedes enjoy the spring sun on full terraces.

Strict rules or good faith?
Rather than imposing strict rules, Swedish Prime Minister Stefan Löfven trusts his compatriots to have the discipline to keep a safe distance from each other. That provokes all kinds of different reactions. Neighboring countries such as Denmark predict that the country is heading for a catastrophe.

The Swedes themselves are very happy with the strategy: Löfven's popularity has increased rapidly in recent weeks. But what do the numbers say? Nearly 2.000 Swedes have died of corona in recent months. This is admittedly more than in Norway and Denmark, for example. But the virus makes considerably fewer victims than in, for example, Italy, Spain or Great Britain.

€60 billion damage for the Netherlands
If the Swedish approach works, the economic damage will soon be a lot less than in the rest of Europe. For example, the International Monetary Fund (IMF) predicts that the Dutch economy will shrink by 2020% in 7,5. That is a setback of €60 billion. That is even more so if the Dutch economy had grown slightly in the current year – which it looked like before the corona outbreak. And Sweden?

Lead epidemiologist Anders Tegnell predicts the country will achieve herd immunity within weeks. In that case, the government's base case scenario is that the economy will be 4% smaller this year than in 2019, but the damage will soon be repaired after that. Whether that succeeds depends entirely on whether the corona approach is really as effective as the recent figures suggest.

Benefit of the doubt
The currency markets are increasingly giving Sweden the benefit of the doubt. In mid-March, the krone fell by more than 5% against the euro within two weeks to its lowest level in more than 10 years. When uncertainty increases, wealthy parties simply prefer a large, safe currency such as the dollar, euro or yen.

In the past month, the crown has bounced by 2%. If the number of corona infections does not suddenly skyrocket, the Swedish economy and the krona could become one of the big winners in the second half of the year.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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