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Low Swedish krona equals tougher times for import businesses

Lately, the Swedish krona has not performed well. It has reached extreme lows compared with the Dollar and the Euro. This affects all of Sweden – amongst them the importing companies, of which some will have to struggle to remain in business. 

Amongst the members in the OECD, only the Turkish Lira has performed worse against the US dollar in 2019. Importing businesses rely on a relatively strong krona to be profitable, and when the currency is weakening, it becomes harder to make ends meet.

Decrease in profitability

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 tightens.

Eriksson’s words are confirmed by the European Central Bank. At the time of writing, 1 Euro equals 10.6972 SEK – the highest since the financial crisis of 2009. Since August 2012, when 1 Euro equaled around 8.2 SEK, the Euro has become increasingly more expensive for Swedes.

”Every krona has to be considered”

Eriksson has noticed the trend in practice:

– 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.

Different points of view on the future

According to Robert Bergqvist, chief economist at SEB, there is no reason to be worried. However, he states that there will be negative effects. Because Sweden’s economy is highly based on exports, a weak national currency should strengthen – rather than weaken – the economy. But, since the krona is undervalued by 10 – 15 percent, this likely won’t happen, according to Bergqvist.

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.