Resilient but worried
Far advanced in the clean energy transition, Sweden seems to be better prepared than other countries to handle the energy shock triggered by Russia’s war in Ukraine, even though it is not completely sheltered. As a member of the European Union, the country has to apply common market regulations, whereby electricity suppliers get the most expensive price (actually set by gas) lastly offered in the market.
As elsewhere, electricity (per kilowatt hour) and fuel prices are rising, and inflation is accelerating. But at 4.4% y/y in February 2022, Swedish inflation is among the lowest in Europe. A priori, the resulting loss of household purchasing power is bearable, especially since it is partially offset by tax cuts and gas “checks” for drivers. According to the National Institute of Economic Research (NIER), Swedish households, which already rank among the world’s biggest savers, are likely to draw on the reserves accumulated during the pandemic to increase spending.
It remains to be seen what impact Russia’s war in Ukraine will have on consumer behaviour, and a wait-and-see attitude could prevail for a while. Very concerned, public opinion has shifted in favour of joining NATO. Magdalena Andersson’s Social Democrat government has admitted that this is a real possibility, and has already strengthened the Defence department’s resources. The household confidence index, which is usually closely correlated to consumption, declined sharply in March (chart 2). Surveys of business leaders, especially the future orders component for industrial companies, also plummeted.
