Swedish Trade Flows Raise Questions

Sweden's seasonally adjusted Kroner-based trade data show a sharply larger surplus in August followed by a near normal surplus in September. Sweden's exports and imports both fell again in September. The trade data, though seasonally adjusted, appear to be very bumpy with both exports and imports swinging from strong growth in July to weak results in August-and now, more weak results in September. Sweden's trade flows do not seem to be living the European dream.

The trend in the trade surplus marks a recent dwindling of the surplus on Sweden's trade account, punctuated with a sharp bloating in August. Exports that have risen less than imports year-over-year chart a course of somewhat deteriorating performance over 3-months and 6-months compared to year-over-year.

For imports the trend has become clearer and is more disturbing. Imports are up by 8.2% over 12-months. Then, over six-months they are falling at a 4.4% annual rate. Over three months this rate of decline has accelerated to -11.1%. Sweden's imports speak to some substantial weakness in domestic demand. If that is the case, it's not the song that the European choir has been singing. While Sweden is not an EMU member, it still has very close ties to the region and generally follows the same business cycle path. A countermove from Sweden is not a good signal for the rest of Europe.

Both exports and imports appear to be turning lower. The chart shows that Sweden is having the same sort of export pattern as its fellow Nordic countries. Finland, an EMU member, is doing about the same as Norway and Sweden that are not EMU members.

The chart plots year-over-year trends for exports and imports. On this basis the exports of Sweden and the other Nordic countries seem to be making some recovery even if that means smaller negative growth rates for some. For Sweden it is in the growth rates shorter than one year where the weakness begins to show up. The table chronicles this. It also shows how the year-over-year growth rates for exports and imports are so much improved from one-year ago. And, except for imports the sequential growth rates that are declining over the past year still leave growth in better shape that it was one year ago.

However, many issues remain for Europe and they will affect Sweden as well. Sweden may have an even more difficult row-to-hoe than the Europe if it is already starting its backsliding. Most of Europe is in an upswing and EMU members hope to build on that despite their remaining issues.

Not only are there still EMU issues to be puzzled out, but there is now much more debt in the post financial crisis eurozone than there was before. That is going to impede progress. Hardliners are going to want to reduce debt-to-GDP ratios more quickly than others. While that policy may be good for long-term growth, the whole euro-experiment shows us how a focus on debt can actually retard growth so much in the short run, that the long-run properties of that strategy are made moot. Still, debt will restrain the Union's ability to grow and to use debt to do it. Debt service will be another burden.

While Europe seems to be in a better place than it was six months ago, the progress remains slow - in some places almost undetectable. Sweden's recent poor trade performance is a small reason but another reason to wonder if Europe has turned the corner as much as it thinks it has. The risks to the Union and to its members are still substantial. Europe still needs to come together to solve its problems. All that it seems to be able to come together over right now is its distain and fierce objection to the US NSA spying that has become a scandal and has re-united Europe. Europe needs more unity than just that to make economic progress.