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Foreign trade.

3.1 Exports

The competitiveness of Swedish exports worsened appreciably in the late 1980s, when the economy was overheated and wage costs rose considerably faster than in competitor countries. This tendency was checked last year and in 1992 and 1993 we count on some improvement in the relative level of costs. This has to do with a low rate of wage increases in Sweden and a relatively favourable development of labour productivity.

Swedish export prices rose considerably faster than in competitor countries in the late 1980s. After some lag, this has contributed to very large losses of market share, totalling about 17 per cent for manufactured products in the period 1988-91. Since 1990 the relative price has been more stable and in 1993 and 1994 it should be possible to lower the level more than 1 1/2 per cent a year. As the effects of this favourable tendency will likewise be lagged, in the period 1992-94 we count on a further loss of market share, Averaging just over 1 per cent a year.

Market growth last year was very weak, less than one per cent for the main markets (14 OECD countries). We assume that stronger international activity will involve an accelerating tendency for market growth in these countries, to 3 per cent this year, over 5 1/2 per cent in 1993 and 7 1/2 per cent in 1994.

In the first half of 1992 compared with a year earlier, manufactured exports fell approximately half of one per cent but the seasonally adjusted change from the second half of 1991 was a slight increase. We count on considerably stronger growth in the second half of this year and put the annual change in the volume of manufactured exports from 1991 to 1992 at about 2 per cent.

In the years ahead, the assessments of competitiveness and demand outlined above represent relatively good conditions for the growth of Swedish exports. In 1993 manufactured exports can be expected to rise approximately 5 per cent and for 1994 we forecast a volume increase of 7 per cent.

Exports to the OECD area are rising more slowly than to other areas combined this year and this situation is expected to continue in the next two years. The subdued exports to the OECD area have to do, for instance, with weak demand in our Nordic neighbours (Finland in particular) as well as with a fall-off for exports to Germany. Export growth is strong, on the other hand, to the former centrally-planned economies, not least to China. The main market country in Eastern Europe is Poland but exports have risen in particular to Czechoslovakia and to the countries that formerly constituted the Soviet Union. Latin America is another rapidly expanding market for Swedish exports.

The volume growth of raw materials exports in the first half of this year amounted to just over half of one per cent but prices fell more than 7 per cent and the changes for individual commodity groups were even more dramatic.

The volume of exports of agricultural products and fish fell almost 24 per cent but such fluctuations are not unusual for this commodity group because it is dominated by grain exports, which vary with the harvest. The 16 per cent fall in the volume of food exports is explained by the termination of export support from July 1991. Exports of dairy products and beef have virtually ceased.

Exports of wood products, the largest group of raw materials after pulp, are rising appreciably this year, mainly because Canadian producers are now selling more to North America and much of the supply from Russia has come to an end.

The price fall mainly reflects weak prices for forest products and energy products. Additional production capacity for pulp has accentuated the existing supply surplus. The weak dollar has also pushed pulp prices down.

In the forecast period exports of raw materials are calculated to be weaker than manufactured exports. This is unusual at the beginning of an upswing, as at present, and is one indication that the recovery on this occasion is fragile. For 1992 the volume of raw materials exports is forecast to rise less than 2 per cent. Next year the volume is even calculated to fall 1/2 per cent but this is mainly because the export of electricity is assumed to fall back to more normal levels and this year's poor grain harvest will show up in agricultural exports next year. For 1994 we count on a volume increase of almost 4 per cent (further details are given in Chapter 4).

Total exports of goods are calculated to rise 2 1/2 per cent from 1991 to 1992, followed by acceleration to 4 per cent in 1993 and over 6 per cent in 1994.

3.2 Imports

Imports of goods have been falling in volume since the beginning of 1990. The drop in 1991 exceeded 6 per cent, mainly due to markedly decreased imports of investment goods, construction materials and passenger cars. Total imports of manufactured products fell 7 1/2 per cent, while imports of raw materials were partly sustained by small increases for food and petroleum products, so the total level was less than 4 per cent down on 1990. In 1992 the overall fall is continuing; the first-half level was 1/2 per cent lower than a year earlier. The fall is still most marked for imports of investment-related engineering and steel products, along with crude oil.

The forecast for manufactured imports is based primarily on an assessment of import-weighted demand. Total demand for goods is first adjusted for components, such as food and fuel consumption, that are presumably irrelevant for manufactured products. The various demand components are then aggregated, using the average import content of each component as weights. This import-weighted demand is intended to reflect the development of imports for manufactured products.

Import-weighted demand fell sharply in 1991 and a further drop is foreseen this year as a consequence of decreased investment in machinery and lower private consumption of goods. Unchanged demand is foreseen in 1993, while an increase of more than 4 per cent is assumed for 1994. Stockbuilding and exports are positive for the demand variable in all three years. The contributions of the demand components to the annual changes in import-weighted demand are presented in Table 3.4.


Manufactured imports display a rising trend relative to demand, no doubt reflecting the growing international specialization of production and the attendant increase in trade. At present, however, the ratio between imports and import-weighted demand is below the level indicated by a continuation of the trend from the 1980s. Part of the reason may be that with lower capacity utilization in the past two years, Swedish producers have been in a better position to supply domestic demand. At a time when the domestic market was contracting, the loss of domestic market share has been less extensive than before.

We envisage that persistently weak domestic activity, with low resource utilization and more competitive pricing by domestic producers, will keep the import ratio below the trend up to the end of 1994. Manufactured imports are then calculated to fall about 1 1/2 per cent this year and rise 1 and 6 1/2 per cent in 1993 and 1994, respectively.

Imports of raw materials tended to rise in the first half of this year, reflecting increases for petroleum products and food, and growth of 2 1/2 per cent is calculated for 1992, followed by increases of 1 1/2 and just over 2 per cent in 1993 and 1994, respectively.

Imports of crude oil are expected to rise this year in that last year's temporary suspension of production at refineries is not being repeated. This points to increased domestic sales of petroleum products, so that imports of these products are subdued. Allowing, moreover, for an expected increase in exports of petroleum products, the net import of crude oil and petroleum products should be unchanged from 1991. The development of import prices in the first half-year, combined with a slight fall in the consumption of petroleum products, suggests a seasonally-adjusted increase in stocks. The forecast assumes that this increase is partly reduced in the second half-year. The assumption of normal winter weather in 1993 implies a higher heating requirement than in 1992 and thereby increased oil consumption. With an increased electricity requirement for the same reason, there would be less scope for using cheap surplus electricity instead of oil for district heating, for instance. Off consumption in other sectors will be weak. Some fall is calculated for exports of petroleum products and stocks are assumed to be unchanged, giving just a slight increase in the net import of crude oil and petroleum products. The estimates for 1994 point to an increase of about 2 per cent, mainly due to rising consumption in industry and transport, with only a slight increase for heating.

The annual fluctuations in imports of ships are explained almost entirely by the import of one large ferry in 1991 and the estimated delivery of another in 1993.

Import prices have been falling for raw materials as well as manufactured products since the end of 1990. The downward tendency has been most marked for raw materials, accentuated by the falling dollar. Crude oil prices have dropped in particular but metal prices have also been falling. A renewed price rise for raw materials is expected in the latter part of this year, followed by increases of 4 and 7 per cent in 1993 and 1994, respectively. The price rise for oil in 1994 is expected to be stronger than for other raw materials, reaching about 10 per cent; in terms of the spot price for Brent oil, this is equivalent to an increase from the current barrel price of about USD 20 to a level of USD 22.50 at the end of 1994. Prices for manufactured products are likely to recover considerably more slowly, with an average level for 1993 that is the same as this year and an increase of about 2 per cent in 1994.

3.3 Balance of payments

Balance of trade

The balance of trade improved markedly in 1991 to a surplus of more than 30bn kronor, or twice as much as the year before. While exports were weak, falling about two per cent in value as well as volume, the slack domestic demand meant that imports dropped considerably more, 7 per cent in value.

In 1992 the balance of trade has gone on improving along the same lines as last year: imports and exports have both fallen in value but the former considerably more than the latter. The volume of exports levelled out in the first half-year but imports continued to decline. The considerably weaker demand in the Swedish economy compared with elsewhere is thus continuing to benefit the balance of trade.

In the second half-year we count, as indicated earlier, on a marked upturn for exports, while the volume of imports goes on falling. The annual changes in the volume of trade in goods are thus contributing strongly to the improvement in the balance for 1992. Terms of trade are also making some contribution as export prices are expected to fall somewhat less than import prices. The annual trade surplus is then calculated to rise to more than 40bn kronor for 1992.

In the next two years the improvement in the balance is expected to continue, mainly due to positive effects in volume terms but also to some contribution from the development of relative prices. For 1994 the trade surplus is estimated to reach 63bn kronor or more than 4 per cent of GDP.

Services and transfers

The deterioration of the travel item is continuing this year, though somewhat less rapidly than in 1991 when travel income fell, partly because the imposition of VAT on services was unfavourable for tourism. At the same time, both tourist receipts and expenditures were checked by the recession. In the first half of this year, tourist income recovered from the same part of 1991. Foreign travel by Swedish households also shows a relatively sharp increase but this partly due to a low level in the first quarter of 1991 in connection with hostilities in the Persian Gulf. The increase in the second half-year is likely to be appreciably weaker.

In 1993 and 1994 we count on a continued increase for travel income as well as for expenditure, with a further deterioration in the net result.

Shipping improved sharply last year but the National Accounts report a setback in the first half of this year. Shipping receipts are affected when the volume of trade is as weak as at present. With a successive increase in the volume of trade, it is reasonable to count on a renewed improvement for shipping in the next two years.

Other services is a large, heterogeneous item, comprising such components as land and air transport, contracting, technical services, commissioning, insurance and trading. In 1991 the balance improved markedly and showed a small surplus. This is partly explained by the weak domestic demand and the attendant sharp fall in imports of contracting and trade-related services. At the same time, exports of such services rose strongly. The net improvement in these components has continued this year but the result for other transports has worsened with the weak development in the volume of trade. In 1992 and the rest of the forecast period, the total inflow of other services is expected to largely balance the outflow.

Investment income has shown a rapidly growing deficit since the late 1980s. In the first half of 1992 the growth of interest payments from Sweden exceeded earlier estimates. European currencies, the Swedish krona in particular, made up an increased share of the, stock of external liabilities, leading to a higher average interest rate. In 1991, moreover, there was an extensive shift from short to longer borrowing abroad, with the result that interest payments tended to be deferred until 1992. The annual level of net interest payments from Sweden in 1992 is expected to exceed 50bn kronor.

With the prospect of a moderate increase in interest-bearing liabilities in the next two years, the change in the interest item will be mainly determined by the development of market interest rates. In 1993 the average level of interest rates is expected to rise, mainly due to a further increase in the share of liabilities denominated in Swedish kronor but also because of a rise in dollar interest rates. In 1994 a falling level of interest rates in Europe may help to stop the interest deficit from rising.

Balance on current account

The balance on current account improved very markedly last year to a deficit of 20bn kronor. The adjustment from the considerably smaller deficit we reported last March is mainly explained by a lower outcome for direct investment income in 1990 and 1991.

In the forecast period we count on a further successive improvement in the overall balance on current account. This year the deficit is expected to stop at 18bn kronor or between 1 and 1 1/2 per cent of GDP, while in 1994 we count on a small surplus. As indicated above, this comes from a continued improvement in the balance of trade, while the deterioration of the deficit on services and transfers levels out.

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Publication:The Swedish Economy
Date:Sep 22, 1992
Previous Article:The international situation.
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