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The Likely Effect of COVID-19 on Sweden’s International Trade and Finance

1. Introduction

1.1 Outline

Trade is an essential activity, even with unexpected global health pandemic. It ensures continuity of lives and livelihoods, and further international co-operation between countries is required to ensure continuity of trade. Since the Covid-19 epidemic struck in issues to do with International Trade and Finance, Sweden has been hit just like all other countries across the globe. Unlike other countries that have enforced lockdowns, Sweden did not go for the full lockdown on businesses and its citizens’ healthy lives. However, research shows that there will be a tremendous economic downturn globally associated with the disruption of the supply and demand chains. Studies reveal that the magnitude of this impact will depend on how long the spread continues as well as how strict the restrictions put in place to slow it down are implemented. Research has shown that Sweden’s GDP will decline by 6.9% in 2020 and to grow by 4.6% in 2021. Countries remain firm to ensure that even amid a global health crisis, there is confidence in the global markets and trade through improved transparency on trade-related plans and policy actions, continued supply chains, especially food and health supplies, and finally enhancing the flexibility of trade barriers and other export restrictions. This paper seeks to identify the likely effect of COVID-19 on Sweden’s International Trade and Finance.

1.2 Research Questions

This research project attempts to determine the likely effect of COVID-19 on Sweden’s International Trade and Finance and give answers to the following research questions: –

To what extent will the COVID-19 pandemic affect the International Balance of Trade and Balance of Payment Statements?
What are the causes of the COVID-19 outbreak globally?

What are the causes and effects of past pandemics in Sweden?

1.3 Research Methods

The research method entails different techniques for collecting information. The study involved the use of questionnaires as well as interviews. Questionnaires were open-ended and close-ended depending on the information that was required to complete the analysis. According to Pattern, a questionnaire is a method of data collection that entails questions directed to the study in order to give the researcher a basis of the findings. The method was appropriate, as it was cost-effective. Another research method used was secondary data from journals, articles, and books. This is obtained from other people’s work and research on the same study, according to Horn, 2018.

2. Literature Review

2.1 Structure of the Economy

Sweden’s economy is one that is export-oriented aided by iron ore, hydropower, and timber. This shows that the resource base is oriented towards foreign trade. The most dominant industries include motor vehicles, forestry, pharmaceuticals, precision equipment, chemical goods, home goods and appliances, industrial machines, telecommunications, iron, and steel. It has further ventured into mine, engineering, steel, and pulp industries that are highly competitive globally evidently shown by companies like ASEA/ABB, SKF, Ericsson, AGA, Alfa Laval, and Dyno Nobel. Sweden is a highly liberalized and competitive open market economy. Most Swedish enterprises are privately owned as well as market-oriented, encompassed by a stable welfare state that involves transfer payments such as sick pay, child allowances, and pensions totaling to three-fifths of the economy’s GDP. The percent of national wealth that was owned by the government in 2014 was only 24%.

The fact that Sweden was a neutral country meaning it did not participate actively in World War II; it did not struggle in rebuilding its banking system, economic base, and the rest of the economy as many other European countries did. Sweden has significantly achieved high living standards of living under a combined system of both high-technology capitalism and high welfare benefits. The country is significantly involved in free international trade to maintain its high living standard, with exports amounting to close to one-third of the GDP. Sweden is the country with the second-highest tax revenue after Denmark, and her per capita gross national product (GNP) is among the world’s top countries. In 2012, the tax revenue totaled to 44.2% of GDP,a drop from 48.3% in 2006.

There are other areas the country’s economy has ventured into, including agriculture, where southern Sweden is most arable, fishing, forestry, and manufacturing majorly for export. Additionally, the Swedish banking sector has few but major commercial banks. The Swedish Central Bank is the country’s bank of issue, and the currency of the country is the Swedish krona.

2.2 Causes of COVID-1

The coronavirus is a combination of many viruses that combine resulting in diseases and infections such as; Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), and the common cold. There are various causes of COVID-19 including;

2.2.1 Airborne Nature

The coronavirus is an airborne disease spread through saliva droplets where an infected person sneezes or coughs. It spreads to the next person through inhalation or touch of the droplets and eventually having contact with the eyes or nose (Zheng et al., 2020) Research has shown that it is prone among the young and old in society. The infection is ordinarily contagious in the early days once symptoms appear or through carriers who do not show symptoms but are infected.

2.2.2 Risk Factors

There are various risk factors in which the coronavirus (COVID-19) may appear, including traveling to areas where the virus has been reported through local transmission or different transmission. Moreover, contact with an infected person may also result in the spread of the disease among people.

2.2.3 Complications

The COVID-19 virus has been seen to result in severe complications, especially to the young age and the old age. Encompassed by the low immunity of the young children and the old are vulnerable due to existing conditions, complications, and chronic diseases they may be experiencing. The virus’s complications may include: pneumonia from difficulty in breathing, cardiac complications, several organ problems including; the heart, the liver, and the brain. Additionally, there is a severe condition that attacks the lung preventing the free flow of oxygen in the blood hence resulting in death. This condition is defined as acute respiratory distress syndrome. It also causes blood clots among various body parts, such as the brain and the heart. (AL-BOGAMI et al. 2016)

2.2.4 Behavioural changes

Sweden engages in agricultural activities, including poultry-keeping of animals such as pigs, goats, cows, and chicken. The increasing demand for these products has resulted in the Swedish government expanding arable land. Nicola, et.al (2020). Livestock in Sweden has since acted as a bridge between wildlife and human infections. Consequently, this process acts as a medium through which pathogens retransferred from the wild animals in the forests to the livestock at home, which pass directly to humans. There is also a high chance of spread in the open markets where the wild meat is sold by the many competitors who are normally in close contact. They contract the virus from the animal bodies that lye closely together, and the onset of the chain of transmission begins. This includes the handlers, transporters, buyers and sellers, and consumers.

2.2.5 Pathogen changes

According to studies done, it has been seen that a change in the adaptation of pathogens by changing living in other animals other than the previous ones for survival may also result in the spread since they may have the virus and contract to the animals they shift to.

2.3. Causes and Effects of the Past Pandemic

Influenza A (H1N1) is one of the pandemics that struck Sweden from the year 1919, and it leads to the death of about two-thirds of the country’s population. In the 1980s, territories in Sweden and more than 208 countries in Scandinavia reported swine flu cases in December 2009. The plague was another threatening pandemic that broke out almost annually in unpredictable ways until 1918. Additionally, cholera, smallpox, dysentery, agues, and meningococcal infection were significant threats. Moreover, meningococcal was another pandemic that broke out between 2000 and 2001 and caused many people’s deaths. The last plague that occurred in Sweden led to the death of close to 100,000 lives. Malaria was also an epidemic that struck in the 19^th century due to stagnated water pools, and it disappeared when draining was done for agricultural purposes.

There were notably other pandemics that revealed similar symptoms to the coronavirus (COVID-19), which included: The Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS. The spread among the Swedish people was very high, resulting in foreign spread to other countries such as; Sweden, Germany, Denmark, and Norway. Guerrieri (2020) The Ministry of Health called for comprehensive preventive measures to reduce the spread rate through the introduction of public health projects. These diseases resulted in respiratory problems more so the lungs hence resulting in difficulties in breathing and eventually death. The government intervened in the crisis by enhancing capacity building among healthcare specialists and researchers to identify vaccines as well as early detection to avoid the rates of deaths that occurred. The economy experienced slow growth in the GDP due to reduced trading activities resulting from unhealthy workers hence less productivity and closure of industries due to prevent the high infection rates. International trade was affected as a result of slowed operations and flights between countries as well as the closure of industries due to the lack of raw materials that would typically be imported from other countries. The Swedish economy was hardly hit by the outbreaks, including; the international trade and finance sector, the automotive industry, and the telecommunication industry.

3. Data Collection

International Balance of Trade Statement

International Balance of Payment statement

Source: SCB

4. Data Analysis

4.1 Likely Future Effects of COVID-19 on the International Balance of Trade and Balance of Payment Statements in Sweden

The COVID-19 pandemic will significantly result in slow growth in the economy’s GDP due to reduced trading activities between countries. The transition to the normalcy of flights for cargo transportation will increase at a slowed rate; hence the growth rate of the gross domestic product from foreign exchange gained from trading and tourism activities will be slow. Sweden’s manufacturing is essential in value chains globally, more so automotive, pharmaceuticals, home goods and appliances, industrial machines, and telecommunications. The disruption in the supply chain in Sweden will significantly affect the international balance of trade and balance of payment statements. This is due to the restrictions of economic activities and the movement of people from one country to the other. Ozili,(2020) The prohibitions and restrictions imposed on exports applied will lower the prices of domestic goods in the short run hence increasing the availability of domestic goods post-COVID-19. This will improve the balance of trade and payment statements to some extent, and as exports increase after the crisis is over, it is expected that the output (GDP) will increase steadily.

Ultimately, the Swedish government will impose expansionary measures to increase domestic production as well as employment. The government will provide funds to support employment activities which had been worse hit by the pandemic including tourism, transportation, entertainment among others in order to put them back to the position they were before the pandemic to boost them in their activities as they embark in order to maintain their operational costs. (Nicola et al., 2020). This will boost the GDP since activities will go back to normalcy and start making profits, hence increasing GDP. The pandemic will also be a turning point for investors and entrepreneurs on how to run their business activities by considering the diversity of risk hence reducing the tendency to over-rely on suppliers in other countries but rather enhance dependence on local suppliers. This will enhance businesses’ continuity even when such a crisis occurs, hence enhancing the stability of businesses and the economy at large, hence improving balance trade and balance of payment results (Buera, 2020).

Since there were slowed trading activities during the COVID-19 period, countries will collaborate and loosen the tariff policies to allow exporters to release the goods previously produced but were not exported. This will be enhanced by inspection of the goods to prevent the dumping of low-quality goods in other countries. This will, therefore, improve the supply chain, and countries will see their outputs improve. People will go back to the jobs, and employment will improve; hence, revenues will increase. Industries will be able to acquire raw materials from their supplier countries, including Germany, Denmark, among other countries in the case of Sweden, and therefore, more goods will be produced. The industries will ultimately be able to export their finished goods to other countries, and therefore the balance of payment and balance of trade for Sweden is likely to improve.

4.2 Ratios

Balance of payment (2019, Q1) = balance of current account+ balance of capital account+ balance of financial account

=90b+ 99b+ 103b

= 292b

Balance of trade= export- imports

=6400-5400=1000 this is a surplus as export are more than imports

5. Conclusion

In conclusion, it is evident that the COVID-19 pandemic has affected the trading sector greatly and thus affected the output (GDP) of Sweden to a great extent. This has, therefore, resulted in a decline in the international balance of trade and balance of payments of the country as a result of slowed trading activities as well as employment. Nevertheless, the likely effect has some hope of improved performance of both the balance of trade and balance of payment due to improved trading activities enhanced by the free movement of both people and goods, cargo transportation, flight embankment, among others. The output will therefore increase, and therefore a steady increase in the output will be evident.

References

Buera, F., Fattal-Jaef, R., Neumeyer, A., & Shin, Y. (2020). The economic ripple effects of COVID-19. Unpublished manuscript. Available at the World Bank Development Policy and COVID-19—eSeminar Series.

Goodell, J. W. (2020). COVID-19 and finance: Agendas for future research. Finance Research Letters, 101512.

Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2020). Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? (No. w26918). National Bureau of Economic Research.

Horn, N. (June 1, 2018). “The immense VALUE Behind Data Enrichment with Secondary Data.”

McKibbin, W. J., & Fernando, R. (2020). The global macroeconomic impacts of COVID-19: Seven scenarios.

Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., … & Agha, R. (2020). The socio-economic implications of the coronavirus and COVID-19 pandemic: a review. Internation.

Ozili, P. K., & Arun, T. (2020). Spillover of COVID-19: Impact on the Global Economy. Available at SSRN 3562570.al Journal of Surgery.

Patten, M. L. (2016). Questionnaire research: A practical guide. Routledge.

Zheng, Y. Y., Ma, Y. T., Zhang, J. Y., & Xie, X. (2020). COVID-19 and the cardiovascular system. Nature Reviews Cardiology, 17(5), 259-260.