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In Crisis, a Rare Swede Spot

STOCKHOLM—Sweden's economy, bolstered by solid exports and healthy consumer spending, is picking up considerable steam even as many of its European neighbors gasp for breath amid the struggle to contain the euro-zone debt crisis. Sweden's second-quarter economic output data, released Monday, significantly outpaced expectations, further solidifying the Northern European country's reputation as a haven in a volatile period. The Swedish krona, which recently reached a 12-year peak against the euro, strengthened further after the report. Economic output in the April-through-June period increased 1.4% from the first quarter, and 2.3% from a year earlier, according to Sweden's statistics office's initial estimate. Economists participating in a Dow Jones Newswires survey had predicted expansion of 0.2% quarter-to-quarter and 0.7% year-to-year. The annual pace of economic growth in the first quarter was 1.5%. The growth was fueled by a 1.7% surge in exports of Swedish goods, particularly outside Europe. The domestic economy, buoyed by a stable unemployment rate and low inflation, also continues to show signs of health. The better-than-expected growth could lead Sweden's central bank to hold interest rates at current levels at its next policy meeting in September, after some had expected a cut. The Nordic region has performed quite well in recent years even as much of Europe has been gripped by the euro zone's sovereign-debt crisis. Finland, one of the healthier members of the euro zone, has been a tough critic of proposed reforms, and neighboring Denmark, like Sweden, continues to be seen as a haven from the euro crisis. A Danish treasury-bill auction Monday recorded negative yields for the third time in a row, meaning that investors are still willing to pay to park their funds there. The yield on treasury bills with a maturity of seven months widened to minus 0.42% from minus 0.26% in the latest auction on June 28. The government issued a total of 5.06 billion Danish kroner ($837.8 million) in treasury bills with maturities of one, four and seven months. For its part, Sweden has built a reputation for fiscal discipline since it suffered a financial crisis in the early 1990s. Successive governments have since stuck to a target to post a surplus of 1% of GDP over any business cycle. Lawmakers resisted the temptation to borrow to fuel growth during the boom of the early 2000s, which meant Sweden hit the global financial crisis of 2008 and 2009 with strong public finances. The government hasn't needed to increase taxes in the way Spain has, or to cut spending as in the U.K. "Obviously, the conclusion from today's figures is that the Swedish economy is robust," said Nordea analyst Torbjorn Isaksson, noting that household consumption rose 0.8% over the year. Sweden's growth rates compare favorably to a wide swath of European nations. The country far outshone euro-zone laggard Spain, where the economy contracted 1% in the second quarter in annual terms. The U.K. economy, not part of the euro zone but a major trading partner, contracted by 0.8% over the same period. Recent quarterly reports from big Swedish companies suggest export business outside Europe, including North America and Asia, are helping them remain profitable even as a large collection of global firms are reporting red ink in Europe and signaling deep concern about the near future. Swedish home-appliance maker Electrolux AB, ELUX-B.SK -1.35% the world's No. 2 white-goods maker after Whirlpool Corp., WHR -0.08% posted a forecast-beating rise in profit in the three months to June 30, driven by price increases in the crucial North American market. Swedish lock maker Assa Abloy AB's ASSA-B.SK -2.32% profits also rose and it said that while the European economic situation weakened further in the second quarter, North America and emerging markets drove sales growth. Inventory figures were unchanged in the second quarter, and that was the main reason the Swedish GDP data outpaced expectations, said SEB bank analyst Erica Blomgren, noting that market watchers were forecasting a drop of 1.6% on an annual basis. Exports make up half of Sweden's GDP, and the country's historic reliance on the euro zone as a destination for its goods has been a recent point of concern amid general strength for the Swedish economy. The euro zone takes about 35% of the goods shipped from Sweden. Debt also remains low. The European Union estimates Sweden's public debt is equivalent to about 35% of gross domestic product, compared with Spain's 80%. The view that Swedish assets are among the safer havens has driven the krona to appreciate 7.5% against the euro since the middle of May. The krona strengthened further in the minutes after the GDP report was published. The krona's strength has led to concern about Sweden's reliance on exports to countries where the euro is the common currency. There will be a spotlight on this trend later this year when companies report third-quarter results because the krona's rise against the euro has been particularly heated in July and the currency fluctuations can take a while to fully affect exports. SEB's Ms. Blomgren said growth rates, coupled with stable unemployment, could help settle the central bank's concerns over rates. "It's too early for the Riksbank to cut rates already at its next meeting unless the euro-zone crisis deepens further." The Riksbank had forecast GDP growth of 0.2% on the quarter and 0.6% on the year in the second quarter. "The very strong growth strengthens the view that the Riksbank will stay on hold in September," Nordea's Mr. Isaksson said. Source:  Charles Duxbury Link: http://online.wsj.com/article/SB10000872396390444226904577558523805864552.html?mod=rss_economy&utm_medium=twitter&utm_source=twitterfeed

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