This week, the Swedish krona reached a record low against the euro. Swedbank's chief economist, Tõnu Mertsina, predicts that the krona will begin to strengthen over the long term, forcing Estonian exporters to Sweden to seek out alternative markets.
The Swedish economy is currently performing poorly and this week the Swedish krona reached a record low against the euro.
Swedbank's chief economist, Tõnu Mertsina, told ERR that the rise in interest rates poses significant dangers to the Swedish economy and investors have become wary of the Swedish krona.
"Although the Swedish krona was once considered a safe-haven currency it is now weakening," he said.
As more than 90 percent of cross-border transactions are conducted in euros, the direct impact of the Swedish krona's weakness on Estonia's exports is minimal. However, Mertsina suggested that we should consider Swedish demand: as the Swedish economy has weakened this year and will continue to do so, Estonia's exports to Sweden have decreased, particularly in the real estate and construction sectors.
Greentec, a manufacturer of modular and prefabricated structures, has its primary market in Scandinavia, where it has exported 90 percent of its output over the past few years. Ahto Joost, the company's managing director, said the issue was more of a long-term nature — the loss of competitiveness on the Swedish market had been felt for an entire year, but it had recently gotten worse.
"Estonia's competitiveness has significantly decreased," he said. "Our products are now basically more expensive than Swedish-made products."
To move forward, he recommends reviewing product portfolios and redefining the traditional products that have been sold in that market. "It is quite challenging," he said. Second, a distinct target audience could be identified. "Perhaps we are on a path to discover other areas and markets where we can sell our products."
Swedes are now more likely to buy domestically
Alo Tamme, CEO of Harmet, Estonia's largest wooden house manufacturer, said that the Swedish krona's weakness and the Swedish real estate market have had a significant impact on the wooden house industry.
"If purchasing from us becomes more costly, it is only natural that demand will decrease. They also have a domestic demand, their producers are in a favorable position, and they prefer to purchase from domestic markets as opposed to international ones," he explained.
According to Tamme, 70 percent of their production formerly went to Sweden. However, the Swedish market is currently quite challenging and Harmet has begun to explore new markets in more central Europe, such as the Netherlands and Germany.
Also Joost said that entrepreneurs are persistent and that everyone strives to remain operational until their last breath.
As the company is also present in Finland and Norway, he said that the Finnish and Norwegian markets are currently helping to survive.
Thermory, one of the world's largest producers of thermal wood and sauna materials, exports to Sweden as well. Given that 95 percent of the company's output is exported, the exchange rate has a significant impact on the business, according to company manager Simo Soomets. However, the U.S. dollar exchange rate is particularly significant for them, as they have a subsidiary in the United States with about 30 employees.
"Sweden is also a very important partner for us but it is only the sixth or seventh largest market," Soomets said, explaining why they are not affected by the decline in the krona.
Mertsina said that the future exchange rate of the Swedish krona will depend on the state of the Swedish economy and the manner in which the Swedish central bank raises interest rates. As numerous central banks are presently increasing interest rates — although they will likely peak soon — the Riksbank will be under pressure to do the same.
According to Mertsina, the markets have already anticipated that the krona will weaken in the immediate future, but it should begin to strengthen again in the long run.
"However, it's too early to say exactly when," the economist added.
Editor: Kristina Kersa