Even without legal prohibitions, many Swedes are following social-distancing recommendations and limiting travel

The Wall Street Journal

While much of Europe and the U.S. have endured strict government-imposed lockdowns, Josefine Sandblom has been free to savor the Scandinavian spring and lounge in restaurants in her hometown here, a popular lakeside vacation destination.

But Ms. Sandblom, like many Swedes, has chosen not to. She keeps 6 feet away from colleagues in the factory where she works and stays home the rest of the time. She takes a dim view of the young people crowding bars in the capital, Stockholm.

“They are stupid,” the 41-year-old Ms. Sandblom said. “Not here in Motala. We like each other here.”

Sweden’s decision not to impose a mandatory national lockdown has drawn global attention from policy makers eager to judge the strategy’s impact on public health and the economy. But it turns out the situation here is not as different as it might first appear.

Even without legal prohibitions, many Swedes are voluntarily following authorities’ social-distancing recommendations and limiting travel, pushing down domestic consumption. And the country can’t insulate itself from lockdowns among its trading partners. Exports are falling.

The result: Sweden’s economy is contracting, but not by as much as some others in Europe. Meanwhile, it is recording deaths per capita from the virus that are considerably higher than in neighboring countries-though below levels seen in France, Italy and the U.K.

Shops, restaurants and even nightclubs have been allowed to stay open in Sweden. There are no curbs on the manufacturing and services industries. But that doesn’t mean life is normal here.

Despite recent warm weather, streets are quieter and business is slower because many Swedes, like Ms. Sandblom, take government guidelines seriously and even go beyond them to avoid catching the highly contagious pathogen.

All of that is contributing to what Sweden’s government estimates will be a 6% contraction in domestic consumption this year. Combined with a forecast 10% drop in exports, Swedish authorities predict, the result will be a 7% decline in overall 2020 economic output. The eurozone economy as a whole is projected to contract by about 8% this year, according to a European Commission estimate.

Deaths per capita from Covid-19 in Sweden are at 301 per million inhabitants, lower than France and the U.K., but much higher than in neighboring Denmark, Finland and Norway, with 87, 46 and 40 per million, respectively. Public-health experts say the infection rate appears to be slowing.

Sweden’s chief government epidemiologist, Anders Tegnell, told The Wall Street Journal that the voluntary social-distancing guidelines were aimed at making sure the health care system wasn’t overwhelmed while potentially creating mass coronavirus immunity in the long run.

Sweden’s experience shows that the move by other countries to ease restrictions may not deliver a quick economic recovery, said David Oxley of Capital Economics, an economics research firm.

“Even if shops and restaurants are open, people will not consume amid a global health scare,” Mr. Oxley said.

In the first quarter, the Swedish economy contracted 1.2% on an annualized basis, the country’s statistics agency said. That compares with a 21% drop in France and a 4.8% fall in the U.S.

Economists, however, said the figures were driven by Sweden’s strong performance in January and February, before the impact of the virus hit home. But they say Sweden is reaping some near-term benefits from its lighter touch.

Household consumption is down about 30% since mid-March, said Magnus Henrekson, director of the Research Institute of Industrial Economics. That is a sharp drop, but less than the 70% fall experienced in Finland, a locked-down neighbor.

New car registrations here dropped by 37% in April. The decline in the U.K., Italy and Spain approached 100%.

But while domestic demand is weathering the virus better than elsewhere in Europe so far, according to Capital Economics’ Mr. Oxley, Sweden’s output will be constrained by the situation elsewhere. Sweden’s main export markets-neighboring European countries and the U.S.-are contracting.

Exports account for about 30% of Sweden’s gross domestic product, Mr. Henrekson said.

Since the beginning of March, 122,000 people have registered as unemployed, and the unemployment rate could top 10% this year, the government estimates.

The Gripsholms Värdshus company runs three hotels in lakeside resorts near Stockholm. They had been booked out throughout the year for conferences and events, but in March management mothballed two hotels and all restaurants after many reservations were canceled.

“The government is telling people not to travel, so people are doing the responsible thing and they are staying at home,” a Gripsholms Värdshus spokeswoman said. “We really don’t need to have restrictions from the government. The results for hotels and restaurants like ours is the same as if we had restrictions.”

Images of young Swedes lounging in parks and dining at restaurants have attracted international attention. On a recent evening, several groups of young people gathered at Sturehof, a famous Stockholm brasserie. They strode past the entry, where strips of tape spaced about 6 feet apart reminded customers of social-distancing guidelines, and huddled around tables and at the bar.
“I don’t really care about myself,” said patron Elliott Bergqvist, a 21-year-old car mechanic. “If I get sick, I get sick.”

But such scenes don’t tell the whole story. Swedish society appears to have split, especially in the capital. While younger residents continue life as normal, their elders and those most at risk to Covid-19 have tended to stay home. Mr. Bergqvist said his grandmother hasn’t left her house in more than a month.
One prominent casualty is Georg Sörman, which had been Stockholm’s oldest family-owned haberdashery before it closed permanently in recent weeks. With no sales and no clarity about the future, the business couldn’t raise debt, said Anders Sörman-Nilsson, a management consultant whose parents own the store.

“One of the core demographics of my parents’ shop-baby boomers-heeded the recommendation of the Swedish government,” Mr. Sörman-Nilsson said. “Foot traffic fell through the floor.”

Sweden’s manufacturing industry is taking a similar hit. In March, Swedish truck maker Scania said it lost access to about 35 critical components sourced from locked-down countries such as France.

“That is enough to stop the production line,” said Henrik Henriksson, chief executive of Scania, which is controlled by Germany’s Volkswagen AG .

Scania first shut down global operations, including those in Sweden, for a couple of weeks at the end of March. It has since ramped up production to a two-day workweek and, now that its supply chain is up and running again, hopes to resume full production by the summer.

But reviving demand isn’t as easy to solve. In its trucks and buses business, Scania reported a 23% drop in both deliveries and orders for future shipment in the quarter ended March 31 compared with a year earlier.

The company has orders booked through the third quarter of this year, but with a global recession likely under way, the need for Scania’s trucks, buses and engines could weaken. “We are of course completely dependent on other countries,” Mr. Henriksson said.

The woes of Scania and other auto makers have trickled down to Sweden’s vast auto-supply industry, which accounted for 252 billion Swedish krona ($25.6 billion) of revenue in 2018. About 80,000 of the Swedish auto-supply industry’s 98,000 workers are on temporary leave, said Fredrik Sidahl, chief executive of the Swedish auto-supplier trade association FKG.

Sales at one supplier, NordiQ Group, plunged 33% at its two Swedish factories in March and April combined, compared with the same period in 2019. At its facility in Motala, NordiQ let go 15 temporary workers. The remaining 50, who include Ms. Sandblom, were reduced to a three-day workweek, but they took only a 6% pay cut overall because of government wage subsidies.

When the pandemic hit, NordiQ Chief Executive Stefan Ottosson said, he pulled out the action plan his company developed in 2008 and 2009, during the recession, and enacted 30 of the 50 proposals that were still relevant.
“We didn’t think we’d go through something like that again, but this is worse,” Mr. Ottosson said. “A lot worse.”

By Stu Woo and Bojan Pancevski