European Households Have Become Despondent About the Future. Only Sweden Has Escaped This Wave of Pessimism
EU down 24%, Sweden up 9%. Wonder what could be the cause
As the pandemic deepens and lockdowns spread, Europeans are saving more and growing increasingly pessimistic about the future, a Reuters analysis of data shows. Only one country bucks the trend: Sweden.The virus has forced millions to turn to the state for support, widened the gap between rich and poor and exposed the vulnerability of countries whose economies are unable to easily switch into home-office mode.
A survey of European households — to measure their expectations for the economy and their own finances in the coming year — showed they have largely become despondent about the future, in particular in hard-hit countries such as Spain and Italy. Only Sweden has escaped this wave of pessimism.
Swedes are more optimistic now than they were before the pandemic struck, having seen their expectations rise during the past year. However those in the wider European Union have seen their economic expectations tumble by more than a fifth, according to researchers who scored people’s sentiment and how it has changed over time.
“Sweden stands out,” said Gene Ambrocio, an economist with Finland’s central bank, who discovered the difference in his research.
Shuttered high streets are commonplace around Europe. But Swedes still eat out, shop and rarely wear masks. Chief epidemiologist Anders Tegnell, who set this course, has won cult status for keeping gyms and even saunas open.
Swedish workplaces also never shut down, a stark contrast to the pandemic experienced by other Europeans. Ireland, for example, endured the longest lockdown, closing all but essential workplaces for 163 days from the start of the pandemic to the middle of January, according to a Reuters analysis of the Oxford Coronavirus Government Response Tracker.
Keeping the country open has kept Swedes’ spirits up, the study suggests. Ambrocio also believes the Swedish exception could be down to their faith in government and confidence in its liberal approach to dealing with the pandemic.
Rejecting lockdowns has also helped the Swedish economy, which has fared better than much of Europe.
Although there has been growing domestic criticism of the government’s approach, this has resulted in only mild restrictions, and no fundamental change of course. Sweden’s death rate, although several times higher than Nordic neighbours, has been lower than several European countries that opted for lockdowns. Recent infections in Sweden have, however, been worse than Ireland.
Ireland, by contrast, has taken a tough course from the outset of the pandemic.
In the run-up to Christmas, the government loosened the rules, opening pubs and allowing families to gather. The result, a dramatic spike in deaths weeks later, has been seized on by politicians as evidence that strict lockdowns are the only way to tackle the virus.
Sweden’s recent rates of infection have outstripped Ireland’s, but not as dramatically as expected. Pandemic deaths in Sweden, at more than 12,000, are worse than in Ireland, which is half its size and has suffered about 4,000 deaths.
Pessimistic Europeans hoard cash
An important yardstick of confidence throughout the past year has been the rate of savings — the more uncertainty over the future, the more people save. Savings also reflect shopping and travel bans.
At the peak of lockdowns last year, overall savings in the EU hit record levels. As lockdowns were loosened and optimism returned in the third quarter, the savings rate fell back but still stood a third higher than a year earlier.
Again, Sweden reacted differently. While people in other countries such as Ireland, Belgium and Germany started hoarding more and more cash as the pandemic unfolded, Swedes kept saving at the same rate as usual.
Irish households had 125 billion euros in bank accounts at the end of last year, an increase of more than 14 billion euros from a year earlier. They also pared back borrowing. While the Irish and Germans were putting aside roughly 30% of their spare income towards the end of 2020, the Swedes never changed their habit of putting aside about a fifth.
The data outlines the importance of confidence in navigating an economic slump that is likely to worsen when governments’ multi-billion-euro guarantees and handouts are withdrawn.
Germany’s offering has been the most generous. It furloughed six million workers on its Kurzarbeit scheme — paying up to 4,600 euros a month — in April, and some two million were still on it towards the end of last year. The unprecedented government support has insulated Germans from the worst of the pandemic.
Sweden, one of Europe’s wealthiest countries, has also rolled out large state support schemes, helping to cushion the economic impact of the virus.
While those Europeans who could, saved, many of those in debt turned to their banks for help and secured payment holidays on tens of billions of euros of home and car loans.
Deep wounds remain
Such relief measures, however, have not prevented the pandemic from widening the gap between rich and poor. This is a trend that is more pronounced in Ireland and Germany than it is in Sweden.
Fresh data and analysis suggests that the pandemic is likely to lead to a dramatic increase in the working poor, following months of lockdowns. Many in low-paid jobs in hotels and tourism, in particular, have struggled as travel has ground to a halt.
“The impact of the pandemic is harder felt on workers with low education,” said Oxford University’s Juan Palomino. “Countries that rely on, say, tourism, as is often the case in the south of Europe, rather than banking or consulting in the north, are also more likely to have suffered increasing poverty.”
Researchers modelled scenarios for different countries which envisaged two months of lockdown and nine months of partial closures of businesses. In Ireland, the amount of “poor” workers — those earning less than 60% of the median salary — would increase from 27% before the crisis to 36.5%, under those circumstances.
The structure of an economy — how many are in jobs where it is easier to work from home without seeing your earnings dive — can be decisive in how well it weathers the storm.
Lockdowns are particularly difficult for countries with large services sectors. Irish tourism has come to a halt with strict lockdowns, and that is likely one factor driving pessimism there.