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Dramatic improvements but the recession continues

29 September 2020
Business Region Göteborg's latest economic report shows a dramatic upturn in the economy. We are, however, still in a recession – unemployment is on the rise, job growth is down for the first time since the financial crisis and the hospitality industry is barely getting by. In spite of all this, we are seeing surprisingly few bankruptcies. 

Trade and industry in the Gothenburg region is witnessing dramatic improvements and the economic tendency indicator has recovered from a low of just over 62 to 82.4, a figure that is well below the next interval of 90 to 99, indicating an economic climate that is 'weaker than normal'. 

"Our indicators show that conditions for the regional economy are still strained. Negative GDP growth in key markets, reduced job and wage growth and rising unemployment. Many people have been laid off and the hospitality industry is just getting by. The region's business environment has a difficult road ahead, and there is still a great deal of uncertainty as to when demand will return to more normal levels," says Peter Warda, senior analyst at Business Region Göteborg. 

The outlook for the economies of Gothenburg’s key markets also remains gloomy for 2020. Forecasting bodies such as the IMF, the OECD and the EU are maintaining their expectations of substantial contractions of national economies of between 5% and 11.5%. China remains as the only exception.   

"It's still difficult to say how this negative global development will impact trade and industry in the region. However, the decline in the global market has hit demand hard, resulting in significant declines in both turnover and labour demand. According to our export-weighted GDP metric, GDP is expected to shrink by an average of 6.4 per cent in the region's key export markets in 2020. In 2021, however, the countries' economies are expected to bounce back with growth of 5.3 per cent," says Henrik Einarsson, director of investment and establishment at Business Region Göteborg. 


Continued steep rise in unemployment 

Unemployment continues its steep rise as the Covid-19 pandemic slows the entire world economy. In August 2020, unemployment was at 8.5 per cent in the Gothenburg region (+2.7 percentage points on an annual basis). More than 46,700 people are unemployed or in labour market programmes in the Gothenburg region, to be compared with August 2019 when about 30,300 people were unemployed. Unemployment was 8.8 per cent (+2.8 percentage points on an annual basis) in the Stockholm region and 12.1 per cent (+2.2 percentage points on an annual basis) in the Malmö region. Unemployment for Sweden was 9.1 per cent (+2.1 percentage points on an annual basis). 

"We're mostly seeing young people losing their jobs. The hospitality sector is facing a very tough situation at the moment, and here we can also see just how important this sector is for employment in the region, especially among young people," says Peter Warda.   


Reduced job growth 

For the first time since the financial crisis, we are now also seeing a decline in job growth in the Gothenburg region. At the end of the second quarter of 2020, job growth in the Gothenburg region was at -1.6 per cent on an annual basis. Some 553,000 people were in employment, to be compared with about 562,000 for the same period the previous year. The decrease in the Gothenburg region was slightly less than for Sweden as a whole (-1.9% on an annual basis) and the Malmö region (-1.8% on an annual basis), but more than the Stockholm region's -0.8 per cent.   

"Above all, we see a decrease in job growth in branches related to the hospitality sector. These include transport, hotels and restaurants, retail trade and personal and cultural services, where sharp declines were seen during the past quarter," says Peter Warda. 


Surprisingly few bankruptcies

One stand-out statistic is that the number of bankruptcies is only slightly higher than for the same period in 2019.  

"If we take the figures for the first eight months of 2020 and compare them with the same period in 2019, there were 32 more bankruptcies in the Gothenburg region, corresponding to an increase of just 7 per cent. This is a remarkably small number considering Covid-19," says Henrik Einarsson. 

"It is, however, possible that the bankruptcy figures have been underestimated. A survey from Creditsafe and Accessus shows that the Swedish Tax Agency filed unusually few bankruptcy applications this year due to high workloads related to Covid-19. Accordingly, we may see a delayed effect in the bankruptcy figures being reported."  

The bankruptcies have mainly been among small retail businesses, but even in other sectors such as business services, construction, and hotels and restaurants.




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