Gothenburg
24 March 2020

How the coronavirus can affect Gothenburg’s economy

​​​​​​​The coronavirus pandemic is impacting the Gothenburg region’s economy. Commerce, tourism and hospitality are already affected, and the effects are spreading to other sectors and industries. These are some of the findings of Business Region Göteborg's Economic Outlook report, which includes an in-depth analysis on how the coronavirus can affect Gothenburg’s economy.

In previous Economic Outlook reports, we have seen that economic activity has slowed during the past year and we have highlighted the risk for further weakening. The factors we have mostly highlighted have been connected to Brexit and the threat of a trade war between the US and China. These are still current, but the outbreak of the Coronavirus, which is currently spreading globally, is currently the biggest threat to the region and the world economy.

“The world at large is in a tough situation, both health-wise and economically. The spread of the coronavirus has rocked the entire world economy. However, we can’t yet see the full effects on the Gothenburg region’s business environment at the time of writing, and the statistics are soon outdated,” says Henrik Einarsson, director of business establishment and investment at Business Region Göteborg.

It’s therefore important to highlight that this Economic Outlook report doesn’t reflect the recent developments. These effects will first show up in the next Economic Outlook report.  

“By the summer, we will have a better understanding of where we stand. But based on the falling demand we are seeing globally, we can expect that the region’s companies will have lower profitability and reduced liquidity. We are seeing that large austerity packages are being introduced and unfortunately they will involve job cuts,” says Henrik Einarsson.

“At the same time, we can’t forget that many macroeconomic indicators are very strong. This means that the decline we are now seeing is coming from a very high level. We have basically had five years with an economic boom,” he adds.

At this stage, Sweden has introduced relatively few restrictions on trade and industry. It has temporarily closed secondary schools and forbidden gatherings of over 500 people. Otherwise schools and workplaces remain open, although many people are working from home.

So far, businesses in commerce, tourism and hospitality are the worst affected.

 “Now we are even seeing the effects in industry, but it is increasingly introducing measures to mitigate the impacts. Volvo Cars, for example, is halting production at its plant in Torslanda from 26 March to 14 April. The Port of Gothenburg, the largest in Scandinavia, however, remains open and the movement of goods are still flowing well,” says Henik Einarsson.  

 

A downturn in automotive has consequences across all of Sweden

Peter Warda, senior analyst at Business Region Göteborg, highlights that we have already seen that companies in the Gothenburg region that are connected to tourism and hospitality are hard hit.

“If the development of the virus occurs parallel to a weakening in the global economy, questions will arise about how this will affect the regional economy, including employment. It’s not possible to come with any exact answers, but by looking at how different sectors are connected, we can analyse the spreading effect when there are job cuts within a sector,” says Peter Warda.

Business Region Göteborg has calculated how many jobs in total would disappear if there were reductions of 100 employees within the Gothenburg region’s 10 largest sectors.

The public sector has lower multipliers, since the value chain within the public sector is usually smaller. Manufacturing, however, has a larger value chain with many sub-suppliers, and therefore it has a higher multiplier effect.

“The automotive industry has many sub-suppliers, so the effects spread further. Our multiplier analyses show that if 100 employees in the region’s automotive industry lose their jobs, all else equal, an additional 244 people will be affected nationwide. In other sectors like transport and construction, if 100 jobs are cut in the region, approximately 100 more jobs will be affected nationwide,” says Peter Warda.  

The full analysis is available in the report. Access here: Economic Outlook #1 2020 

 

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