Feb 1, 2023
Swedish Bankruptcies at Highest Level in a Decade in January
(Bloomberg) -- The number of Swedish bankruptcies soared to the highest level in at least a decade in January, as construction companies come under pressure from an ongoing housing-market rout.
The number of companies filing for bankruptcy increased by 47% from a year earlier in January, to 622, according to credit reference agency UC. The data highlights the effects of Sweden’s worst housing-price slump in three decades, which has contributed to a surge in defaults in the construction sector, with 130 builders filing for bankruptcy last month.
“During fall, we saw bankruptcies in consumer-facing businesses such as retail, hotels and restaurants,” UC economist Johanna Blome said in a statement. “Now we see that the largest increase is happening in sectors that are closely connected to industry and longer-term investments.”
The Swedish housing market has become emblematic of a development that is playing out across the world as interest rates rise and households are pressured by increasing costs. Home prices have dropped by 16% from a peak in the first quarter of last year and economists expect the slide to continue, erasing outsized gains during the Covid-19 pandemic.
The rout is expected to lead to a dramatic drop in new home construction, with Sweden’s National Board of Housing estimating housing starts to fall by 44% this year to 33,000. The construction industry is a key employer, with more than 350,000 of Sweden’s 5.1 million employees working in the sector, according to statistics office data.
A separate data release by Creditsafe on Wednesday showed that three of the five biggest firms that went into bankruptcy in January were in the construction industry.
A drop in construction could weigh on economic activity, which is expected to continue declining this year after a contraction in the fourth quarter of 2022, heightening a dilemma for the country’s central bank as it seeks to reign in inflation without doing excessive damage to the economy.
The Riksbank is widely expected to raise its key interest rate by half a percentage point at a meeting next week, and to continue increasing borrowing costs at a slower pace in April. Concerns about the forecast recession have so far been largely brushed aside by the central bank, with officials remaining focused on their mission of bringing inflation back to its 2% target.
(Updates with more bankruptcy data from second paragraph.)
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