ECONOMIC OUTLOOK

A Swedish vote of confidence in the UK’s economic outlook

In keeping with most of Europe, by the beginning of April 2022 most of the UK’s COVID19 restrictions had been lifted. This signals a positive step forward in a country which has navigated the past two years of the global pandemic relatively well, committing GBP 20 billion to its stimulus package and successfully vaccinating 69.1 percent (3rd dose) of the population. There was a significant decrease in national GDP by 9.4 percent in 2020 due to the pandemic. In 2021, GDP growth was at 6.5 percent. In 2022, the forecasted growth is said to be at 6 percent, returning the UK to its pre-crisis level during the year. Even thought the immediate economic shock of the pandemic may eventually dissolve, the crisis has resulted in some permanent damages to the UK economy. The Office for Budget Responsibility (OBR) estimates that this will lower the level of GDP by 2 percent compared to what it would have been without the pandemic.

It is arguable that the war in Ukraine is now presenting a more urgent crisis to Europe’s economy and particular uncertainty in the UK where reliance on Russian gas imports has been high. At the time of writing, it is considered likely that the UK economic growth could suffer, and that inflation will be worsened, with a further surge in food and energy prices and heavy supply chain disruptions already exacerbated by the shortage of semiconductor chips. In terms of domestic economic support, the Government in May set out a package with an extra GBP 15 billion to tackle the rising cost of living.

In light of the uncertainties of the coming year it is reassuring to see the majority of Swedish companies have come through the pandemic with an optimistic outlook for the future. Furthermore, most firms anticipate increasing their investment in the UK, an expression of Swedish commitment to the UK economic future and a positive indication of continued recovery and growth.

PROJECTED GDP GROWTH IN THE UK

SOURCE: Oxford Economics, GDP, real, annual growth. Last update: 25 April 2022.

HOW WOULD YOU DESCRIBE YOUR COMPANY’S FINANCIAL PERFORMANCE IN THE UK IN THE PAST YEAR?

NOTE: The number of respondents for this question was 41. “Don’t know/Not applicable” responses are included but not shown in figure. SOURCE: Business Climate Survey for Swedish Companies in the UK

Swedish companies remain profitable in 2021

Building on the previous years’ Business Climate Survey reports, companies’ economic results are stable. In terms of financial performance 73 percent of respondents reported a profitable performance and 12 percent a loss, in comparison to 2020 where 63 percent reported profitability and 23 percent loss. This is an indication that on the whole, Swedish companies are continuing their financial recovery and are successfully adapting to the post-lockdown market. 15 percent of companies answered that this is question wasn’t applicable to them or they didn’t know.

When breaking down results by industry, Industrials showed 100 percent profitability, Consumer companies were 70 percent profitable, and 30 percent were at a loss. Professional services were at a 64 percent profitability rate, 9 percent faced loss and a surprising 27 percent were at the don’t know/not applicable stage.

As could perhaps be expected, medium and large companies had a reliably high profitability percentage, scoring 70 percent and 87 percent respectively, with smaller companies who have fewer resources to fall back onto in times of crisis suffering slightly more with almost 38 percent recording a loss. Similarly, when analysing the length of time that the company has been established in the UK, mature and experienced firms fared the best, with the vast majority reporting profitable results. Newcomer firms faced with the wide-ranging challenges of entering a new market had a less profitable year.

COMPARED TO THE DEVELOPMENT IN THE PAST 12 MONTHS, WHAT ARE YOUR EXPECTATIONS FOR THE COMING 12 MONTHS FOR YOUR INDUSTRY IN THE UK REGARDING TURNOVER?

NOTE: Decrease and increase represent aggregations of slight / significant development changes. The number of respondents for these questions was 41. “Don’t know / Not applicable” responses are included but not shown in figure. SOURCE: Business Climate Survey for Swedish Companies in the UK 2022

Turnover expectations tell a story of the past three years

Respondents’ answers on turnover expectations for the coming year mirror the overall economic outlook in the UK. 2021 projections, recorded at the peak of the pandemic where uncertainty was rather high, were more negative, with 14 percent of participants anticipating turnover to decrease either significantly or slightly and 74 percent expecting it to increase. Since then, as the economic outlook has improved, so have Swedish firms’ expectations: in 2022 an overwhelming positive perspective was recorded with 83 percent of participants expecting turnover to increase slightly or significantly and a mere 2 percent expecting it to decrease, whereas 12 percent remain unchanged. A review of the outcome of the UK Business Climate Survey 2022 reveals that despite the COVID pandemic and Brexit, the performance expectations on the market have not shifted much in the UK.

These positive expectations are reasonably uniform across company size and sector: while in comparison to consumer and industrial companies professional services had the lowest percentage of firms expecting a slight increase in turnover. More variation can be seen in the differences between firms who are long established in the UK and more recent newcomers. Newer firms were overwhelmingly optimistic with 83 percent reporting an increase in turnover and 0 percent a decrease, whereas among more mature and experienced firms they swayed between increase slightly and increase significantly.

Swedish companies plan to increase investments

In keeping with expectations on industry turnover, a relatively high share of participants reflecting on their plans for 2020 (around 41 percent) reported their intention to reduce investment or even leave the the UK market altogether. By 2021 Swedish firms’ appetite for investments in the UK had improved greatly, with only 14 percent planning a reduction in investments and 63 percent anticipating an increase. In 2022 these numbers are even more positive as 66 percent plan to increase investments in the UK and only 7 percent to reduce investments. This optimistic outlook demonstrates the continued attractiveness of the the UK market for Swedish firms, and a continuation of the historically close relationship between the two countries.

The industrials sector leads the way in increasing their investments in the UK with 80 percent responding positively in comparison to 70 percent for consumer firms, with professional services falling at the lower end at 56 percent. Echoing the previous question of anticipated turnover, newcomer firms were again the most optimistic in their investment plans with a fantastic 100 percent planning to increase investment whereas experienced firms perhaps seeing less new growth potential were more cautious: around 46 percent plan to increase investments and the same amount again do not anticipate any change in investment.

WHAT ARE YOUR COMPANY'S INVESTMENT PLANS FOR THE COMING 12 MONTHS IN THE UK, COMPARED TO THE PAST 12 MONTHS?

INVESTMENTS WILL BE…

COMPARITIVE RESULTS FROM 2020, 2021 and 2022

NOTE: Reduced and increased represent aggregation of slight/ significant development changes. The number of respondents for this question was 41. “Don’t know / Not applicable” responses are included but not shown in figure. SOURCE: Business Climate Survey for Swedish Companies in the UK 2022