Swedish export companies may be hit by lower sales as the Swedish currency is expected to strengthen against the euro, analysts said. 

Since the start of the current economic crisis in the fall of 2008, the Swedish krona has had a wild ride. In just six months it weakened by well over 25 percent against the euro. Since the low point in March this year, the krona strengthened somewhat, but it is still some 7 percent weaker than before the crisis.

A weaker krona is a market driven kind of stimulus for Swedish economy. Sure, it robes the Swedes that travel to Amsterdam or Paris of a great deal of their purchasing power, but nonetheless it is a relief for the Swedish economy. For a large part it depends on international trade for its growth. As the euro area countries are by far the most important trading partners of Swedish firms such as Volvo, Sony Eriksson and Vattenfall, the exchange rate of the krona against the euro is very important for the welfare of the Swedes.

A cheaper krona makes Swedish cars, mobile phones and electricity cheaper for Germans, French and Dutch people, propelling their demand for goods and services made in Sweden.

So what is to be expected on the currency front in the coming months? It seems that European economies have started their ascend from the doldrums. That is good news for the Swedish economy, but how the krona will behave against the euro can make a difference between profit and loss for many Swedish exporters. 

Steven Pearson, a currency analyst at Bank of America – Merrill Lynch, predicts that the krona is some 17 percent undervalued against the euro. He expects the krona to strengthen against the euro between now and the summer of 2010. At the moment, just a little over 10 kronor are needed to buy one euro. In June next year that will fall to 9,25 kronor, Pearson reckons.

That is bad news for Swedish exporters, as it implies that their products will become almost 10 percent more expensive for the German, French and Italian consumers, making it even harder for the Swedish economy to emerge from the deepest recession in decades.

There is however, also some good news for Swedish exporters. Many of them export their products beyond Europe, to Asia, the Middle East and the US. For them, the exchange rate between the krona and the US dollar is just as important.

Currency analysts at Interest & Currency Consultants (ICC), an Netherlands-based independent advisor in the field of currency- and interest rate management to big and midsize companies, expect the US dollar to strengthen in the course of 2010.

Pearson of Bank of America – Merrill Lynch is just one of many currency analysts who agree with ICC. The dollar will increase in value both against the euro and the krona, which means Swedish products that end up on the shelves outside Europe could become more of a bargain for shoppers.

However, as the fall of the krona against the dollar will be just a couple of percent, it will, at best, bring very little relief to the Swedish export sector, which will suffer from the expected strengthening of the krona against the euro.

Many economists fear therefore that Sweden will be one of the last developed countries to find its way back to the path of economic growth.

Edin Mujagic is a journalist and macro-economy expert based in the Netherlands.