Christmas and New Year's Chronicle 2024

Sturm und Drang – Nein, Nicht Mehr

Prediction #1: Germany will become a significant challenge

"Everything that once made Germany the economic engine of Europe has turned against it. Trade policy, corporatism, energy policy, and lagging digitalization all serve as a stark warning to Sweden," wrote Jonas Grafström in a recently published column in Smedjan. It’s hard to disagree with this grim assessment. Germany's automotive industry has ground to a halt. The reckless dismantling of nuclear power and reliance on Russian gas have taken their toll. Over the past decade, immigration has brought integration challenges. All these factors contribute to a struggling German economy, leaving Angela Merkel's political legacy under a harsh spotlight.

Naturally, this could have dramatic repercussions for Sweden—Germany is our most important trading partner, and when the pastor catches a cold, the sexton often sneezes too.

What’s puzzling is the lack of attention this issue has received in Swedish media and debates. We spend days and nights discussing who will sit in the White House, yet barely a whisper about the state of what was once Europe's powerhouse.

Quo Vadis Europa?

Prediction #2: Europe will continue to fall behind

In Germany, there is a government crisis. In France, the same. In Slovakia, a Putin supporter has won the presidential election. In Hungary, Viktor Orbán does pretty much as he pleases. Europe's economies are sluggish. The EU will be forced to take on a larger role for Ukraine as the US turns inward. And above all, there is a lack of solid thinking on how to strengthen the EU's competitiveness and innovation capacity. In short, there is no willingness to reform, no leadership to drive it forward. Instead, we can probably expect more oddities from the European Parliament, this strange institution designed to give EU citizens a voice when in reality it has become a playground for various special interests and lobby efforts to push for new special regulations without the general political debate and oversight that occurs at the national level. Where is Ludwig Erhard when we really need him?

Just over a year ago, I was invited to participate in something called Conclave Europe, a gathering of around 50 people from most European countries, where we were to spend a few days discussing a vision for the EU up to 2040. There were some former ministers, some forward-thinking business leaders, researchers, astronauts, and cultural figures. In short, a fascinating mix of people who could have, free from politically short-term bindings, formulated an idea of where Europe should be heading. Instead, these days ended up producing a report so dull that few have probably read it, focusing on short-term issues and problems. This symbolizes much of the EU's challenges: not even with the best ambitions and conditions can we lift ourselves by our own bootstraps and look beyond the next election.

Trump 2.0 – Get Ready for the Ride!

Prediction #3: We’ll survive Trump again this time

In the US, President Trump will swear the presidential oath again on January 20. Here, I am actually less negative than I have been. I have come to think of Trump primarily as a "transactionalist." Trump sees everything in terms of transactions, everything in terms of negotiation. Like a carpet dealer in a Middle Eastern bazaar, he makes offers as a starting point for a negotiation.

It is in this light that we should view his "offers" of 25 percent tariffs. Of course, that won’t happen, but it’s his opening offer, and the rest of us must negotiate from there. Trump will try to avoid making deals that are bad for him or the US, but he has no problem being bold, lying, and exaggerating as long as we bargain and negotiate.

We may like it or not, but that is the game he has defined for us. So, I don’t think it will be as dreadful concerning foreign relations as some might have thought. However, I do wonder how he will solve the fundamental fiscal problems in the US. The national debt is enormous, and budget deficits are rampant. Furthermore, the value-based conflicts between the woke left and the Christian right are deep.

The conclusion is probably that, for us in Sweden, the new Trump administration will not be as troublesome as we initially thought. The American economy is doing well, Trump's statements will translate into a much less troublesome realpolitik, and we have survived Trump once before. We will manage this period at least as well.

Est Bellum Bellis Bellum Bellare Puellis?

Prediction #4: Wars and unrest will continue to fuel chaos and uncertainty

The old Latin phrase in the headline roughly means "it is pleasant to wage war over beautiful women." But that’s where the pleasure ends. The war continues in Ukraine, the situation between China and Taiwan remains unstable. We can certainly rejoice that the Assad regime has fallen in Syria, but I am very skeptical about what comes next. There is an imminent risk that the old jihadists will create a new caliphate in Damascus. After all, Al Jolani was the Emir of Al Qaeda in Syria, and although he sounds softer now, I strongly suspect that his words have Turkish roots. Replacing one proxy power with another, now under jihadist leadership, leaves room for significant concern. For women, Kurds, and Christians, the joy of getting rid of a despot will most likely be clouded by new miseries, no matter how much we hope for something else.

War and instability in the world are never good. Risks breed uncertainty, and uncertainty breeds reluctance to invest. Countries become more fearful and protectionist.

The Green Transition in New Clothes

Prediction #5: The green transition will shift from euphoria to more pragmatic approaches

Northvolt's spectacular crash leaves pension savers, taxpayers, and subcontractors with multibillion-dollar losses. There is likely a high probability of various forms of lawsuits from all those who now feel cheated. But at the same time, it is impossible to ignore that the green transition contains many things that are wise in itself. Becoming better at conserving resources, producing more environmentally friendly and smart products, is wise for all the right reasons.

As someone who works a lot in Saudi Arabia, I watch with fascination how this oil nation has decided to become carbon neutral by 2060. Enormous investments are being made in everything from waste management to so-called waste-to-energy solutions, where Swedish technology and expertise should have very significant opportunities.

My conclusion is therefore that the transition will continue, but on a less spectacular scale.

Sovereign Wealth – More Wealth than Sovereign

Prediction #6: The world’s major sovereign wealth funds will become more activist

I notice a pattern emerging from the world’s major sovereign wealth funds – they tend to shift from passive wealth management to becoming a more operational part of creating conditions for growth in the countries where they are active.

Saudi Arabia’s PIF is, of course, a clear example. With wealth exceeding $1 trillion, PIF is a central player in increasing economic activity in the country and also creating conditions for private capital formation. With its hundreds of subsidiaries and fund-of-fund companies, foreign investors are invited to co-invest in emerging industries. I hear similar sentiments from other actors around the world.

There is, of course, a risk here: they may take on greater risks, and things could go spectacularly wrong – read Northvolt. But I believe this is a risk that those in power are willing to take. If economic activity stalls, it’s natural for many to use the capital they already have more effectively. The winners will be the smart investors who focus on infrastructure and long-term growth, while funds seeking quick profits will face more risk.

No Grand Celebration, But a Pleasant Coffee Break

Prediction #7: Recovery will be slow, interest rates will drop, and the 2026 election year looms

The Swedish recession will gradually ease in 2025. Inflation seems, fortunately, under control, and interest rates may continue to fall, possibly reaching around 1.75 percent sometime next year. At the same time, it's not a time for celebration. The recovery is slow, and the biggest cloud of concern right now is Germany's development. However, with our strong public finances and low foreign debt, we are still well-prepared.

In 2026, there will be elections again, and this will be noticeable in budgetary matters going forward. The government will prepare for investments and to keep domestic consumption up in the lead-up to the election. Additionally, we will see some major reforms during the year. 2026 will be too late, and then the parties will focus on the election campaign again, so next year is the last chance.

The conclusion is that there won’t be a dramatic recovery, but a gradual improvement with prospects for demand-driven initiatives from the government. It will be more of a "coffee break" than a grand celebration.

A Fresh Start for Careers

Prediction #8: Unconventional career changes will become more common

A final observation is more specifically about the labor market. Unemployment remains high and does not seem to be decreasing very quickly in 2025. This, along with several other trends, leads me to believe that we will see more unusual career changes going forward.

In addition to economic reasons, I think that Covid isolation, more work from home, and the rise of the gig economy have made more people willing to take a second look at what they are working on. As long as it feels economically secure, I believe more will dare to try something different in life instead of just continuing to run in the old hamster wheel.

I have several acquaintances who have done just that. An old close friend changed careers and became a Jesuit priest. Another was a PR consultant but is now ordained as a priest in the Swedish Church. A third was a state secretary in the Ministry of Education but is now the new CEO of Plåt- och Ventbyrån. A high-ranking foreign ministry official owns a bookstore in Trosa. A woman in the finance industry changed paths and now runs a café. I myself have helped a Saudi friend find technical solutions to tokenize the camel industry in a country where gambling and betting are forbidden.

Wishing you a very Merry Christmas and a Happy New Year 2025 from all of us at Stadsholmen Equity.

Sincerely,

Sven Otto Littorin

Partner, Stadsholmen Equity