* Swedish industrial output slides in September
* Down 4.1 pct in the month, 5.0 pct in the year
* Economy finally feels euro zone impact
* Some see chance of recession
* Central bank expected to cut rates
(Adds analysts, details)
By Patrick Lannin and Niklas Pollard
STOCKHOLM, Nov 9 Industrial output in Sweden
suffered its biggest drop for more than three years in
September, raising fears the previously robust Nordic state
could fall into recession due to the euro zone crisis.
Export-driven Sweden, the Nordic region's biggest economy,
had seemed almost immune to the problems created by the
sovereign debt crisis and its economy expanded by 1.8 percent
year-on-year in the first quarter and 0.8 percent in the second.
It has also been a favourite with investors due to its AAA
credit rating and strong public finances.
But an export demand drop has caught up with its companies
and caused a wave of redundancies that has put further pressure
on the centre-right government mid-way through its second four
year term. It is behind the Social Democrat-led opposition in
"We have a scenario where we are seeing a very sharp
slowdown of the Swedish economy," Finance Minister Anders Borg
said after a parliament committee meeting.
"We have large downside risks in the global economy and we
have seen further signs of this lately. Especially in the labour
market we are now seeing a lot of redundancies. However, we are
not in the same situation we had in 2008."
Borg spoke after data showed that industrial output slid 4.1
percent in September from the previous month and 5.0 percent
"The drop is the biggest since January 2009, apart from a
temporary reduction in production in February earlier this
year," the statistics office said in a statement.
Both drops were much bigger than the small declines of
0.7 percent in the month and 0.1 percent year-on-year forecast
in a Reuters poll. Industry orders fell 5.3 percent from the
same month a year ago, the office added.
"This means we may see negative GDP growth in the third
quarter and there is much to indicate GDP will fall in the
fourth quarter as well," said Nordea chief analyst Torbjorn
With better public finances than elsewhere in Europe, the
government has some options to spend to help the economy and in
its budget in September it cut corporate income tax and said it
was investing in infrastructure projects.
But Borg, one of Europe's most respected finance ministers,
is proud of his reputation for fiscal rectitude and the budget
deficit is already forecast to grow to 0.3 percent of GDP this
year without any new expansionary measures.
"If there really is a crisis they can of course do certain
things to stimulate the labour market, but I don't expect too
much," said Danske Markets analyst Michael Bostrom.
"Then again I think the government is pretty keen on keeping
government finances under control."
JOB CUTS VS HOUSEHOLD DEBT
A drop in output for two quarters in a row is classed by
economists as a recession, which Sweden has not experienced
since the last quarter of 2008 and the first quarter of 2009.
A wave of job cut announcements has rolled over Sweden in
the last few weeks, including leaders in their sectors like IT
giant Ericsson and truck maker Volvo and
from others including garden equipment maker Husqvarna
and hygiene products and paper group SCA.
The central bank is widely expected to cut its key repo rate
from 1.25 percent in December, but worries about high levels of
household debt have restrained four of the six central bank
policy makers from cutting faster.
Borg said this meant the crown currency was being prevented
from acting as a buffer to economic problems, when it should
weaken and help exporters. The crown has strengthened against
the euro this year, with the single currency down about 4
percent. However, the crown is weaker than its high of about
8.18 to the euro in early August and was at 8.5520 on Friday.
Borg told reporters he was not planning to revise the
government economic growth forecast for this year of 1.6 percent
and 2.7 percent in 2013, even though economists have said that
is too optimistic.
A slight glimmer of hope in the poor data was the fact that
on a monthly basis industry order books rose 1.2 percent.
(Additional reporting by Johan Sennero, Editing by Alistair