Swedish bankruptcies 10-year high as housing crunch hits builders

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.