2019-06-19
Swedish Economy Report June 2019
Weaker investment as economy cools
A weaker outlook is putting a damper on manufacturing investment, and consumers are increasingly negative about the economy despite a strong labour market. This consumer pessimism is expected to impact on consumption this year. Despite these signs of a slowdown, the output gap will remain positive this year and next.
Most signs are that the Swedish economy is in a slowdown phase, and GDP growth is expected to be weaker in the coming quarters. Despite a relatively strong labour market and housing prices having stabilised, the consumer confidence indicator in the Economic Tendency Survey has fallen sharply since autumn 2018. Business confidence has followed a similar pattern. Global industrial production is about to decelerate, and indicators suggest that new orders have begun to fall. All in all, the Swedish export market is forecast to expand by just over 3 per cent annually in the near future, which is weak by historical standards.
Gross fixed capital formation decreased in the first quarter, with housing investment performing particularly poorly. Housing investment will remain relatively high but is not expected to grow. An abundant supply of housing nevertheless presents a risk of a fresh slump in prices, which could cause housing investment to fall further and make households more cautious in their spending decisions. This is considered to be the single greatest domestic risk to the real economy. All in all, investment will decrease as a share of GDP in the coming years.
Firms’ employment plans suggest subdued job creation in the short term. Unemployment is expected to bottom out this year at 6.3 per cent and head gently upwards next year. Restrained wage growth means that inflation will be slightly below 2 per cent over the next couple of years. The Riksbank is expected to raise the repo rate in April 2020.
The forecast is based on an assumption that a no-deal Brexit is avoided, but this is very uncertain. Should the UK leave the EU without a deal, this would probably have appreciable negative consequences for the UK economy in particular, but also elsewhere.
2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
GDP, Market Prices | 2.4 | 1.8 | 1.4 | 1.5 | 1.4 | 1.5 |
GDP per Capita | 1.2 | 0.8 | 0.5 | 0.6 | 0.6 | 0.7 |
GDP, Calendar-Adjusted | 2.5 | 1.9 | 1.2 | 1.3 | 1.4 | 1.7 |
GDP, World | 3.6 | 3.4 | 3.4 | 3.3 | 3.3 | 3.3 |
Current Account Balance (1) | 3.1 | 4.7 | 4.7 | 5.0 | 5.0 | 4.8 |
Hours Worked (2) | 2.4 | 1.4 | 0.3 | 0.2 | 0.2 | 0.5 |
Employment | 1.8 | 1.1 | 0.5 | 0.5 | 0.4 | 0.5 |
Unemployment Rate (3) | 6.3 | 6.3 | 6.4 | 6.5 | 6.7 | 6.7 |
Labour Market Gap (4) | 0.9 | 1.1 | 0.7 | 0.4 | 0.1 | 0.0 |
Output Gap (5) | 1.6 | 1.3 | 0.7 | 0.3 | 0.0 | 0.0 |
Hourly Earnings (6) | 2.5 | 2.6 | 2.7 | 2.9 | 3.1 | 3.3 |
Hourly Labour Costs (2,7) | 2.7 | 2.5 | 2.6 | 2.9 | 3.1 | 3.3 |
Productivity (2) | 0.1 | 0.7 | 0.9 | 1.1 | 1.2 | 1.2 |
CPI | 2.0 | 1.9 | 1.9 | 2.0 | 2.2 | 2.4 |
CPIF | 2.1 | 1.8 | 1.7 | 1.8 | 1.9 | 2.0 |
Repo Rate (8,9) | –0.50 | –0.25 | 0.00 | 0.25 | 0.50 | 1.00 |
10-year Government Bond Yield (8) | 0.7 | 0.2 | 0.5 | 1.0 | 1.4 | 1.8 |
Effective Krona Exchange Rate Index (KIX) (10) | 117.6 | 122.2 | 122.2 | 120.7 | 118.6 | 115.9 |
Government Net Lending (1) | 0.9 | 0.2 | 0.0 | 0.3 | 0.2 | 0.3 |
Structural Net Lending (11) | –0.3 | –0.1 | –0.2 | 0.3 | 0.3 | 0.3 |
Maastricht Debt (1) | 38.8 | 35.0 | 34.7 | 33.8 | 33.2 | 32.7 |
- Per cent of GDP.
- Calendar-adjusted.
- Per cent of labour force.
- Difference between actual and potential hours worked in per cent of potential hours worked.
- Difference between actual and potential GDP in per cent of potential GDP.
- According to the short-term earnings statistics.
- Refers to the hours of employees
- Per cent.
- At year-end.
- Index 18 November 1992=100.
- Per cent of potential GDP.
Sources: IMF, Statistics Sweden, National Mediation Office, Sveriges Riksbank, Macrobond and NIER.
