2019-10-09
Swedish Economy Report October 2019
Economic boom at an end
The Swedish economy is in a clear slowdown phase, and the output gap will close next year after gradually narrowing this year. International trade disputes and uncertainty around Brexit are weighing on the global economy, which is affecting Swedish exports. The investment cycle in Sweden has also peaked. Mildly expansionary fiscal policy will help prop up demand growth next year to some extent, but unemployment will continue to rise. Inflation will remain well below 2 per cent, and so the Riksbank is not expected to raise the repo rate either this year or next.
There are clear indications that the economic slowdown is continuing in the second half of the year. The confidence indicators for manufacturing and services have dropped back recently and are now lower than normal. The consumer indicator has also fallen. Above all, consumers are downbeat about the state of the economy and about the future. Employment has decreased this year, and unemployment increased rapidly over the summer. Employment plans in the business sector have also deteriorated gradually over the year. Employment is therefore assumed to have fallen by 0.8 per cent in the third quarter, and unemployment is expected to climb to 7.1 per cent in 2020. Housing investment is also continuing to fall, and investment as a whole is not expected to have made any contribution at all to demand growth in the third quarter. A rebound in export growth means that GDP growth will rise marginally.
Mildly expansionary fiscal policy next year
The government’s budget bill for 2020 means that fiscal policy will be slightly expansionary. Despite new spending in areas such as policing and higher grants to local government, government consumption will continue to increase relatively slowly next year. Inflation is expected to remain below the Riksbank’s target for the rest of 2019 and in 2020. The repo rate is assumed to hold at -0.25 per cent until early 2022.
Global economic outlook clouded in uncertainty
The forecast is based on the assumption that the trade conflict does not escalate further and tariffs are not raised any further than already announced, and that the UK leaves the EU in an orderly fashion either this year or next. Should the risks in areas such as these materialise, economic developments may become much weaker than in the forecast. The NIER’s analysis shows that the Swedish parliament and government should be ready in such a situation to act quickly to introduce more expansionary fiscal policy to lessen the economic downturn, not least in the light of the Riksbank’s limited room for manoeuvre as a result of its low policy rate.
2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
GDP, Market Prices | 2.3 | 1.2 | 1.1 | 1.7 | 1.8 | 1.5 |
GDP per Capita | 1.1 | 0.2 | 0.2 | 0.9 | 1.0 | 0.8 |
GDP, Calendar-Adjusted | 2.4 | 1.2 | 0.8 | 1.6 | 1.8 | 1.7 |
GDP, World | 3.6 | 3.1 | 3.0 | 3.1 | 3.2 | 3.3 |
Current Account Balance (1) | 2.4 | 4.6 | 4.9 | 5.1 | 5.0 | 4.8 |
Hours Worked (2) | 2.4 | 0.9 | 0.1 | 0.4 | 0.7 | 0.7 |
Employment | 1.8 | 0.2 | –0.1 | 0.6 | 0.8 | 0.8 |
Unemployment Rate (3) | 6.3 | 6.7 | 7.1 | 7.2 | 7.0 | 6.8 |
Labour Market Gap (4) | 1.0 | 0.8 | 0.1 | –0.2 | –0.1 | 0.0 |
Output Gap (5) | 1.6 | 0.9 | 0.0 | –0.1 | 0.0 | 0.0 |
Hourly Earnings (6) | 2.5 | 2.6 | 2.6 | 2.7 | 2.8 | 2.9 |
Hourly Labour Costs (2,7) | 2.9 | 2.7 | 2.4 | 2.7 | 2.8 | 2.9 |
Productivity (2) | 0.1 | 0.5 | 0.7 | 1.2 | 1.1 | 1.0 |
CPI | 2.0 | 1.8 | 1.5 | 1.6 | 1.9 | 2.3 |
CPIF | 2.1 | 1.7 | 1.5 | 1.6 | 1.8 | 2.0 |
Repo Rate (8,9) | –0.50 | –0.25 | –0.25 | –0.25 | 0.00 | 0.25 |
10-year Government Bond Yield (8) | 0.7 | 0.0 | 0.1 | 0.5 | 1.0 | 1.4 |
Effective Krona Exchange Rate Index (KIX) (10) | 117.6 | 122.5 | 124.2 | 122.7 | 120.6 | 117.0 |
Government Net Lending (1) | 0.8 | 0.4 | –0.1 | 0.0 | 0.2 | 0.3 |
Structural Net Lending (11) | –0.2 | 0.2 | 0.0 | 0.1 | 0.3 | 0.3 |
Maastricht Debt (1) | 38.8 | 35.3 | 35.1 | 34.5 | 33.8 | 33.3 |
- 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.
