2019-12-18
Swedish Economy Report December 2019
Unemployment to rise and inflation to remain well below the Riksbank target
The Swedish economy has entered a clear slowdown phase, which is normal after several years operating above potential. The slowdown is being exacerbated by uncertainty around Brexit and trade disputes. Swedish economic output will be slightly lower than normal in 2020 and 2021, and unemployment slightly higher. Inflation will drop back and will be well below 2 per cent over the next couple of years. The Riksbank is nevertheless expected to take the decision to raise the repo rate at today’s meeting.
Most signs are that the economy will continue to deteriorate in the near term. Both consumer and business confidence indicators in the Economic Tendency Survey are below normal levels, and firms’ employment plans suggest largely unchanged employment over the next three months. We forecast that GDP growth will fall to 0.1 per cent per quarter in the fourth quarter this year and the first quarter next year. Employment growth is also expected to slow slightly further in 2020 and remain subdued in 2021.
The relatively weak demand growth in the business sector in 2020 and 2021 means that there will not be any great need for firms to expand their workforce, especially not in manufacturing. The negative net lending in the local government sector will also weigh on employment in the public sector, which will rise only slowly during the period. The labour force will nevertheless continue to expand over the next couple of years. Given the relatively weak employment growth, this means that unemployment will rise in 2020-2021.
Structural net lending is expected to be 0.3 per cent of potential GDP in 2020, which is in line with the surplus target. If economic output falls below potential, there will be scope for the government to pursue expansionary fiscal policy, but that will require more restrictive fiscal policy further ahead. While overall government finances are strong, local government debt will grow. Substantially increased grants from the central government will be required to avoid increases in local government taxation. All in all, growth in government consumption will be held back in 2020 by tight finances in many municipalities and regions.
Our forecast is based on the assumption that there is an orderly Brexit and that the global trade conflict does not escalate further. Should these assumptions prove false, there is a considerable risk of Swedish output falling well below potential.
2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
GDP, Market Prices | 1.1 | 1.0 | 1.5 | 1.8 | 1.8 | 1.8 |
GDP per Capita | 0.1 | 0.1 | 0.7 | 1.1 | 1.1 | 1.1 |
GDP, Calendar-Adjusted | 1.2 | 0.7 | 1.4 | 1.9 | 2.0 | 1.8 |
GDP, World | 3.1 | 3.0 | 3.1 | 3.2 | 3.3 | 3.3 |
Current Account Balance (1) | 5.0 | 5.0 | 5.2 | 5.1 | 4.9 | 4.5 |
Hours Worked (2) | 0.0 | 0.1 | 0.5 | 0.7 | 0.8 | 0.6 |
Employment | 0.6 | 0.4 | 0.4 | 0.8 | 0.8 | 0.6 |
Unemployment Rate (3) | 6.8 | 7.2 | 7.4 | 7.2 | 6.8 | 6.8 |
Labour Market Gap (4) | 0.0 | –0.4 | –0.4 | –0.2 | 0.0 | 0.0 |
Output Gap (5) | 0.6 | –0.2 | –0.4 | –0.3 | –0.1 | 0.0 |
Hourly Earnings (6) | 2.6 | 2.6 | 2.7 | 2.8 | 3.0 | 3.1 |
Hourly Labour Costs (2,7) | 3.8 | 2.6 | 2.6 | 2.8 | 3.0 | 3.1 |
Productivity (2) | 1.5 | 0.7 | 0.9 | 1.1 | 1.2 | 1.2 |
CPI | 1.8 | 1.7 | 1.4 | 1.7 | 2.1 | 2.5 |
CPIF | 1.7 | 1.6 | 1.5 | 1.7 | 1.9 | 2.0 |
Repo Rate (8,9) | –0.25 | 0.00 | 0.00 | 0.00 | 0.25 | 0.75 |
10-year Government Bond Yield (8) | 0.0 | 0.2 | 0.6 | 1.0 | 1.4 | 1.8 |
Effective Krona Exchange Rate Index (KIX) (10) | 122.1 | 120.4 | 119.1 | 117.5 | 114.9 | 112.1 |
Government Net Lending (1) | 0.6 | 0.1 | –0.1 | 0.1 | 0.2 | 0.3 |
Structural Net Lending (11) | 0.3 | 0.3 | 0.1 | 0.3 | 0.3 | 0.3 |
Maastricht Debt (1) | 35.1 | 34.1 | 33.2 | 32.6 | 32.0 | 31.7 |
- 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.
