Borg forecasts mass unemployment

Sweden's finance minister Anders Borg has predicted that the country's unemployment rate will hit 12 percent in 2011.

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Sweden's GDP is set to drop 4.2 percent in 2009, according to Anders Borg's new calculations. GDP is expected to climb by 0.2 percent in 2010, 2.4 percent in 2011 and in 2012 growth is expected to be 4 percent.

"Economic policy faces very significant challenges, but the direction is clear. The crisis shall be met at the same time as we safeguard the public finances," Anders Borg said.

At the end of January the Swedish government forecast that GDP would fall by 0.8 percent in 2009 and then gradually recover.

GDP growth of 1.5 percent was forecast for 2010 and 3 percent in 2011. When the government published its autumn budget in September 2008 GDP growth for 2009 was forecast to be 1.3.

In January the government forecast that unemployment would peak at 8.5 percent in 2010, but that figure has now been dramatically revised.

Public finances are set to weaken as a result and are forecast to show a deficit in the years until 2012. Budget deficits are expected to exceed 3 percent in both 2010 and 2011.

The government expects the retraction to hit employment figures hard, with 320,000 fewer in work during the period 2008-2011.

Unemployment is forecast to hit 8.9 percent in 2009, 11.1 percent in 2010 and 11.7 percent in 2011 before it eases back to 11.3 percent in 2012, according to the new government forecast.

The spectre of deflation is also expected to emerge in 2009 with the consumer price index falling by 0.4 percent. Consumer price inflation is expected to return in 2010 with an increase of 0.3 percent, 0.8 percent in 2011 and by 1.5 percent in 2012.

All of the inflation forecasts come in below the Riksbank's inflation target of two percent.

The government expects consumption to be hit by the low stock market values, lower housing prices and a weakening labour market.

Swedish exports will suffer from weakening demand in the global economy and investments are also expected to decline in both 2009 and 2010.

Anders Borg conceded that the scope for reforms was "very limited", but he added that the situation regarding further stability packages would be considered on a regular basis.

On Tuesday the National Institute of Economic Research (Konjunkturinstitutet - NIER) forecast that GDP would decline by 3.9 percent in 2009 and that unemployment would climb to 10.7 percent in 2010.