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Sweden faces economic slowdown: report

Sweden faces economic slowdown: report

Published: 31 Aug 2011 10:51 GMT+02:00
Updated: 31 Aug 2011 10:51 GMT+02:00

Sweden's National Institute of Economic Research (NIER) has cut its forecast for Swedish growth and sees a significant risk that the eurozone debt crisis could worsen.

The NIER is joined by Nordic banking giant Nordea in revising down expectations for the Swedish economy and expects GDP growth to slow down sharply next year.

"The economic recovery is taking a break. Growth eased off in our region already towards the end of 2010. Now it has also become visible in Sweden," NIER head Jesper Hansson said.

For 2011, the NIER expects 4.3 percent, while 2012 is expected to slow further, to 1.9 percent, the institute wrote in its "Swedish Economy" report.

This compares with a previous NIER forecast of 4.4 percent for 2011 and 2.9 percent for 2012. For 2013 the forecast has been raised from a previous 3.3 to 3.4 percent.

The NIER expects unemployment to remain unchanged at 7.5 percent in 2012 and in 2013 to decline to 7.3 percent.

"This means that unemployment will stop falling, it will level off at current levels, and then in 2013 begin to fall again," Hansson said.

The assessment is based on the assumption of an unchanged repo rate over the coming year.

NIER economists see a "significant risk" of a worsening of the state debt crisis in the eurozone and fear its spread to the banking sector. If this scenario were realised then the Swedish economic outlook would be impacted.

"The development could be much worse, in the instance of a deeper debt crisis in Europe."

NIER economists explain the slowdown as due to "troubled households and firms postponing consumption and investment decisions".

Jesper Hansson indicated that both households and industry have rapidly gained a much gloomier view of the economy, according to NIER measurements.

"It is feared that these indicators will fall further in upcoming surveys."

The NIER expects Sweden's Riksbank to leave the repo rate untouched until the summer 2012, after which the bank is expected to gradually raise the repo rate to around 3.5 percent by 2015.

The institute estimates that the scope for fiscal reforms amount to approximately 65 billion kronor ($10.2 billion) for 2012-2015.

Nordea also cut its growth forecast for this year and expects Swedish growth to contract sharply next year.

"The economy is rapidly deteriorating in the wake of financial turmoil and a lack of credible solutions to debt problems in our world. The Swedish economy is decelerating sharply," Nordea wrote in a statement on Wednesday.

Nordea's economists expect growth this year to remain at 4.2 percent and will next year drop to only 0.8 percent.

This compares with a previous Nordea forecast of 4.7 percent growth for this year and 2.3 percent in 2012.

Nordea shares the NIER view that the Riksbank will react to the gloomy economic situation by leaving the repo rate unchanged throughout the year and then cut to 1.50 percent in a year.

Bank economists expect the weakened economy to result in a rise in unemployment, from 7.5 percent for this year to 7.8 percent in 2012 and then decrease slightly to 7.7 percent in 2013.

Another effect is that inflation will fall from 3.0 percent in 2011 to 1.8 percent in 2012 and 2.2 percent in 2013, according to the bank's forecast.

"A small, open economy like Sweden's is particularly affected by global developments. This is something we have seen before. The demand for Swedish exports slows significantly. While at the same time stock market falls hit households and businesses," Nordea chief economist Annika Winsth wrote in a comment.

TT/The Local/pvs (news@thelocal.se)

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Your comments about this article

12:07 August 31, 2011 by isenhand
what economic recovery? We have a quick dose of more of the stuff that cause the problem but it kept us going for a bit. We never fixed the last financial crisis, just made things worse. Now the dose has started to lose it we start to come down and realise what a mess we made.
21:10 August 31, 2011 by play nice
Somewhere between Heaven and Hell there is Sweden. That said, there is great change coming from every direction and all who are not up to the challenges are...what's the word I'm looking for...oh yes -"Doomed!"
08:44 September 1, 2011 by karex
I don't necessarily see the slowdown as a deterioration. It could be caution. I woud be even more worried (and was for a while) that things would just swing back to the insane spending turmoil right before the crash, and then just cause another one. Moderation is usually the healthier approach to just about anything in life. It is more sustainable.
10:46 September 1, 2011 by PoJo
The last financial crisis came as a result of a bubble which originated in the US and then affected the whole world. The first commenter is right, we never fixed the last one. After some of the biggest banks in the US declared bankruptcy, the state bailed them out by printing more money. This obviously caused a big inflation that was felt everywhere. Banks continued the same after that, so did the federal reserve, nothing has changed. Where does the money that we pay to "Greece" go? If it really went to help Greece, I would be more than happy. Instead, it goes to giant banks, which supposedly own these debts.

This makes some of us multimillionaires and some others homeless.
19:38 September 3, 2011 by jayseah32
Sweden is on the cusp of making their situation worse by allowing relaxed immigration policies to increase its population at a time when the economy is growing weaker. That's what the U.S. has done, and it's making bad matters worse.
09:42 September 4, 2011 by calebian22
It is convenient to blame the US as the sole originator of the world financial crisis, which is typical of Euro residents, but the housing fiasco in the US had nothing to do with Iceland and the UK. Did the US force Greece to cook their books to gain EU status? Did the US cause Italy and Portugal to have unsustainable socialized systems that can't support an aging population? No. The US has plenty of stinky laundry, but a good portion of that stench that you smell right now, is local, European, unwashed, skidmarked underwear.
18:35 September 5, 2011 by dcarlson12
To Pojo:

The money goes to the big banks and private money lenders because Greece pays it public sector workers far more money than it takes in from taxes. The taxes are paid by the private sector and if you make an economic environment where the public sector gets 'rewarded' with higher wages and salaries and benefits than the private sector, then there is no incentive to work or invest in the private sector. This is what has been happening for many years particularly in western countries i.e. North America and Europe. Finally you get to the point where some one has to pay the debts or declare bankruptcy, so you borrow from your hard working neighbour i.e. Germany or other country to pay the banks and private lenders. Or you fix your system and reduce what is paid to the public sector workers. But of course because they consider themselves to be 'first' class citizens unlike the poor sods who work in the private sector, they go on strike and wail and cry that they are being treated unfairly. It is what goes with 'democratic' governments when they stay in power by bribing their citizens with taxes until the whole thing falls apart.
20:00 September 5, 2011 by waffen
First off, the United States exported a Depression begun under cheneybush to the world. Period.

You can paint this any way that you wish, but the essential fact remains that the United States caused the biggest financial problems in decades, both for themselves and the World.

Second, assessments based on assumptions are just so much hog-wash because there are so many outside factors that can tip those neatly created paper figures; such as: another war breaking out somewhere, that the United States will most likely oblige as they have with the two that they have going now, and the one in Libya that they support for access to their sweet crude oil.

Who knows where else in N Africa where the U.S. already have forces on the ground, and bases being setpup, as in Djibouti will the next war occur.

Sweden might or might not face a slowdown, but until Sweden gets out from under the Eurozone influence--hopefully when that experiment of the United States of Europe collapses and the Euro goes the way of snow in July--they will be subject to the turmoil caused by that Eurozone.j.

That end of the Eurozone action will restore the balance to Europe that the farce of the Eurozone has upset. Sweden will benefit from that happening.
22:30 September 5, 2011 by dcarlson12
Yea. It's all the US's fault. They are the war mongers of the world. Kind of like Sweden during the second world war. Remaining 'neutral' and selling their ball bearings, steel, arms to both sides. What a bunch of hypocrites. And according to waffen, the Eurozone is a failure. The US are the bad guys for everything. Maybe he can tell who the 'Good Guys' are? Maybe Russia, China, Japan? They will sell anything to anyone as long as they make money.
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