Improved outlook for Swedish economy: report

Swedes should expect higher economic growth and lower unemployment than previously forecast, according to a new report from the National Institute of Economic Research (NIER).

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According to NIER, the Swedish economy will expand by 4.3 percent this year, up from the institute's projections in June, when it forecast 2010 growth of only 3.7 percent.

NIER expects continued but more modest growth of 3.4 percent in 2011 and 3.0 percent in 2012, according to the new forecast released on Wednesday.

The new expected growth figures for 2011 and 2012 have also been revised upward from the June forecast of 3.0 percent growth in 2011 and 2.8 percent growth in 2012.

NIER expects Sweden’s benchmark interest rate, the repo rate, to rise to 1.0 percent by the end of the year before climbing up to 1.75 percent by the end of 2011.

According to NIER’s prognosis, the repo rate will increase by another percentage point to 2.75 by the start of 2012.

“With the recovery of the world economy, Swedish exports have surged. Rising household consumption and business investment are also helping to strengthen the economy,” the institute said in a statement.

NIER also expects Sweden will add 140,000 more jobs by 2012.

“Taken together, these factors will mean high growth figures for the entire forecast period. Despite vigorous growth, however, unemployment will be high for the next few years. It will therefore be necessary to maintain an expansionary economic policy,” said NIER.

The unemployment rate is expected to be 8.5 percent this year, before edging downward to 8.2 percent in 2011 and then further to 8.0 percent in 2012.

Nevertheless, the seemingly higher jobless rate is an improvement from NIER’s earlier prognosis, which included a 2010 unemployment forecast of 8.9 percent, 8.8 percent in 2011, and 8.5 percent in 2012.

Inflation meanwhile, as measured by the consumer price index, is expected to be 1.1 percent this year before climbing to 1.6 percent in 2011.

According to NIER's forecast, Swedish prices will be rising at a rate of 2.1 percent by 2012.