Sweden amends growth forecast

The Swedish government has forecast that GDP will climb by 4.8 percent in 2010, and 3.7 percent in 2011, according to the financial plan in the budget proposition made public on Tuesday morning.

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The new figures are a revision of previous forecasts issued in August of 4.5 percent in 2010 and 4 percent in 2011.

The government said Sweden had come through the global economic crisis "better than most countries."

"The permanent effects of the crisis are expected to be less pronounced than previously assumed, which will mean a more rapid recovery," according to a statement on Tuesday morning.

But it was stressed that there was still great uncertainty about future developments of the economy, and added "major problems in government finances in other countries may affect the Swedish economy as well."

"Sweden is still in a period of low economic activity and high unemployment. And there are still risks that developments will be less favourable than expected," finance minister Anders Borg said.

The government forecast unemployment would reach 8.4 percent in 2010 and
8.0 percent in 2011 and then decline gradually to reach 6.0 percent in 2014, attributing the change to "economic recovery, government policies and a growing population."

Borg stated that the boom years have to be capitalized on to ensure that unemployment is not allowed to remain high.

"The years of high growth that lie ahead must be used to ensure that more people, including people who have had difficulty becoming established in the labour market, begin to work," he said.

Economists with the SEB bank expect Sweden's growth in 2011 to be a bit lower than the 3.7 percent forecast by the government.

"The government is maybe a little on the optimistic side, but within the margin of errror," said SEB economist Olle Holmgren to the TT news agency.

At Nordea bank, economists noted that the government has adjusted it's GDP forecast for 2010 upward, which is in line with available statistics.

At the same time, Nordea warns that the government's prognosis for 2011 and 2012 may be a bit too optimistic.

The consumer price index is tipped to grow by 1.2 percent in 2010 and by 1.5 percent in 2011.

Consumer prices climbed by 0.8 percent from August to September, according to Statistics Sweden figures published on Tuesday. The rate of inflation, measured as an average change in consumer prices over the previous 12 months, came in at 1.4 percent, up from 0.9 percent in August.

Underlying inflation - according to CPIF which removes the effects of changed interest rates - climbed from 1.4 percent to 1.8 in September.

The 1.4 percent rate of inflation was slightly higher than that predicted by most forecasters, as were the price rises from August to September.

"We have long since passed crisis situation in the Swedish economy. We are not in crisis anymore. We are starting to get closer to a situation which in many respects can normally be considered to be faster than normal," said Torbjörn Isaksson at Nordea.

The higher inflationary pressure was taken as justification for Riksbank plans to hike the base (repo) rate. Nordea expects the Riksbank to raise the repo rate gradually over the winter to stay at 1.75 percent in April.

Tuesday's inflation figures affect this rate path forecast only marginally, Isaksson believed.