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ECONOMY

Sweden’s economy ‘to grow faster than expected’

The Swedish economy will grow by more than expected this year and next year, the government has predicted, while unemployment will fall.

Finance minister Anders Borg said on Friday that the Swedish GDP will grow by 3.7 percent this year and 3.3 percent next year. In October’s budget he had predicted growth of 3.3 percent for this year and 3.1 percent next year.

Borg said unemployment would fall from 4.7 percent to 4.1 percent between 2006 and 2007.

Tax cuts and and spending increases in some areas would be possible, said Borg following ministerial negotiations at Stockholm’s Haga Slott on Friday.

One area likely to get more money is migration, with Migration Minister Tobias Billström’s department hacing to deal with an increasing number of asylum seekers. The Swedish Board of Migration has said it will need more staff to be able to carry out its duties.

Borg would not say how much room for manoevre he would have in his budget, nor would he reveal any specific plans to be included in the spring budget, due to be presented on 16th April. He did, however, say that he believed that current economic conditions would allow a further tax reduction on earned income to be introduced in January 2008.

“But that is on the condition that the prognoses turn out to be correct,” he said.

Despite the promising economic signals, Borg vowed to hold tight on Sweden’s pursestrings when ministers come asking for extra cash. High growth rates need to be managed in order to last, he argues.

The government’s spending priorities are creating jobs and better conditions for entrepreneurs. Among the planned programmes are the ‘job and development guarantee’, under which people who are long term unemployed will be given help to find work while at the same time doing work in the community.

The increase in the growth prognosis is due to a number of factors. Employment rates have been rising unexpectedly fast, households’ disposable incomes have been increasing and international growth is stronger, the government says.

ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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