Swedish economy ‘set to cool down’

The Swedish economy is set to cool down over the next year following economic problems in the United States, according to a report from Nordea bank.

Within six months the Riksbank will have raised interest rates to 4.25 percent, up from today’s 3.5 percent. Rates will then stay at about that level for at least two years, Nordea’s economists predict.

The problems in the American economy will lead to a global slowdown. This will cause a reduction in Swedish growth. The Swedish economy will also be hit by a reduction in investments. GDP is expected to grow 3.3 percent this year, 2.6 percent in 2008 and 2.4 percent in 2009.

Underlying inflation is expected to be 1 percent this year, 1.5 percent next year and 2.1 percent in 2009. Open unemployment is predicted to be 4.5 percent this year, 4.1 percent in 2008 and 4 percent in 2009.

“The turbulence on the financial markets is not simply a ripple on the surface – it is going to have significant effects in Sweden too,” said Nordea’s chief economist Jörgen Appelgren.

Sweden has already passed the peak of the current high-growth period and the economy will grow more slowly in the coming years, Appelgren said.

“It’s slowing down a bit, but we don’t need to hold on to our hats,” said Appelgren, adding: “we still have strong global growth, even if it is falling a little compared with last year.”