Analysts see more signs of slowing economy

Consumers and businesses are continuing to lose confidence in the Swedish economy, according to a new report by the National Institute for Economic Research (Konjunkturinstitutet - KI)).

The institutes’s monthly Economic Tendency Indicator, which measures business and consumer confidence in the economy, fell from 106.7 in December to 102.7 in January.

“This indicator has now fallen 14 points since its peak in April 2007, but nevertheless remains at a level indicating a stronger than normal situation in the Swedish economy. The decline can be seen in all sectors,” the institute said in a statement.

Despite a clear downward trend, the economy remains at a level that is slightly above average.

With the Consumer Confidence Indicator now only slightly above the historic average, the recent decline has become evident in all sectors.

“The confidence indicators for the manufacturing industry, the private service sector, the retail trade and consumers all fell in January. The confidence indicator for the construction industry fell the most, but from historically high levels,” said KI.

Though the growth of the economy has slowed, the institute expects global economic growth, healthy household incomes and an expansionary fiscal policy to result in a rise in GDP by an annual average of 2.9 percent for this year and 2009.

Unemployment will continue to fall, albeit at a slower rate. The number of jobless dropped from 7.7 percent of the labour force in 2005 to 6.1 percent in 2007. This figure is predicted to level out at 5.6 percent in 2008 and 2009.

A strained labour market is anticipated to give rise to increased wages, leading to a rapid increase in inflation, which will exceed its target in 2008, said KI.

Consumer Price Index (CPI) inflation will be 3.7 percent this year, said KI, while underlying ,or CPIX, inflation will reach 2.7 percent.

“During 2008 the Riksbank will therefore raise the repo rate further in two steps, to 4.25 percent in the second quarter and to 4.50 percent in the fourth quarter; the repo rate will then remain at that level for the duration of the forecast period.

“A tighter monetary policy, together with more limited price increases in energy and food, will help to reduce inflation in 2009, when it will be 2.8 percent in terms of the CPI and 2.0 percent in terms of the CPIX,” said KI.