New budget sees lower growth for Sweden

Sweden has cut near term growth forecasts in its latest budget proposal, while at the same time projecting higher unemployment and lower inflation.

The new budget, to be presented on Monday, forecasts that Sweden’s GDP will expand by 1.5 percent in 2008, down from an earlier projection of 2.1 percent growth.

Growth continues to slow in 2009, with the economy only expected to achieve a 1.3 percent growth rate before once again picking up speed in 2010, during which the government expects growth of 3.1 percent, followed by 3.5 percent growth in 2011.

Mats Dillén, head of the National Institute of Economic Research (Konjunkturinstitutet – KI) thinks the government’s assessment of the economy is in line with that of his own organization.

“The differences are very minor, they have a little lower growth than we do. But if we had done a forecast in light of the current situation, our economic growth forecast would have looked a little worse. I think that their macroeconomic picture is in line with what we have said,” he said to the TT news agency.

Unemployment is expected to increase from 6.0 percent in 2008 up to 6.6 percent in 2010, well above the 5.9 percent unemployment the government had previously projected for the year of Sweden’s next parliamentary election.

But in 2011, the growing economy is expected to create more jobs, bringing unemployment back down to 6.0 percent.

The government also expects Sweden’s current high rate of inflation to drop in the coming years.

It projects a consumer price index (CPI) increase of 2.4 percent in 2009, down from 3.8 percent in 2008, and below previous 2009 forecasts of 2.8 percent.

In 2010, the CPI is expected to dip down to 1.3 percent before heading back up to 2.7 percent in 2011.