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Swedish economy set for minor recession

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11:55 CET+01:00
The National Institute of Economic Research has downgraded its forecast for the Swedish economy in 2008 and now projects negative growth in 2009 as the country's main economic indicator dropped to its lowest level since 1996.

In August, the National Institute of Economic Research (NIER - Konjunkturinstitutet) predicted that Sweden's economy would grow by 1.5 percent in 2008 and 2009.

But NIER now believes Sweden's economy will only expand by 1.2 percent in 2008, and will contract by 0.1 percent in 2009.

“Due to the deepening financial crisis, the economic picture is considerably darker than in August,” said NIER.

“The period of weak economic growth is going to be protracted and according to NIER's assessment won't recover until 2011 and 2012.”

NIER believes economic growth in the OECD area will be close to zero next year, the lowest level in the industrialized world in 25 years.

Whether or not economies recover in 2010 as the NIER predicts will depend on a continued drop in interest rates in Europe and the United States.

Other figures from NIER also indicate that Swedish consumers and businesses remain concerned about the country's near term economic prospects, as the Economic Tendency Indicator dropped 8.4 percent from September, landing at 78.8, the lowest reading since 1996.

NIER's business confidence indicator also tumbled 10 points between the second and third quarters, with companies predicting more layoffs and weaker growth in the months ahead.

“The economic situation in the Swedish business sector is now deteriorating rapidly,” NIER said.

“Demand growth in the private service sector stagnated in the third quarter and dissatisfaction with the volume of orders has increased.”

In addition, NIER's Consumer Confidence Indicator (CCI), plunged a full 10 points, ending up at -24.7, a level not seen since 1993 when Sweden struggled to recover from the banking crisis of the early 1990s.

“Households are highly pessimistic about both their personal finances and the Swedish economy,” said NIER.

“Both confidence in the current situation and one-year expectations are considerably gloomier.”

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