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ECONOMY

Confidence in economy hits record low

A major index measuring sentiment about the Swedish economy continued to fall in November, reaching its lowest level since measurements began in 1996.

Confidence in economy hits record low

The Economic Tendency Indicator, produced by the National Institute of Economic Research (NIER – Konjunkturinstitutet), fell nearly eight points to 71.6, another sign of weakness in the Swedish economy.

All sectors of the business sector had a negative impact on the Indicator’s November reading, with the manufacturing industry, the retail trade, and the service sector showing the sharpest drops.

Construction activity also deteriorated considerably, with the confidence indicator falling a full 26 points in November.

The only part of the economy to give the index any lift was a modest 0.2 point rise coming from household sector.

According to the institute, the current financial crisis and associated economic slowdown are having an increasingly “deep and broad impact on the Swedish business sector”.

“Expectations are pessimistic and employment is expected to fall across the board in the next few months,” said NIER in a statement.

Around 30 percent of Swedish companies report that having more difficulty than normal financing their operations. Of these, just over 40 percent single out tougher conditions for loans from banks as the main source of their financing challenges.

More than half of the companies surveyed also expect to be forced to carry out workforce reductions in the next 12 months, with the construction industry expected to be especially hard hit.

On the consumer side, sentiment hasn’t changed much since the previous month, but remains much gloomier than normal.

In particular, households are worried about their personal finances and the current situation in the Swedish economy, according to NIER, but are somewhat less pessimistic about developments over the next 12 months.

Households are also more fearful of losing their job, with 18 percent believing their chance of becoming unemployed has gone up in the last month.

According to NIER, households’ one-year inflation expectations have dropped to 1.9 percent in November from 2.5 percent in the previous month. Those surveyed reckoned current inflation at 3.8 percent.

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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