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ECONOMY

Economic downturn hits Stockholm businesses

The situation for businesses in Stockholm is now worse than it was following the bursting of the IT bubble, according to a report from the city’s Chamber of Commerce.

The Chamber’s Stockholm Barometer finds that industries which remained unscathed during previous economic downturns, including the computer industry, are finding themselves struggling to withstand the pressures associated with the current period of economic doldrums.

The labour market in the Swedish capital is also worsening at a rapid pace. Employment is now at its lowest levels since the turn of the century.

Employment numbers are expected to drop in several industries for the second quarter in a row, with auto sales, as well as the construction and manufacturing industries expected to be the hardest hit.

The construction industry has weakened considerably despite several ongoing publicly financed construction projects.

Nearly 70 percent of the companies in the industry are building less, mostly due to reduced demand for new housing.

The Stockholm Chamber of Commerce wants to see a new approach to paying for infrastructure projects which allows the private sector to co-finance certain instances.

So far, the recently reintroduced tax deduction available for construction services related to home repairs and maintenance (ROT-avdraget), hasn’t had any noticeable positive effect on the industry overall, according the Chamber.

Daily retail trade, on the other hand, has resisted the economic slump relatively well, exhibiting strong growth during the first quarter.

Nearly 60 percent of companies marked an increased in sales volume at the start of 2009.

“People eat food even when the economy is weak,” said Chamber of Commerce analyst Johan Treschow.

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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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