The IMF delegation, currently visiting Sweden to take stock of the country’s economy, found that Sweden has been hit hard by the economic slowdown.
But the delegation nevertheless believed that Sweden’s monetary authorities have handled the country’s current economic challenges with aplomb.
While the IMF commended both Sweden’s monetary policy and fiscal stability measures, the agency was somewhat critical of budget spending limits.
“We forecast a fall in GDP of 6 percent this year and that a recovery will begin sometime in the middle of 2010,” said IMF delegation head Peter Doyle at a press conference on Monday.
He explained that the IMF disagrees with Swedish experts who advocate for sharply increasing state budget deficits.
“We disagree [with that line of thinking]. The risks are greater than the potential benefits,” said Doyle.
He also offered his thoughts on Sweden’s budget framework, which limits large spending increases.
“It’s a good framework and has worked well. But right now it might be appropriate to make an exception,” said Doyle.
It remains unclear when Sweden may finally pull itself out of its current recession, according to the IMF.
For a small, open economy like Sweden, the pace of its economic recovery is largely dependent on developments in the rest of the world.
“As a producer of goods disproportionately favoured by the prior global boom, Sweden was one of the first into the downturn,” said the IMF in its report.
“And if demand for those goods recovers slowly relative to other components of global demand—as seems likely […]—Sweden could be one of the last out of recession.”
Doyle added that Sweden’s state finances have undergone one of the largest swings in the entire European Union in the last year, dropping from a 2.5 percent surplus in 2008 to a 4 percent deficit in 2009.
“That also means that those who say ‘not enough has been done’ will have their claims challenged by these numbers,” said Doyle, adding that he’s not sure that there’s anything the government should have done differently.
“It’s hard to see how they could have handled the situation better,” said Doyle.