Swedish economy over the worst: report

Sweden's economy is showing strong signs of recovery with tax cuts and low interest rates helping to bring the country out of a protracted slump, according to a new report from the National Institute of Economic Research (Konjunkturinstitutet - NIER).

Higher exports and rising consumption are expected to contribute to turning a 4.4 percent drop in GDP this year into a 2.7 percent increase in 2010, rising to growth of 3.3 percent in 2011.

“We’ve had two quarters in which GDP has increased and we are now predicting higher growth than we had previously anticipated; a fairly substantial upward revision,” NIER director-general Mats Dillén told the TT news agency.

According to an NIER statement, the economy has passed its low point largely because of expansionary fiscal and monetary policies, including tax cuts and low interest rates. Another positive factor is that world trade is recovering, entailing increased exports, the institute said.

The Swedish economy will have fully shaken off the effects of the financial crisis by 2014, the institute believes.

Unemployment is expected to remain high for the foreseeable future, rising from 8.5 percent in 2009 to 10.1 percent next year and 10.4 percent in 2011.

“Labour market developments are also better than expected and will not reach the levels we had feared, but we will still see growing unemployment for a while more,” said Dillén.

The institute declined to level any criticism at the Riksbank over its assessment that interest rates will remain at their current low levels until autumn next year, despite market predictions of an earlier rate hike.

“When it comes to the timing of interest rate increases, we and the Riksbank are more or less in agreement,” said Dillén.

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