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ECONOMY

Sweden’s economy in good shape: report

Exports, domestic demand and strong public finances all indicate that Sweden's economy is in good shape, the country's financial management authority and the banks, said on Tuesday.

SEB bank said that the Swedish economy has provided “upside surprises in

recent months.”

It forecast that Swedish gross domestic product (GDP) to grow 4.7 percent in 2010, then decelerate to 2.9 percent in 2011 and 2.3 percent in 2012.

“Lower interest rates, tax cuts and a rapid upturn in exports — combined with the absence of falling home prices — have made possible a strong rebound in both output and employment after the deep recession,” it said.

In its latest forecasts published less than a month ahead of the country’s next elections, Sweden’s centre-right government, which is hoping to win a second four-year-term on the back of a strong economic recovery, forecast a 4.5 percent rise in Swedish GDP this year and a 4.0 percent rise in 2011.

It also lowered its unemployment estimate to 8.5 percent for all of 2010 and to 8.0 percent next year.

SEB also forecast on Tuesday that the unemployment rate, which dropped significantly to 8.0 percent in July from 9.5 percent in June, would continue

to fall.

Sweden’s national financial management authority (Ekonomistyrningsverket – ESV) meanwhile said it expected the government’s finances to be balanced next year, and noted the country’s economy was recovering more rapidly than previously expected.

“This year the central government budget shows a deficit, but balance is already attainted next year,” it said in a statement.

“Further ahead on the forecast horizon, the surpluses get very large and the surplus target is exceeded,” it added.

Nordic bank Nordea said on Monday that it expected Swedish public finances to be balanced as early as this year and also said that the labour market was improving.

It expected Sweden’s GDP to grow “more than 4.0 percent” this year, with its export industry benefiting from a pick-up in global trade.

“Even if the international economy slows down, domestic demand in Sweden will contribute to sustaining growth,” Nordea said.

Sweden’s economy, which was hard-hit by the global financial crisis but which emerged from recession in the second quarter of 2009, is today considered one of the strongest in Europe.

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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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