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BUDGET

Swedish GDP grows by 6.4 percent

The Swedish economy continues to expand, growing by 6.4 percent in the first quarter of 2011, according to new statistics, although GDP growth has slowed slightly.

The new figures, published on Friday by Statistics Sweden (SCB), also showed that Sweden’s seasonally adjusted GDP grew by 0.8 percent between the fourth quarter of 2010 and the first three months of 2011.

In addition, household consumption and government spending both increased 2.1 percent, which gross fixed capital formation increased by 8.7 percent.

Exports were up 15 percent and imports increased 13 percent, while industrial production rose by 9.2 percent.

First quarter growth was slightly below the 6.5 percent forecast by a Reuters poll of analysts.

“A little weaker than the 6.5 percent we had expected. Household consumption and net exports were especially disappointing,” Swedbank analyst Knut Hallberg told the TT news agency.

“It’s clear that households are having a tough time with high fuel prices and mortgage costs.”

At the same time, SCB adjusted Sweden’s overall GDP growth for 2010 upward from 5.5 percent to 5.7 percent.

Despite the strong figures, first quarter GDP growth has tapered off somewhat from the record growth recorded in the fourth quarter of 2010.

Preliminary statistics put GDP growth for the last three months of 2010 at 7.3 percent, but the figures were later adjusted upward to 7.7 percent – the highest year-on-year quarterly growth rate ever recorded in Sweden.

“The Swedish economy is developing well, even if we’re slowing down a bit compared to 2010. And it’s in line with most forecasts,” Torbjörn Isaksson, an economist with Nordea bank, told TT.

“It’s investment and consumption which are a little lower than we expected.”

Isaksson added that exports are stronger than forecasted and that inventory effects were also larger than expected

“Changes in inventories account for a whole 2.5 percentage points of growth. There is therefore a need to reduce inventories in parts of the retail sector later this year,” he said.

Swedbank’s Hallberg emphasised that Sweden’s economy is performing well compared to a number of other countries.

But it’s clear that growth is slowing and it heading toward more normal levels.

“By the turn of the year I think that we’ll have a growth rate of 2.5 percent,” he said.

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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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