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BUDGET

Swedish budget focuses on labour market

Sweden's government has forecast that growth in Sweden's GDP will fall sharply, from 4.1 percent in 2011 to 1.3 percent in 2012, warning that the fall could be even worse in its budget statement presented on Tuesday.

Swedish budget focuses on labour market

In 2013 GDP is expected to grow by 3.5 percent, the government forecast in its detailed budget financial plan.

“The ministry of finance estimates that the Swedish economy will slacken considerably in 2012,” it said in a statement as Finance Minister Anders Borg presented the proposed budget to parliament.

“In the budget bill for 2012, the government gives priority to measures to address the slowdown, achieve sustainably higher growth and employment, ensure that everyone shares in welfare and increase the stability of the financial system.”

The Government believes that most of its reform ambitions can be carried out and expects to be able to push through a fifth step in-work income tax credit, reduced taxes for seniors, an raised threshold for state income tax and a continued improvement of the conditions for business.

Just as in prime minister Fredrik Reinfeldt’s statement at the opening of parliament, the theme of “responsibility” remained the keyword in the financial plan.

“More restrictive scope for reform in the wake of worsening public finances and the increased need for safety margins constitute a time for accountability,” the plan reads.

While the GDP forecast has been revised down substantially, the government warns that there is a risk of an even weaker development.

The government had in April forecast a surplus of 65 billion kronor for 2012, but the global economic slowdown was seen wiping out that surplus and Borg now predicted a balanced budget.

With “scope for reform” now set at 15 billion kronor ($2.2 billion) for 2012, the government expects savings to come in close to nothing, but advises that margins allow for jobs policy initiatives “if the development would be worse”.

In its draft budget, the government has proposed a labour market package of 8.1 billion for 2012-2014.

Sweden’s Public Employment Service (Arbetsförmedlingen) is set to receive an extra 1.2 billion kronor next year. Overall, the number of temporary employment and training places will increase by 15,350 next year and 8,550 in 2013, according to budget proposals.

The budget contains measures for 15 billion kronor for 2012 and 17.3 billion kronor in 2013, largely temporary demand stimulus.

Many of the proposals have been presented earlier, such as lowered restaurant tax, infrastructure projects and assistance to households with the lowest incomes in particular in the form of increased housing benefits.

Consumer prices are expected to increase by 3.0 percent this year, 1.2 percent in 2012 and 1.8 percent in 2013. Wages are expected to increase by 2.7 percent in 2011, 2.9 percent next year and 3.1 percent 2013.

Unemployment is expected to reach 7.5 percent this year, 7.8 percent in 2012 and 7.7 percent in 2013, according to the financial plan. Compared with the treasury department’s assessment on August 26th, the forecasts are unchanged.

The surplus in public finances is expected to be wiped out next year. General government net lending is expected, as a percentage of GDP, amounting to 0.1 percent this year, 0.0 percent in 2012 and 0.7 percent 2013.

The costliest measure is a cut in the value-added tax (VAT) on restaurant services, from 25 to 12 percent, “to create jobs for young people and stimulate entrepreneurship.”

The move is expected to lead to 3,500 new jobs, but cost the state 5.40 billion kronor in lost revenue in 2012 and 4.10 billion in 2013, the government said.

Unions said they were not convinced.

“We want stronger measures for the labour market and more incentives for companies to create new jobs,” said Carin Wallenthin of blue-collar union IF Metall.

The budget bill also forecast an increase of some 100-million-kronor for the operations of Sweden’s intelligence agency Säpo following the suicide bombing in Sweden in December and twin attacks in neighbouring Norway in July, to 1.04 billion kronor.

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ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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