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Sweden slashes 2012 growth forecast

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Sweden slashes 2012 growth forecast
15:39 CEST+02:00
The Swedish economy is set for a major slowdown in 2012, according the spring budget presented on Monday by finance minister Anders Borg, who warned for the "downside risks" amid the continued economic uncertainty.

Borg told reporters at a press conference that the Swedish economy had stabilized somewhat in recent months and that he expected a degree of normalization during 2012.

"But the situation is still uncertain. It's a bit like the weather in April," he told reporters.

The government slashed its 2012 growth forecast in the spring budget from 1.3 percent to a mere 0.4 percent due to "problems in the public finances of several euro[zone] countries".

Despite the much-reduced growth forecast, the finance ministry warned further that "there is still a risk of poorer growth".

As a result, Borg explained that the government planned to emphasize stronger safety margins ahead of new reforms.

"The government continues to put jobs and welfare first. Apart from managing the direct consequences of the debt crisis, the government needs to tackle the challenges facing Sweden," Borg said in a statement.

"This requires measures to achieve permanently higher employment and lower equilibrium unemployment, more robust welfare, better conditions for business and a more sustainable climate."

While the Swedish economy is expected to grow at a rather meager rate in 2012, the government expects economic growth to pick up considerably the following year, with GDP growth expected to climb to 3.3 percent in 2013 before reaching a 3.7 percent annual growth rate in 2014, just in time for the next parliamentary election.

Unemployment, meanwhile, is expected to peak at 7.8 percent on 2012, before dropping slightly to 7.7 percent in 2013 and 6.9 percent in 2014.

"Considering what had been feared, this is a little sigh of relief," said Borg.

But the forecast was criticized by some analysts as being too optimistic.

"I think it's an appropriate forecast for 2012, but a strange forecast for 2013. It seems inappropriately high," Cecilia Hermansson, the head economist at Swedbank, told TT.

"There are big problems in Europe which aren't going to be fixed in a year. There are few other forecasters that have such strong growth."

Hermansson also questioned Borg's unemployment forecast arguing it was likely to remain high for "several years" and that the government should have devoted more money to infrastructure and employment programmes.

During a parliamentary debate following the unveiling of the budget, Borg answered criticism that the government's budget did too little.

"It would be careless in this situation to have a discussion about spending cuts and tax hikes," he said.

"We can't be sure that the crisis won't come back. We should be careful, we should create safety margins."

But Social Democrat MP Fredrik Olovsson emphasized that employment issues are what matter to voters.

"The spring budget doesn't provide much hope. The government's policies are going to lead to persistent high unemployment," he said, adding that around 400,000 Swedes are out of work.

Meanwhile, the Green Party's Per Bolund attacked the government for failing to tackle youth unemployment.

"Instead of a finance minister, we have a statistics minister who seems more interested in explaining away unemployment than doing something about it," he said.

TT/The Local/dl

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