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ECONOMY

Swedish National Institute of Economic Research criticizes government budget

Sweden needs a tougher fiscal policy by 2019, The Swedish National Institute of Economic Research (KI) said on Tuesday.

Swedish National Institute of Economic Research criticizes government budget
The institute's head of forecasting, Ylva Hedén Westerdahl, pictured here in June. Photo: TT

The government's budget is severely under-financed and is not in line with the surplus target, according to the institute's latest forecast.

“If the public welfare commitment is also to be kept at 2018's level, the budget will need to be increased by around 30 billion kronor,” the Institute of Economic Research wrote in its forecast.

Asked if the institute was critical of the under-financing, Urban Hansson Brusewitz, general director of the institute, said: “Yes, it's our assessment that the budget is not in line with either the existing surplus target or the new surplus target. It is measured in terms of structural saving, which depends, among other things, on a non-accelerating inflation rate of unemployment, where we make different judgments compared with the government.”

According to KI, unemployment is expected to fall from 6.6 percent this year to 6.3 percent next year and 6.2 percent in 2019, before increasing slightly after that. At the same time, the report shows that there is currently a large shortage of labour with the skills which are in demand. 

The situation in the labour market is described as “strained” with a significant problem in supply and demand.

“At the moment we have a boom and we say that unemployment won't fall below 6.2 perent. That's quite a high level of unemployment generally, and that shows that there's a problem of supply and demand. There are many people in the workforce for whom it's not easy to find work,” said Ylva Hedén Westerdahl, head of forecasting at KI. 

When it comes to salaries, the increase is more moderate despite the shortage in the work market. 

In general, the growth rate in the Swedish economy is expected to weaken slightly over the next few years. This year, the GDP is expected to grow by 2.8 percent, while next year a growth of 2.7 percent is expected. But the growth rates for 2019 and 2020 are estimated at 1.8 and 1.5 percent respectively.

There are some risks to be highlighted in the forecast. One is the economic-political uncertainty across Europe, as well as the risk of a hard landing (a rapid shift from growth to slow-growth to flat) in China and a fall in asset prices.

Falling house prices in Sweden are another factor which could have a negative effect. The extent to which this would affect the Swedish economy would depend on what triggered any decline. If house buyers start to feel worried about buying a home, the impact on the economy would likely be less than if falling prices were due to a global factor such as a financial crisis. 

In general, the growth rate in the Swedish economy is expected to be slightly depleted in the coming years. This year, GDP is expected to grow by 2.8 percent, while the corresponding figure next year is expected to be 2.7. For 2019 and 2020, the assessment is 1.8 and 1.5 percent respectively.

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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