The economy is entering a slowdown phase after the boom culminated in the first two quarters of 2018, according to the National Institute of Economic Research (KI). However, the impact isn't likely to be immediately visible, with the output gap forecast to remain positive for another two years.
“The labour market remains strong, although employment growth is set to slow. Wages in both the business sector and the economy as a whole are expected to pick up slightly,” the KI wrote in its latest report.
A big factor behind these changes is a decline in housing investment, after a high demand for new housing has driven the Swedish economy in recent years. However, investment has already begun to fall and this trend is expected to continue over the coming months and years and will be a key factor in slower growth of GDP next year.
The institute now predicts GDP growth of just 1.3 percent in 2019, compared to an earlier forecast of 1.9 percent.
While the labour market in Sweden remains strong, growth in employment rate is expected to slow down from the start of 2019, and the KI predicted that unemployment “will fluctuate around 6.5 percent for the next couple of years”.
Interest rates are likely to be raised from February 2019 onwards by the national bank, KI also expects, but only very gradually.
The current political uncertainty – Sweden remains without a government over three months after the general election – is not expected to affect the GDP yet, according to KI, but means the future state of government finances remains unclear.
The KI considers the opposition budget recently passed by parliament and which will be valid for 2019 as “neutral”, despite including more investments than the budget proposed by Sweden's transition government.