Sweden's state statistics agency this month confirmed that Gross Domestic Product (GDP) dropped by 8.6 percent between April and June – the biggest quarterly fall in 40 years.
But in its August update, the National Institute of Economic Research said it expected the country's gross domestic product to grow “slightly under two percent” in both the third and fourth quarter of the year, leaving GDP for the year as a whole down just 4.8 percent.
“When you look at economic activity, I think that we have seen the worst,” Ylva Hedén Westerdahl, the institute's forecasting chief, told The Local.
But she said the initial stages of the recovery would nonetheless see increases in unemployment, with the number out of work rising from 9 percent to 10 percent by the start of next year.
“We see long-term unemployment is rising, so for those who are far from getting a job, their problems now are even worse. The question is how we get these people into work when the economy starts to gain speed again.”
In its report, the institute said that both demand and production had already started to return, with Swedish exports benefitting from the partial or total lifting of lockdown restrictions in the EU and elsewhere.
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Hedén Westerdahl said the main reason the institute had revised its 2020 GDP forecast upwards was that the second quarter, when the pandemic was at its worst, had been less bad than feared.
“When we did our forecast in June, our expectation was that the second quarter would be a tad worse than it has been, except for the UK,” she said. “China, the US and Europe have all come in slightly better than we expected. Also, when we look at exports for Sweden they didn't fall quite as much as we expected.”
In the report, the institute said that there were already signs of an uptick in the third quarter.
“In the eurozone and other places, the Purchasing Managers' Index has rebounded rapidly during the summer and now lies in the growth zone, both for the industry and services branches,” the report says.
In another positive sign, the Swedish government's deficit is expected to be at -4.6 percent of GDP at the end of the year, up a full percentage point compared to the June forecast, something Hedén Westerdahl put down to the fact that fewer companies than expected had applied for various coronavirus state support schemes.
“We think that the take-up rate of the different measures has been less,” Hedén Westerdahl said.
Sweden's government expected companies to use some 39 billion ($4.5 billion) kronor in state support for covering fixed costs during the crisis, but they have so far requested and received just 600 million kronor. The institute now expects at most 10 billion kronor to be used.
And while the government had expected companies to use some 95 billion kronorr of subsidies to furlough employees without laying them off, only about half of the support offered has so far been taken up.
The institute said it also expected Sweden's government at its next budget meeting to announce a further 16 billion kronor worth of support for companies in 2020 and 80 billion in 2021.