2021 forecast: Vaccination progress will determine Sweden's economic outlook

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2021 forecast: Vaccination progress will determine Sweden's economic outlook
Sweden's interest rate is expected to remain at zero until 2024. Photo: Izabelle Nordfjell/TT

The Swedish economy has withstood the second wave of the pandemic better than the first, said the country's Central Bank as it released its new forecast for the interest rate.


The Riksbank warned that the pandemic was still having an impact on the economy and that much uncertainty about the future remained, adding that service industries were under "severe pressure" due to low consumption.

"Overall, however, the economy has been more resilient to the second wave of the pandemic than to the first. Vaccinations are now under way. As soon as the spread of infection decreases and restrictions are lifted, households are expected to return to more normal patterns of consumption, which will create favourable conditions for a rise in demand," it said in its latest monetary report, released on Wednesday morning.


But it also said that the extent of the crisis meant that it would likely take until 2023 before the Swedish inflation rate permanently reaches the bank's target of two percent.

"Economic developments in 2021 will be largely determined by how quickly and effectively vaccinations reduce the pandemic," it added.

The Riksbank said it would continue to purchase assets within the 700 billion kronor framework as previously decided, and hold the country's key interest rate, the repo, at zero percent. It predicted that the repo rate would remain at zero until 2024.


The bank took the landmark decision to slash the rate below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant, and therefore improve the Nordic nation's economic prospects. Almost five years later, it was raised from -0.25 to zero in December 2019.

Sweden's GDP is expected to grow 3.0 percent this year, which is higher than the bank's previous forecast of 2.6 percent, released in November, and 3.9 percent next year (lower compared to the previous forecast of 5.0 percent). Unemployment is expected to land at 8.5 percent this year, down from the previous forecast of 9.4 percent.

More than 300,000 people in Sweden have received the first dose of the coronavirus vaccine, but Swedish officials warned on Wednesday that distribution issues may cause vaccinations to be delayed.


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