New economic forecast: Continued price squeeze

  • Swedish GDP growth will rise this year to 2.8 percent. Households can look forward to higher real incomes, and thus the upswing in private consumption can continue. Better domestic demand is needed to counterbalance the slowdown on the export side. Next year, the Asian crisis will have a more pronounced effect on the economy, and GDP growth will fall to 2 percent.

  • So far this year, inflation has been surprisingly low, and we see no inflation threat ahead. Instead, we forecast that inflation will average 0.5 percent this year and 0.9 percent next year. With the repo rate unchanged, there is already a monetary tightening under way via falling inflation expectations. The stronger krona is having the same effect. All in all, this opens for the possibility for repo rate cuts.

  • The real economic effects of the Asian crisis are now coming into view. The global price squeeze has already led to falling profit margins. Growth in the industrialised countries will gradually slow down, with the risk of a manufacturing recession in Japan, the UK and the US. The bottom will not be reached until next year, when exports from the Asian countries really pick up speed. Downward pressure on inflation and an expected economic slowdown indicate that there is no need for rate hikes in Europe, the US or Japan.

  • The Swedish state finances are still improving. We think the next government will keep within the promised spending limits. This will generate a growing surplus so there is a good chance that we will see tax cuts by the turn of the millennium.

Stockholm 11 May 1998
Jan Häggström, Chief Economist
For further information please phone +46 8 701 1097, +46 8 70 761 4366

The full press release including tables and figures is ready for download on

http://www.huginonline.se/SHBA/PM/shba980511pm_eng.pdf

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