Small Steps toward Better Days

In recent months confidence has improved at firms and among households. This is a sign of somewhat stronger growth in Sweden in the period ahead. But recovery will be slow, with little help from other countries. At the same time, the situation on the labour market is stabilizing, and unemployment will remain around 8 percent for the next few years. This is shown in the NIER’s new forecast, published today.

After increasing by 0.8 percent last year, GDP is expected to be up by 1.3 percent this year. This lacklustre growth rate means that there will be little increase in demand for labour and that unemployment will flatten out at a high level. This will slow the rate of increase in earnings, and inflation will remain below the Riksbank’s target of 2 percent. Despite this, the Riksbank will leave the repo rate unchanged at today’s level.

Domestic demand rising, but hard times for exporting industries

Service firms are being helped along by domestic demand, whereas manufacturing, which is more dependent on other countries, is struggling. Household consumption is expected to sustain growth in demand. Driving forces are low inflation and increased pensions, which will contribute this year to a relatively substantial rise in real disposable incomes. At the same time, pessimism about the development of the economy has diminished. Consumption is therefore expected to increase by 2.5 percent this year.

Goods-producing industries, by contrast, are facing a decrease in demand, both because investment is not picking up and because demand from abroad is weak. The exporting industries are also concerned about the strength of the krona. According to an index with the currencies of Sweden’s 32 most important trading partners, the KIX, the krona has strengthened in nominal terms, although in real terms it is about 25 percent weaker than when it was allowed to float in 1992. From this perspective the krona does not appear particularly strong. The krona is expected to remain around its current level.

No margin for tax cuts if the surplus target is to be met

Fiscal policy is expansionary this year and is thus appropriate given the lacklustre state of the economy. Sweden has strong central government finances, but in order to meet the surplus target, fiscal policy must be tightened in the period ahead. At the same time, a rapidly rising number of elderly people will require increased resources for health care and nursing. In view of the NIER’s forecast for development of the macroeconomy, it will be necessary to raise taxes after 2014 if the surplus target is to be met. This is particularly true if staffing intensity is to be maintained.

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For further information contact:

Jesper Hansson, Director of Forecasting, +46-8-453 59 72 (also cell)

Sarah Hegardt Grant, Head of Communications, +46-8-453 59 11(also cell)