Strong economy faces increased risks

The Swedish economy is booming. Both output and employment rose rapidly during the autumn, and there is much pointing to a continued upswing. A need for investment abroad means that exports will be an even more important engine for the Swedish economy in 2018.  The strong economy is enabling more and more people to find work. Unemployment will continue to fall in 2018 and will bottom out just above 6 per cent in 2019. Recent months’ decline in housing prices is a major source of uncertainty. Should housing prices fall further and for longer than we anticipate, this could have appreciable negative consequences for both consumption and investment, with implications for the economy as a whole.

Industrial production will accelerate further in 2018, and demand for Swedish exports will continue to grow rapidly. A stronger global economy and rising capacity utilisation will also increase the need for both new and replacement investment. Together with a relatively weak krona, the stronger global economy means that exports will be an even more important driver for growth in the Swedish economy. A manufacturing sector fuelled by a global economic upswing and expansionary fiscal policy will help Swedish GDP to grow quickly in 2018. Unemployment will also fall further, bottoming out at 6.2 per cent in 2019. This is somewhat higher than during the two most recent peaks in the labour market. One reason is that the share of people in the labour force who lack the desired skills is much larger at this point in time.

Domestically, recent months’ decline in housing prices is a major source of uncertainty. The subsidence in the housing market during the autumn is expected to be only temporary, and our forecast assumes that housing prices will stabilise in early 2018. Housing investment will level off, albeit at a high level, which means that construction activity will virtually stagnate in 2019. Should prices fall further and for longer than we anticipate, this could have more appreciable adverse effects on both consumption and housing investment, and hence on the economy as a whole.

The global outlook also poses a number of risks to Sweden’s booming economy. Low policy rates and unconventional monetary policies have helped push up prices for shares and other assets. There is a risk that the rise has been unsustainably rapid. A sudden decline in asset prices would put a damper on demand growth through decreases in both wealth and confidence.

Read the report here: www.konj.se

FOR FURTHER INFORMATION, PLEASE CONTACT:

Ylva Hedén Westerdahl, Director of Forecasting, +46 8 453 5972
Sarah Hegardt Grant, Head of Communications, +46 8 453 5911

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