Continued Recession

The recovery of the Swedish economy has lost its momentum, and no improvement is expected until 2013. But with solid central government finances and low central government debt, Sweden is well prepared to cope with even a much more adverse tendency. The labour market is showing resistance, with firms keeping staff on the payroll despite deterioration of the economic outlook. This is shown in the NIER’s (National Institute of Economic Research) forecast, published today.

The debt crisis in the euro area has worsened, and the economy is entering a downturn. It will take time for the EU countries to agree on how to share the debt burden. This situation is causing unrest on financial markets and also curtailing demand outside of the euro area. Sweden, however, is managing fairly well despite weak growth in 2012.

Fiscal policy will be expansionary this year and neutral in 2013; it will subsequently be tightened in order to meet the surplus target. The margin for permanent measures is limited, but the Government should consider temporarily stimulating the economy and taking steps to keep unemployment low. The Riksbank is expected to leave the repo rate unchanged at 1.5 percent until the outset of 2014, but interest rates could be lowered without jeopardizing the inflation target.

Euro most likely to survive

In the immediate future the EU can probably not come up with a lasting solution to the euro crisis. More likely, the protracted process that basically concerns how to share the debt burden will continue. Historical experience of financial crises shows that lenders, too, must be prepared to accept substantial debt write-offs. So far the process has made little headway, but given the dire consequences of failure, the EU countries will most probably take the necessary decisions.

Only then will confidence return to financial markets. In the forecast it is assumed that this will occur around the turn of the year 2012/2013, after which the slow process of recovery can begin.

For further information please contact:

Jesper Hansson, Director of Forecasting, +46-8-453 59 72 (also cell phone)
Sarah Hegardt Grant, Head of Communications, +46-8-453 59 11(also cell phone)