Deepening Recession

The lacklustre economy in other countries is dampening both demand for Swedish exports of goods and the confidence of households and firms. The economy is weakening, and Sweden’s GDP is falling in the fourth quarter of this year. Next year will get off to a weak start, and unemployment will continue rising. Recovery will not commence until the end of 2013. It will then take many years before the Swedish economy is in balance again, as the recession is deep. This is shown in the NIER’s new forecast, published today.

For the first three quarters of 2012, Sweden did better than the euro area. Sweden’s GDP growth has averaged just over 0.6 percent quarterly, whereas GDP has been dropping in the euro area for the last four quarters. The relatively strong growth in Sweden in the third quarter was temporary, however, and was due partly to increased general government consumption and stockbuilding by firms. By the fourth quarter, firms have already started depleting their inventories. During the autumn, several forward-looking indicators, like the Purchasing Manager Index and the Economic Tendency Survey Indicator, dropped to low levels. This is an advance alert of weaker growth ahead in the Swedish economy. GDP will decrease by 0.5 percent in the fourth quarter of this year and then increase by a mere 0.1 percent in the first quarter of next year. Not until the end of 2013 will growth reach levels showing that recovery has commenced. It will then take a long time before the Swedish economy is once again in balance.

Unemployment continuing to rise, reaching 8.5 percent in 2014

Diminished demand from both households and firms is weakening the labour market. Employment, which has been increasing since the end of 2009, is expected to remain unchanged in the fourth quarter of this year and then to decrease slightly next year. Firms are not fully utilizing their personnel, which means that they will not need to hire more people when demand starts to pick up. It will then take until 2014 for employment to start increasing again. At the same time, the number of persons in the labour force has grown sharply in relation to the labour market situation. Unemployment will consequently rise further and reach 8.5 percent in 2014.

Repo rate lowered to 0.75 percent

Low inflation and weak demand mean that the economy will require stimulation by an even more expansionary monetary policy. The Riksbank lowered the repo rate by 0.25 percentage points to 1 percent in December. Probably the repo rate will be reduced further, to 0.75 percent as early as February. The repo rate is not expected to be raised before the end of 2014, when inflation will be increasing and economic recovery will have picked up.

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)

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