Disquieting Clouds Cast Shadow over Clear Recovery

The Swedish economy is on the road to recovery. The turning point has been passed with the aid of an expansionary economic policy and a rapid upturn in demand for Swedish exports of goods. Rising consumption and investment are expected to predominate increasingly as driving forces for recovery. At the same time, a threat to recovery is posed by problems with government finances in other countries. This assessment is given by the NIER in its report, The Swedish Economy, published today.

The forecast for growth this year in Sweden’s aggregate output, or GDP, is 3.7 percent. In the years that follow, growth will fall off somewhat to about 3 percent in 2011 and 2012. Exports will be the principal driving force for growth. Domestic demand, however, will be much more important in this recovery than after previous economic downturns. A significant role will be played by an expansionary economic policy, which in combination with rising employment will help boost the total increase in real household disposable income in 2010–2012 by 6 percent. During these years public consumption will rise as well, partly because of an expansionary fiscal policy. Among both firms and consumers, optimism is up strongly. Moreover, the labour market situation is improving. Employment rose in the latter months of 2009 and in early 2010, and there is much to indicate that the upturn will continue.

The long, drawn-out economic slump requires an economic policy with an expansionary thrust in the next few years as well. In the NIER’s opinion, further unfunded measures totalling SEK 25 billion will be needed in 2011, in addition to those already enacted by the Swedish Parliament or announced by the Government. The repo rate will be raised gradually, but monetary policy will remain expansionary in 2010–2012.

Concern in Europe but stronger growth elsewhere

Worldwide GDP will increase by more than 4 percent annually in 2010–2012, primarily because of strong growth in emerging economies. However, crises in the public finances of some euro zone countries, for example Greece, and tighter fiscal policies are holding back the recovery process in the OECD. Sweden’s economy will be affected by the very modest GDP growth in the euro zone in the next few years. Furthermore, there is considerable uncertainty concerning the political capacity of some countries to take the restrictive measures required. Growth may therefore be weaker than anticipated.

Sarah Hegardt Grant Head of Communications National Institute of Economic Research Sweden Phone: +46-8-453 59 11 E-mail: sarah.grant@konj.se