Economic policy fuelling strong growth

Expansionary fiscal and monetary policy is stimulating demand, which will grow on a broad basis again in 2016. This means that employment will continue to rise rapidly, and unemployment will fall. Thus Sweden is entering an economic boom. Meanwhile inflation will remain low, and the inflation target will not be reached until 2018. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

Recent years’ strong performance in Sweden is partly a result of the global economy recovering from the financial crisis. Monetary policy has also been expansionary and stimulated domestic demand. Low interest rates have helped keep down the value of the krona, which has favoured exports. The labour market is continuing to improve, with the number of employed set to increase by 140,000 in 2016 and 2017.

Expansionary fiscal and monetary policy contributing to boom

Public finances strengthened considerably in 2015 as a result of the strong economy. The influx of refugees will, however, put pressure on spending in the government sector in the coming years. The NIER expects much of this expenditure to be funded by borrowing. This means that fiscal policy will be expansionary and is an important reason for the economic boom that the Swedish economy is now entering. General government net lending will remain negative until 2018. The Riksbank will leave the repo rate at -0.50 per cent until summer 2017, further boosting the economy. Given continued low inflation and low inflation expectations, this will be necessary to bring inflation to the target level in 2018.

Structural challenges remain

The economic boom means that unemployment will fall to 6.3 per cent in 2017, but it is likely to increase in subsequent years as more and more refugees join the labour force. The increase in the population also presents major challenges for the housing market. A long period of low investment has led to a major unmet need for housing, and the current high level of homebuilding is not considered sufficient to address the housing shortage.

For further information:

Jesper Hansson, Director of Forecasting, +46 8 453 5972
Sarah Hegardt Grant, Head of Communications, +46 8 453 5911

Tags: