GDP No Longer Falling, but Unemployment Still Rising Rapidly

The period of substantial decreases in GDP is over. During 2010 demand will start rising; growth in Sweden will be 1.5 percent in 2010 and 2.9 percent in 2011. The labour market, however, will continue to deteriorate, with growing unemployment and exclusion from the labour market. An expansionary fiscal policy will lessen the effects on the labour market, particularly if a large portion of the fiscal policy measures are implemented in 2010. The new influenza is expected to have a minor impact on the Swedish economy.

During the spring and summer, statistics and other indications, both in Sweden and elsewhere, have shown that demand has stopped falling. Between the first and second quarters of this year, output and demand in Sweden were largely unchanged. Household consumption was up in Sweden, and households have become slightly more optimistic. The sharp decline in exports has slowed, and firms are now expecting new orders to rise in the third quarter. The increases, however, will be from very low levels, and GDP growth will be -5.0 percent in 2009, 1.5 percent in 2010 and 2.9 percent in 2011. CONTRACTIONARY ECONOMY TO HAVE LONG-LASTING NEGATIVE EFFECTS ON EMPLOYMENT In the past year the number of persons employed has plummeted by approximately 100 000, and unemployment has soared from 5.9 percent to 8.3 percent. In the next two years the labour market will deteriorate further. Unemployment will stop rising in 2011, when it will reach almost 12 percent. The number of persons employed will decrease over 260 000 during 2009-2011. It is also estimated that the severe slump in the economy will lead to a long-term decrease in employment of almost 100 000 persons. EXPANSIONARY FISCAL POLICY IN 2010 WILL IMPROVE OUTPUT AND EMPLOYMENT The repo rate will be low for some time to come. In the autumn of 2010, the Riksbank will begin gradually raising interest rates, and by the end of 2011 the repo rate will be 1.5 percent. The Govern-ment will take further unfinanced measures totalling SEK 25 billion in 2010 and another SEK 25 bil-lion in 2011. Net lending will thus be -3.5 percent of GDP in both of these years. It is the NIER’s assessment that if a portion of the fiscal policy measures are taken sooner, in 2010, the rise in unem-ployment can be limited further; this would also curtail chronic exclusion from the labour market to some degree. For 2010 the NIER therefore recommends unfinanced reforms in the amount of SEK 45 billion. For 2011 and 2012, however, fiscal policy measures should be on a smaller scale than in the fiscal policy forecast, with the result that net lending in 2012 would still be -3 percent of GDP. NEW INFLUENZA WILL HAVE LITTLE EFFECT ON THE SWEDISH ECONOMY The macroeconomic effects of the new influenza are expected to be minor. Sickness absence will not limit output to any substantial degree as resource allocation is low in large areas of the economy. The temporarily higher number of sick people will have a limiting effect on household consumption, par-ticularly of services such as restaurant, amusements, travel etc. It is estimated that the new influenza will lower GDP by about 0.1 percent.