Growth in 2010-2011 Strongly Driven by Service Industries

Service industries will contribute strongly to GDP growth in the next few years. Domestic demand will thus play a greater role in the current recovery than after previous economic downturns. GDP growth in calendar-adjusted terms will be 2.1 percent this year and 3.8 percent in 2011, as is shown in the NIER’s report, The Swedish Economy, published today.

In the slumping international economy, the Swedish services sector, particularly trade, has been less hard-hit than manufacturing. Furthermore, output in the services sector has recently begun to pick up. The explanation is an upturn in domestic demand, on which the services sector is heavily dependent. This development is being fuelled by an expansionary economic policy, with low interest rates and cuts in income taxes. These measures will make it easier for households to increase their consumption both this year and next year. Also, households in Sweden, unlike many other countries, have a high rate of saving which provides a margin for additional consumption. The expansionary fiscal policy has raised output in the general government sector as well. However, even though the service industries and the general government sector will play an unusually important part in the present recovery, the factor with the greatest impact on GDP growth will be the improving economy in other countries. Moreover, with demand from other countries on the rise, manufacturing will contribute more to GDP growth in 2011. At present there are considerable unutilized resources in the economy, both on the labour market and at firms. Despite rising output, unemployment will remain above 9 percent in both 2010 and 2011. The Swedish economy will not return to cyclical balance until 2014, when the unemployment rate will be around 6.8 percent. With the economy in a severe slump, an expansionary fiscal policy will be appropriate, particularly in 2010, but also in 2011. The NIER is expecting further unfunded measures totalling SEK 8 billion this year, in addition to already adopted unfunded measures. In 2011, another SEK 40 billion in unfunded measures will be introduced. Starting in September, the Riksbank will gradually begin raising interest rates. At the end of 2011, the repo rate will be 1.75 percent. Inflation will be modest and rise slowly after 2011. Read the summary at www.konj.se/English For further information, please contact: Kerstin Hallsten Director of Forecasting +46 8 453 59 15 Mats Dillén Director General +46 8 453 59 66