Investment-driven upturn to peak in 2018

The Swedish economy will peak this year. Next year, growth will slow, due partly to falling domestic housing investment. GDP growth will instead be propped up by burgeoning demand for Swedish export goods. At the same time, firms will continue to have difficulty recruiting workers with the desired skills, contributing to a gradual increase in wage growth. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

Swedish exports will gain considerable momentum during the autumn and continue to strengthen next year, which will boost industrial production. Together with strong earnings, this will stimulate manufacturing investment, which, like last year, is expected to increase by almost 5 per cent both this year and the next. Investment will also grow relatively strongly this year in many service industries and the public sector.

Housing investment, on the other hand, has begun to drop back in the second quarter this year. The predicted decline in housing investment means that growth in investment as a whole will slow considerably next year and make no contribution at all to GDP growth. However, investment, the labour market and government finances will all remain strong. Fiscal policy will be expansionary this year, and general government net lending is set to fall despite the strong economy. In 2019-22, fiscal space will amount to a total of just over SEK 110 billion, which largely corresponds to the increase in expenditure required during the period to maintain unchanged personal density in the provision of publicly funded welfare services, including a slight increase in standards in line with the historical pattern.

Strong labour market has begun to push up wages

Employment growth will slow down this year and the next. This is partly the result of a reduced need for labour in the construction sector and decreased demand from the government sector. The service sector will account for virtually the whole of the increase in employment next year.

Given that shortages of skilled labour will remain larger than normal, wage growth in the business sector will continue to accelerate and slightly exceed 3 per cent next year, leading to mounting cost pressures. Together with further strong demand, high energy prices and a weak krona, this means that inflation will stabilise around 2 per cent in 2018 and 2019. The Riksbank will not, however, begin to raise the repo rate until the spring of 2019.

Read the report here: www.konj.se

For further information:

Ylva Hedén Westerdahl, Director of Forecasting, +46 8 453 5972
Sarah Hegardt Grant, Head of Communications, +46 8 453 5911

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