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Several Signs of an Upturn Soon

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During the initial months of this year, the confidence of Swedish households and firms in the economy has strengthened. This is an indication that the economy is approaching an upturn after a dismal autumn. But recovery will be slow, in part because of a lacklustre tendency on major export markets. It will therefore be necessary to maintain a low repo rate for a long time. This is shown in the NIER’s (National Institute of Economic Research) forecast, published today.

The positive tone of today’s Economic Tendency Survey confirms the impression that households and firms are viewing the future more optimistically. Moreover, domestic conditions are favourable for gradually higher growth. For example, household saving is high by historical standards, providing an ample margin for increases in consumption once confidence in the future has returned. That aspect is particularly important this time since exports will not be driving recovery as strongly as in previous upturns

Given the lacklustre international tendency, however, recovery will need the help of an expansionary stabilization policy. It is not considered likely that Government will follow an expansionary fiscal policy, but the Riksbank is expected to leave the repo rate unchanged at 1.5 percent through 2013. An even lower interest rate, however, would stimulate demand and speed up recovery without jeopardizing the inflation target.

CHALLENGES REMAIN ON THE LABOUR MARKET

Despite more favourable prospects for the future, there are worrisome indications on the labour market:

  • Unemployment will decrease only slowly in the forecast and will still exceed 7 percent in 2014. Long-term unemployment will probably rise further, with the resulting risk that those affected will be permanently marginalized from the labour market.
  • Matching is not working as well as before; in other words, firms are having difficulty in recruiting even though unemployment is high. This suggests that the labour force lacks the needed skills, or does not live where the jobs are.
  • Productivity growth has been lowered in the forecast, primarily because of a substantial downward revision by Statistics Sweden for 2010–2011. Productivity is a measure of output per hour worked. Lower growth in productivity sends an important signal to the labour market parties that they should aim for increases in real earnings that are compatible with the more limited rate of productivity growth.

 

For further information:

Jesper Hansson, Head of Forecasting +46-8-453 59 72

Sarah Hegardt Grant, Head of Communications +46-8-453 59 11, +46-70-267 80 41

 

 

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Economic Tendency Survey

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