Strong Growth in Sweden, but Inflation Will Be Low

In Sweden the economy is growing strongly and at a much higher rate than in many other OECD countries. Domestic demand is rising faster than GDP and is playing an unusually important role in recovery. High unemployment means that on the labour market there are spare resources. Consequently, employment can increase without overheating the labour market. This is the assessment of the NIER, published today.

The Swedish economy is in an upward spiral where rising demand leads to increased output and higher employment, which in turn give demand a further boost. GDP will increase this year at the high rate of 5.6 percent. Although growth will fall off considerably in the period ahead, it will still be strong in the next two years at 3.8 percent in 2011 and 2.9 percent in 2012.

Employment to increase by 110 000 persons 2011 - 2012

The positive tendency of the labour market is expected to continue. In total, the number employed will be 2.5 percent higher in 2012 than in 2010, equivalent to about 110 000 persons. The largest increases will be in the construction and service industries. In manufacturing and the general government sector, the number employed will not change appreciably in 2011 and 2012 compared to 2010.

Even though the labour market is improving and the number employed is rising, unemployment will recede rather slowly and will still be 7.5 percent at the close of 2012. That is above the unemployment rate that the NIER considers compatible with cyclical balance on the labour market. A lower rate of increase in earnings, higher growth in productivity and a stronger krona will mean that inflation as measured by the CPIF will be less than the inflation target in 2011–2012. But to prevent resource utilization and inflation from rising too much in the next few years, the Riksbank has begun to move toward a less expansionary stance in monetary policy. The repo rate is expected to rise to 2.75 percent by the end of 2012.

Need to stimulate demand greatest in the near future

The Budget Bill for 2011 provides for unfunded measures amounting to roughly SEK 13 billion. In the NIER’s opinion, Sweden’s comparatively robust general government finances leave a margin of SEK 25 billion for further unfunded measures. The need to stimulate demand will be greatest in the near future, when resource utilization in the economy is low. This warrants making use of the existing margin for unfunded measures in 2011 and 2012.

For more information, please contact:

Mats Dillén, Director General, +46-8-453 59 66

Kristian Nilsson, Director of Forecasting, +46-8-453 59 13

Sarah Hegardt Grant, Head of Communcations, +46-70-267 80 41