Swedish economy entering a boom period

The Swedish economy is growing strongly, and the prolonged period with a negative output gap will soon be over. Fiscal policy will be expansionary in both 2016 and 2017 when refugee-related costs are debt-financed. The expansionary policy will help unemployment fall to 6.5 per cent in 2017. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

GDP will grow by close to 4 per cent in both 2015 and 2016. Economic policy is highly expansionary, which will further stimulate activity. The current influx of refugees will result in substantially increased government expenditure in the short term. Low interest rates are fuelling domestic demand, while also contributing to a relatively weak krona. Together with a stronger European investment climate, this will boost Swedish exports.

Unemployment to fall in the near term but then rise again

Employment has grown relatively quickly in recent years, and firms’ recruitment plans point to almost equally rapid growth going forward. Unemployment will therefore continue to drop back, reaching 6.5 per cent in 2017. The large number of incoming refugees will not affect the supply of labour until they have been granted residence permits. After 2017, unemployment will climb back above 7 per cent, as it takes a long time for new immigrants to find work. Despite this high unemployment, employers will find it increasingly difficult to find the right skills. To counter this, action is needed to increase the job-finding rate among immigrants.

Deficits in public finances despite booming economy

Despite a positive output gap in the coming years, public finances will continue to show deficits. It is therefore clear that, for the moment, the budget surplus target is in practice no longer relevant, and it is unclear which principles are currently guiding fiscal policy. Expenditure will increase to such an extent that there is a risk of the expenditure ceiling being breached in the coming years. The deficits will cause general government gross debt to rise, but the debt-to-GDP ratio will still drop back towards 40 per cent due to the strong growth in GDP over the same period.

For further information:

Jesper Hansson, Director of Forecasting, +46 8 453 5972
Sarah Hegardt Grant, Head of Communications, +46 8 453 5911

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