Swedbank Economic Outlook: Faster recovery than expected

The recovery of the Swedish economy has been faster than expected. As a result, Swedbank has revised up the forecast for Swedish economic growth. The rapid improvement in the economy is the result of expansionary economic policy, a stronger global economy, and vaccination. In the light of climate change, Sweden’s fiscal surplus target should be put on hold, according to Swedbank Economic Outlook.

During the remainder of 2021, household consumption will remain strong, meaning that the growth rate will remain high. The service sector’s performance will remain strong; it has already benefited from eased restrictions during the summer.

“However, the delta variant is spreading fast and many countries have low vaccination rates, so there is some cause for concern. This may affect the strength of the recovery and worsen the problems with shortages of input goods,” says Swedbank Group Chief Economist Mattias Persson.  

Swedbank expects global economic growth to remain high next year. Global growth is expected to be 6 percent in 2021. For the Nordic and Baltic countries, we are revising the growth prospects up. The Swedish economy is expected to grow by 4.3 percent during 2021 – an increase compared with the 3.6 percent we expected in our April forecast. Downside risks for the recovery are dominant and are linked to a continued high spread of COVID-19 infection and potential new restrictions. Unemployment will gradually decline to 7 percent in 2023 from today’s level of approximately 9 percent. Despite this, more and more companies are indicating that they are struggling to find workers with the right competence.

The Swedish housing market has seen a rapid price increase. Prices are expected to continue to rise going forward, given that potential buyers are in a good financial situation following the strong gains for the stock market and that mortgage rates remain low. We also expect buyers to continue to seek more spacious homes; this ongoing trend will result in a continued imbalance in supply and demand during the coming years.

“House prices in Sweden will continue to rise going forward, and we expect a price increase of 5 to 10 percent next year,” Mattias Persson says.

The Swedish political situation is uncertain ahead of the autumn budget, but the scope for reforms is greater than expected. Swedbank expects fiscal policy measures amounting to SEK 75 billion in 2022 and SEK 55 billion in 2023, meaning that the budget will be balanced in 2023. Swedish public debt remains low in relation to that of other countries and is expected to reach a level below 35 percent of GDP already next year. The fiscal surplus target should be put on hold given the need for adaptation to climate change and the ageing population.

“Politicians need to do more in terms of adaptation to climate change, where the challenges are great. Both private and public investments are needed, and Sweden’s fiscal surplus target should therefore be reviewed in relation to climate change. Fiscal policy should also focus on the structural problems that have worsened during the pandemic, particularly in the labour market. Unemployment is high among foreign-born residents, and long-term unemployment has increased rapidly,” Mattias Persson says.

The Riksbank is expected to leave the repo rate unchanged during the forecast period and to start reducing its balance sheet during 2023.

“The Riksbank needs to continue with an expansionary monetary policy and support economic development. Inflation will slowly rise towards the target during the coming years, and the Riksbank is in no hurry to raise the repo rate,” Mattias Persson says.

For tables, please see the attached pdf. 

Swedbank Economic Outlook is available here: www.swedbank.com/seo  

Contact:

Mattias Persson, Group Chief Economist, Swedbank, telephone: +46 73 094 29 56
Unni Jerndal, Head of Press, Swedbank, telephone: +46 73 092 11 80

Swedbank encourages a sound and sustainable financial situation for the many households and businesses. As a leading bank in our home markets of Sweden, Estonia, Latvia and Lithuania, Swedbank offers a wide range of financial services and products. Swedbank has over 7 million retail customers and around 600 000 corporate customers and organisations with 159 branches in Sweden and 81 branches in the Baltic countries. The group is also present in other Nordic countries, the US and China. Read more at www.swedbank.com