Swedbank Economic Outlook: Light at the end of the tunnel

Increased spread of covid-19 and heavier virus restrictions will continue to weigh on the Swedish economy. But come spring, there is light at the end of the tunnel as vaccinations will lead to gradually lifted restrictions. However, the government needs to ensure that its economic support programs reach the companies and sectors that suffer most from the crisis, according to Swedbank Economic Outlook.

‘’As an increasing number of Swedes are vaccinated, restrictions will be lifted gradually. As a result, the economic outlook for this year and the next have been revised up. However, fiscal policy needs to ensure that support reaches the service sector. If not, there is a risk that the economic recovery will be delayed and happen at a slower pace,’’ says Mattias Persson, Chief Economist and Global Head of Macro Research at Swedbank.  

Swedbank’s latest forecast shows that the Swedish economy is expected to grow by 3.0 percent during 2021, compared to the forecast in November of 2.1 percent. Growth is expected to become broader and increase in the second half of 2021. The greatest risk to the recovery would be if vaccinations for some reason were delayed. Fiscal policy measures are necessary in order to continue to support the economic development in the short as well as in the long term, for example through increased support to the service sector.

In Sweden, a divide in the economy is noted; the industrial sector is progressing relatively well, while the service sector is severely affected by the pandemic. The government’s budget for 2021 which was presented last autumn didn’t account for a second wave of the pandemic. Although a large portion of the support measures aimed at the service sector have been extended in order to mitigate the effects of the second wave, they have yet to reach the affected businesses.

‘’It’s important that the financial support quickly reaches the affected businesses. If not, there’s a risk that bankruptcies will increase, and unemployment levels will rise even further. If the service sector doesn’t receive enough support from fiscal policy, the economic recovery will also be hampered. There’s a need for fiscal policy to deal with the challenges of high levels of unemployment and an ageing population, as well as to support green investments,’’ says Mattias Persson.

Swedbank expects a continued expansionary fiscal policy with measures of SEK155 billion in 2021 and SEK 60 billion in 2022. Public debt is expected to peak at 40 percent in 2022, which is a low level of indebtedness considering the ongoing crisis, not least compared to international public debt levels.

The Riksbank is expected to keep the repo rate unchanged during the forecasting period and to keep its balance sheet unchanged from the end of 2021.

’’The Riksbank should continue its expansionary monetary policy, and by that, support the economic development,’’ says Mattias Persson.

Link to the report: www.swedbank.se/seo  

Contact:

Mattias Persson, Chief Economist Swedbank, phone: +46 73 094 29 56

Unni Jerndal, Head of Group Press, Swedbank, phone: +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 160 branches in Sweden and 92 branches in the Baltic countries. The group is also present in other Nordic countries, the US and China. Read more at www.swedbank.com