Swedbank Economic Outlook: The economic recovery remains fragile
The economic outlook has improved over the summer. Economic recovery is on firmer ground, but still needs support from fiscal policy. Sweden has increased its public debt during the covid-19 pandemic, but the costs for crisis support will be lower than earlier expected and there is still fiscal space, according to the Swedbank Economic Outlook report.
The covid-19 pandemic continues to affect our everyday lives and the economy. The dramatic downturn in the world economy during the second quarter led global GDP to shrink by three percent this year. However, now there are some signs of recovery in several countries.
’’Our forecast is that the economic recovery around Europe will continue during the autumn, but there’s considerable uncertainty in the forecasts. This is based on the presumption that the increased spread of covid-19 in several countries can be kept in check and doesn’t escalate,’’ says Andreas Wallström, acting chief economist at Swedbank.
The general economic outlook is somewhat brighter today than it was before the summer.
‘’Economic statistics have in many ways turned out stronger than expected lately,’’ Andreas Wallström says.
Sweden’s economy is looking better, but unemployment is rising
Following a historical decline in GDP during the second quarter, the Swedish economy is recovering. But while the recovery is gradually broadening, this varies greatly depending on the sector, and some businesses are expected to continue their struggle also during the autumn. GDP is expected to fall by 5 percent this year, followed by a rise of about 3 percent in 2021 and 2022. House prices will continue to rise somewhat during the autumn and during 2021 and 2022. The situation in the labour market will however continue to be a concern, with unemployment expected to rise to 10 percent during winter.
‘’Unemployment has risen fast and no turnaround can be expected during autumn. Toward the end of year, around 200,000 more Swedes are expected to be unemployed than before the crisis,’’ Wallström says.
Fiscal policy – from urgent crisis measures to longer-term measures
The Swedish government is expected to implement crisis measures amounting to 200 billion kronor during 2020. This is a downward revision by 100 billion or 2 percent of GDP compared to the latest Swedbank Economic Outlook in May. Crisis measures are expected to amount to 100 billion kronor in 2021 and 50 billion kronor in 2022. Public debt is expected to increase from 35 percent of GDP 2019 to as high as 44 percent in 2021. This is still a relatively low level of debt, not least in an international context.
’’Sweden has, despite its relatively low debt level at the beginning of the crisis, not spent more than other countries and our analysis is that the scope for additional fiscal support is extensive. Now, measures are needed that will support the economy in the longer-term. One area that especially needs to be prioritized is the labour market, where unemployment actually began to rise in Sweden already before the covid-19 crisis, but also green sustainability measures,'' Wallström says.
The report can be found here: www.swedbank.com/seo
Andreas Wallström, Acting Chief Economist Swedbank, telephone +46 (0)72 229 20 07
Unni Jerndal, Head of Press Swedbank, telephone +46 (0) 73 092 11 80
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