The Swedish economy is in a clear slowdown phase, and the output gap will close next year after gradually narrowing this year. International trade disputes and uncertainty around Brexit are weighing on the global economy, which is affecting Swedish exports. The investment cycle in Sweden has also peaked. Mildly expansionary fiscal policy will help prop up demand growth next year to some extent, but unemployment will continue to rise. Inflation will remain well below 2 per cent, and so the Riksbank is not expected to raise the repo rate either this year or next. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

There are clear indications that the economic slowdown is continuing in the second half of the year. The confidence indicators for manufacturing and services have dropped back recently and are now lower than normal. The consumer indicator has also fallen. Above all, consumers are downbeat about the state of the economy and about the future. Employment has decreased this year, and unemployment increased rapidly over the summer. Employment plans in the business sector have also deteriorated gradually over the year. Employment is therefore assumed to have fallen by 0.8 per cent in the third quarter, and unemployment is expected to climb to 7.1 per cent in 2020. Housing investment is also continuing to fall, and investment as a whole is not expected to have made any contribution at all to demand growth in the third quarter. A rebound in export growth means that GDP growth will rise marginally.

Mildly expansionary fiscal policy next year

The government’s budget bill for 2020 means that fiscal policy will be slightly expansionary. Despite new spending in areas such as policing and higher grants to local government, government consumption will continue to increase relatively slowly next year. Inflation is expected to remain below the Riksbank’s target for the rest of 2019 and in 2020. The repo rate is assumed to hold at -0.25 per cent until early 2022.

Global economic outlook clouded in uncertainty

The forecast is based on the assumption that the trade conflict does not escalate further and tariffs are not raised any further than already announced, and that the UK leaves the EU in an orderly fashion either this year or next. Should the risks in areas such as these materialise, economic developments may become much weaker than in the forecast. The NIER’s analysis shows that the Swedish parliament and government should be ready in such a situation to act quickly to introduce more expansionary fiscal policy to lessen the economic downturn, not least in the light of the Riksbank’s limited room for manoeuvre as a result of its low policy rate.

 

Read the report here: www.konj.se

 

For further information, please contact:

Ylva Hedén Westerdahl, Director of Forecasting, +46 8 453 5972
Sarah Hegardt Grant, Head of Communications, +46 8 453 5911


Konjunkturinstitutet tar fram prognoser som används som beslutsunderlag för den ekonomiska politiken i Sverige. Vi analyserar den ekonomiska utvecklingen både i Sverige och internationellt och bedriver forskning med anknytning till detta. Institutet, som grundades 1937, är en statlig myndighet under Finansdepartementet. I likhet med andra myndigheter har KI en självständig ställning. Vårt analysarbete och forskning bedrivs utan politisk hänsyn. Vi är cirka 60 anställda.


Kontakt


Sarah Hegardt Grant

informationschef

sarah.grant@konj.se

08-453 59 11