Europe's news in English

COPY LINK

ECONOMY

Sweden’s economy ‘to grow faster than expected’

The Swedish economy will grow by more than expected this year and next year, the government has predicted, while unemployment will fall.

Published: 23 March 2007 17:43 CET

Finance minister Anders Borg said on Friday that the Swedish GDP will grow by 3.7 percent this year and 3.3 percent next year. In October’s budget he had predicted growth of 3.3 percent for this year and 3.1 percent next year.

Borg said unemployment would fall from 4.7 percent to 4.1 percent between 2006 and 2007.

Tax cuts and and spending increases in some areas would be possible, said Borg following ministerial negotiations at Stockholm’s Haga Slott on Friday.

One area likely to get more money is migration, with Migration Minister Tobias Billström’s department hacing to deal with an increasing number of asylum seekers. The Swedish Board of Migration has said it will need more staff to be able to carry out its duties.

Borg would not say how much room for manoevre he would have in his budget, nor would he reveal any specific plans to be included in the spring budget, due to be presented on 16th April. He did, however, say that he believed that current economic conditions would allow a further tax reduction on earned income to be introduced in January 2008.

“But that is on the condition that the prognoses turn out to be correct,” he said.

Despite the promising economic signals, Borg vowed to hold tight on Sweden’s pursestrings when ministers come asking for extra cash. High growth rates need to be managed in order to last, he argues.

The government’s spending priorities are creating jobs and better conditions for entrepreneurs. Among the planned programmes are the ‘job and development guarantee’, under which people who are long term unemployed will be given help to find work while at the same time doing work in the community.

The increase in the growth prognosis is due to a number of factors. Employment rates have been rising unexpectedly fast, households’ disposable incomes have been increasing and international growth is stronger, the government says.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

Url copied to clipboard!