SHARE
COPY LINK

ECONOMY

Swedish job losses set to soar in 2009

The global financial crisis is set to have "substantial effects" on the real economy in Sweden over the next two years, a new report has predicted, with large numbers of people expected to lose their jobs.

Swedish job losses set to soar in 2009

The state-run National Institute for Economic Research (Konjunkturinstitutet – KI) said on Friday that Sweden’s GDP would fall by 0.9 percent in 2009 and grow 1.9 percent in 2010. Unemployment is expected to increase from 6.1 percent this year to 7.9 percent in 2009 and 9 percent in 2010.

Some 135,000 jobs will be lost over the next two years, KI predicts.

“The number of layoff notices has increased dramatically, at the same time, newly reported job openings have continued to decrease, and firms have cut back on their hiring plans,” the report notes.

Retail prices are expected to fall 0.2 percent next year and 0.4 percent in 2010. Interest rates will keep falling, KI predicts, but Sweden will not experience a repo rate of zero percent as in the US. The report predicts that the Riksbank will reduce rates to 1 percent by the end of next year. This rate will likely be maintained until the end of 2010.

The institute expects the government to introduce further expansionary measures to fight the downturn. Government finances are currently strong, KI says, but predicts that the government will push through new unfinanced spending increases as tax revenues fall.

Spending increases and falls in revenue will cost 7 billion kronor ($911 million) in 2009 and a further 50 billion kronor ($6.5 billion) in 2010.

“It will therefore be necessary to strengthen cyclically adjusted net lending in the years immediately following 2010 if Sweden is not to keep falling short of the surplus target,” the institute wrote in its report.

For members

ECONOMY

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

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

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.” 

SHOW COMMENTS