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ECONOMY

Swedish economy in ‘long, dark winter’

Sweden’s GDP fell by 4.9 percent in the 4th quarter of 2008 compared to the same period a year before.

Swedish economy in 'long, dark winter'

Between the third and fourth quarters of 2008, Sweden’s economy sank 2.4 percent, according to figures from Statistics Sweden released on Friday.

“It’s obvious that Sweden finds itself in a very powerful economic slowdown. We’re in a long, cold, dark winter,” said Minister of Finance Anders Borg.

“It’s quite clear that such a reading is correct.”

Economists had estimated that Sweden’s GDP, which measures to total sum of goods and services sold within the country, would fall by 2.0 percent on an annual basis, according to a survey by Reuters.

“It’s markedly weaker than what the market had forecast. It was certainly a negative surprise on all fronts,” said Swedbank interest rate and currency analyst Cecilia Skingsley to the TT news agency.

“This is probably what the Riksbank sensed when they cut rates by 100 basis points two weeks ago. And our forecast is that they will continue cutting rates by at least an additional 50 basis points when they meet in April.”

The annual basis drop is Sweden’s first since the country’s statistics agency began recording quarterly economic statistics in 1994.

Not once since then has Sweden’s economy shrunk on an annual basis. A previous low point was in 1996, when the GDP shrunk in the second quarter by 0.5 percent compared with the previous quarter.

The figures confirm that Sweden is now in a recession, said Robert Bergqvist, chief economist at the SEB bank.

“The Swedish economy has shrunk a great deal and is now quite weak,” he told TT.

Statistics Sweden spokeswoman Sofia Runestav also told AFP that revised figures showed the country had in fact entered recession in the second quarter of 2008 and not in the third as previously stated.

Sweden, which has been especially hard-hit by the troubles plaguing car makers worldwide, saw its exports fall 7.2 percent, imports decrease 5.4 percent, and industrial production shrink 6.1 percent in the fourth quarter.

“These are very dramatic numbers,” Swedish Prime Minister Fredrik Reinfeldt told the TT news agency.

“We usually boast about our export-driven economy. Now we’re seeing the negative side: a global downturn that is affecting Swedish exports,” he added.

Household consumption also fell by 3.3 percent during the fourth quarter.

Following the news, market interest rates dropped and the krona weakened, trading at more than 9.10 kronor to the US dollar and 11.50 kronor to the euro.

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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.” 

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