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Sweden amends growth forecast

The Swedish government has forecast that GDP will climb by 4.8 percent in 2010, and 3.7 percent in 2011, according to the financial plan in the budget proposition made public on Tuesday morning.

Published: 12 October 2010 08:21 CEST

The new figures are a revision of previous forecasts issued in August of 4.5 percent in 2010 and 4 percent in 2011.

The government said Sweden had come through the global economic crisis “better than most countries.”

“The permanent effects of the crisis are expected to be less pronounced than previously assumed, which will mean a more rapid recovery,” according to a statement on Tuesday morning.

But it was stressed that there was still great uncertainty about future developments of the economy, and added “major problems in government finances in other countries may affect the Swedish economy as well.”

“Sweden is still in a period of low economic activity and high unemployment. And there are still risks that developments will be less favourable than expected,” finance minister Anders Borg said.

The government forecast unemployment would reach 8.4 percent in 2010 and

8.0 percent in 2011 and then decline gradually to reach 6.0 percent in 2014, attributing the change to “economic recovery, government policies and a growing population.”

Borg stated that the boom years have to be capitalized on to ensure that unemployment is not allowed to remain high.

“The years of high growth that lie ahead must be used to ensure that more people, including people who have had difficulty becoming established in the labour market, begin to work,” he said.

Economists with the SEB bank expect Sweden’s growth in 2011 to be a bit lower than the 3.7 percent forecast by the government.

“The government is maybe a little on the optimistic side, but within the margin of errror,” said SEB economist Olle Holmgren to the TT news agency.

At Nordea bank, economists noted that the government has adjusted it’s GDP forecast for 2010 upward, which is in line with available statistics.

At the same time, Nordea warns that the government’s prognosis for 2011 and 2012 may be a bit too optimistic.

The consumer price index is tipped to grow by 1.2 percent in 2010 and by 1.5 percent in 2011.

Consumer prices climbed by 0.8 percent from August to September, according to Statistics Sweden figures published on Tuesday. The rate of inflation, measured as an average change in consumer prices over the previous 12 months, came in at 1.4 percent, up from 0.9 percent in August.

Underlying inflation – according to CPIF which removes the effects of changed interest rates – climbed from 1.4 percent to 1.8 in September.

The 1.4 percent rate of inflation was slightly higher than that predicted by most forecasters, as were the price rises from August to September.

“We have long since passed crisis situation in the Swedish economy. We are not in crisis anymore. We are starting to get closer to a situation which in many respects can normally be considered to be faster than normal,” said Torbjörn Isaksson at Nordea.

The higher inflationary pressure was taken as justification for Riksbank plans to hike the base (repo) rate. Nordea expects the Riksbank to raise the repo rate gradually over the winter to stay at 1.75 percent in April.

Tuesday’s inflation figures affect this rate path forecast only marginally, Isaksson believed.

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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.

Published: 30 May 2023 15:46 CEST
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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