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‘Weak, slow and difficult’ economy ahead: Borg

Swedes are in for a rough economic ride in years ahead, as Finance Minister Anders Borg has warned of rising unemployment, weaker economic growth and rising public debt in the spring fiscal policy bill released on Monday.

Published: 15 April 2013 09:00 CEST
Updated: 15 April 2013 12:02 CEST
'Weak, slow and difficult' economy ahead: Borg

“There is a strong headwind from the global economy, which is holding back the recovery in Sweden,” Borg said in a statement.

According to the latest government forecasts, the Swedish economy is expected to grow at 1.2 percent in 2013 before creeping up to 2.2 percent next year and 3.6 percent in 2015.

Unemployment, meanwhile, is expected to reach 8.3 percent in 2013, rising to 8.4 percent next year before dropping to 8.1 percent in 2015.

“We have weak, slow, and difficult years ahead of us,” Borg told the Aftonbladet newspaper.

The new figures mark a significant downgrade from the government’s last economic prognosis released in December, which forecast 2014 growth of 3.0 percent, while the jobless rate was expected to peak at 8.3 percent next year before falling to 7.4 percent in 2015.

Borg said that Sweden is in the middle of a nine-year period of sluggish economic growth that began back in 2008.

“Our strong position and the confidence in Sweden’s public finances are making it possible to proceed with more measures to mitigate the impact of the international crisis on the labour market and support a gradual recovery,” said Borg.

Sweden plans to spend 3 billion kronor ($470 million) in 2013 and 2014 to combat unemployment, adding that the final budget bill to be presented in the autumn may contain “some room” for additional spending.

“The government’s goal is to strengthen the public finances as the economy recovers so as to achieve the surplus target. We will not deviate from this objective,” said Borg.

According to Monday’s figures, the government expects Sweden’s public debt to reach 1.6 percent of GDP in 2013 before falling to 1.0 percent next year. The government expects Sweden’s budget to reach balance in 2015.

Household consumption is seen as a key driver for the Swedish economy, with the government warning that a higher than estimated savings rate could negatively affect the country’s economic recovery.

“If household behaviour proves to be different and savings remain at a high level, Sweden’s economic recovery could be more drawn out than what’s expected in the forecast, with higher unemployment as a result,” the government said in a statement.

Erica Blomgren, analyst at bank SEB, said the government’s previous growth forecast from the autumn was “too optimistic”, while the current forecast was “more in line” with that of the central bank.

Sweden will hold legislative elections in September 2014, when the left-wing opposition, headed by Social Democrat leader Stefan Löfven, hopes to wrestle power from the centre-right government in power since 2006.

In a speech Friday, Löfven promised that if the Social Democrats were to win the elections, they would bring the unemployment rate down to 4.7 percent by 2020.

“The government has failed on the jobs front, and Sweden today has higher unemployment than comparable countries in the European Union,” Löfven lamented, citing eurozone countries such as Austria, Belgium, Finland and the Netherlands.

Until September last year, Prime Minister Fredrik Reinfeldt’s government had aimed to have a budget surplus in 2013.

According to Monday’s forecasts, public debt is expected to climb to 42 percent of gross domestic product this year, compared to 38.2 percent in 2012.

TT/AFP/The Local/dl

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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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