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ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

Published: 10 August 2022 14:08 CEST
'Tougher times': Sweden's economy to slow next year
Ylva Hedén Westerdahl, forecasting chief at the Swedish National Institute of Economic Research, gives a presentation on Wednesday. Photo: screenshot/Youtube

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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MONEY

How Sweden’s 2024 spring amendment budget could affect you

The Swedish government announced its spring amendment budget on April 15th. How will it affect people living in Sweden in the coming year?

Published: 15 April 2024 10:51 CEST
How Sweden's 2024 spring amendment budget could affect you

What is the government aiming for with this budget?

The government has said that this budget, negotiated with the support of the Sweden Democrats, is part of its long-term plan to navigate Sweden’s difficult economic situation, which has the following aims:

  • Fight inflation and support households and welfare

The aim here is “to pursue well-balanced fiscal policy to help drive down inflation while more evenly distributing the burden of high prices”, the government explains on its website.

  • Re-institute the “work-first” principle

The work-first principle is essentially the idea that it should be more profitable for an individual to work than to be unemployed.

The government predicts that an additional 40,000 people could become unemployed this year due to the current state of the economy, and plans to address this by providing training and education initiatives to better equip jobseekers, as well as “remedying the labour market’s structural problems” and “reinforcing the motivating factors behind work and self-sufficiency”.

  • Structural reforms for stronger growth

Here, the government plans to “shift the focus back to economic development”, by introducing structural reforms to increase productivity and improve long-term growth.

How will proposals in the spring amendment budget affect us living in Sweden?

Much of the budget is aimed at mitigating any adverse effects of the current state of the Swedish economy, with these proposals aiming to keep the status quo and stop things from getting worse.

For example, one of the largest posts in the new budget is 6 billion kronor to Sweden’s regions, which will go towards compensating for the effects of inflation and avoiding dismissals of healthcare staff. This is in addition to 1.5 billion kronor for increased pharmaceutical costs and a 500 million kronor “extra knowledge grant” in additional regional funding for schools.

There are also proposals designed to help anyone who becomes unemployed over the next year, like a proposal to allocate 167 million kronor to creating more places in adult education, as well as extending the temporarily increased housing allowance for economically disadvantaged families with children at a cost of 650 million. The government has also proposed an allocation of 130 million kronor to Swedish municipalities which will be used to fund summer jobs.

There are also investments designed to strengthen law enforcement and improve the safety and security of people living in Sweden, like an allocation of 260 million kronor to the Tax Agency, customs and the Swedish Enforcement Authority which will be used to “crush” criminal finances, as well as 1.38 billion kronor to fund more prison places, 1.035 billion kronor in funding to improve security and baggage handling in airports and 100 million kronor to the Swedish courts.

Some of the proposals are also aimed at improving Swedish defence, like a 300 million kronor allocation to the Swedish Armed Forces and 385 million kronor for strengthening civil defence.

The government has also announced plans to lower tax on both pensions and income, lower fuel tax, and remove tax on the first 300,000 kronor of savings in ISKs – investment saving accounts.

In terms of budget proposals which will affect immigrants in particular, 25 million kronor has been allocated to attracting international talent, 20 million kronor will go towards funding Swedish courses for Ukrainian refugees, and 138 million will cover costs associated with getting Ukrainians on to Sweden’s population register.

How has the opposition reacted?

The Social Democrats’ economic spokesperson, former Finance Minister Mikael Damberg, called it “a tangled mess of proposals” and an “odd budget”, adding that it was “not a budget for the Swedish people”.

He added that the government should not just be focusing on growing the police force, but also on identifying young people who are at risk of sliding into a life of crime, so that social services can step in at an early stage.

The opposition also criticised the government for not doing enough to support Swedish regions, arguing that six billion kronor is not a sufficient investment to solve the healthcare crisis.

The Social Democrats will present their shadow budget in two weeks.

“We think that families with children are in a much worse position due to this crisis. We think that banks have taken out too much in profits, and that there’s a possibility to work with the power of consumers and use the state bank, SBAB,” Damberg said, adding that his party would like to see a bank tax in the new budget.

The government’s decision to scrap tax on ISK savings has also been criticised by two major authorities: the Financial Management Authority (ESV) and the National Institute of Economic Research (NIER, KI in Swedish). 

NIER said in a response to the proposal that the tax cut benefits represents a large tax cut to people who already have substantial savings, rather than encouraging people to save more.

“If you’re trying to get more people to save, it’s difficult to understand why the government is setting the limit at 300,000 kronor,” the author of NIER’s response to the proposal, Sebastian Escobar-Jansson, told Swedish news agency TT. 

Over half of people with ISK accounts have savings of less than 74,000 kronor.

“More than half of the tax cut benefits those who already have more than 300,000 kronor in an ISK,” ESV added.

In 2024, tax on ISK accounts is 1.086 percent, which is paid whether the account’s investments are making a profit or a loss.

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