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ECONOMY

Swedish economy set for minor recession

The National Institute of Economic Research has downgraded its forecast for the Swedish economy in 2008 and now projects negative growth in 2009 as the country’s main economic indicator dropped to its lowest level since 1996.

Published: 29 October 2008 11:55 CET

In August, the National Institute of Economic Research (NIER – Konjunkturinstitutet) predicted that Sweden’s economy would grow by 1.5 percent in 2008 and 2009.

But NIER now believes Sweden’s economy will only expand by 1.2 percent in 2008, and will contract by 0.1 percent in 2009.

“Due to the deepening financial crisis, the economic picture is considerably darker than in August,” said NIER.

“The period of weak economic growth is going to be protracted and according to NIER’s assessment won’t recover until 2011 and 2012.”

NIER believes economic growth in the OECD area will be close to zero next year, the lowest level in the industrialized world in 25 years.

Whether or not economies recover in 2010 as the NIER predicts will depend on a continued drop in interest rates in Europe and the United States.

Other figures from NIER also indicate that Swedish consumers and businesses remain concerned about the country’s near term economic prospects, as the Economic Tendency Indicator dropped 8.4 percent from September, landing at 78.8, the lowest reading since 1996.

NIER’s business confidence indicator also tumbled 10 points between the second and third quarters, with companies predicting more layoffs and weaker growth in the months ahead.

“The economic situation in the Swedish business sector is now deteriorating rapidly,” NIER said.

“Demand growth in the private service sector stagnated in the third quarter and dissatisfaction with the volume of orders has increased.”

In addition, NIER’s Consumer Confidence Indicator (CCI), plunged a full 10 points, ending up at -24.7, a level not seen since 1993 when Sweden struggled to recover from the banking crisis of the early 1990s.

“Households are highly pessimistic about both their personal finances and the Swedish economy,” said NIER.

“Both confidence in the current situation and one-year expectations are considerably gloomier.”

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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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