2013-06-19

Swedish Economy June 2013

Slow recovery from autumn onwards

Growth in the Swedish economy surged temporarily in the first quarter, but neither external nor domestic demand is yet strong enough to pull Sweden out of stagnation. Business and household confidence is improving, but only slowly and from low levels. Recovery will not begin until the autumn, therefore, and the output gap will not close until 2017. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

Sweden´s GDP grew surprisingly strongly in the first quarter, but underlying demand was weak. Both exports and investment fell, and a large share of the increase in output resulted in stockbuilding, some of it involuntary. Household consumption rose relatively quickly nonetheless, due partly to high energy consumption during the cold winter.

Confidence indicators from the likes of the Economic Tendency Survey and the Purchasing Managers Index are at levels that point to weaker growth than normal. GDP is expected to be unchanged in the second quarter, mainly because firms need to reduce their stocks. Manufacturers in particular are also reporting lower planned investment levels. Not until the autumn is demand growth expected to be strong enough for the Swedish economy to begin to recover.

Households are in a good position to spend more, with rising real disposable income, a historically high saving ratio and high levels of wealth, and household consumption will be an important driver of demand, especially this year. Next year, external demand will grow more quickly, and exports will make a greater contribution to the recovery.

Riksbank to leave repo rate unchanged

Unemployment has climbed over the past year to more than 8 per cent, and rising joblessness puts a damper on wage growth and inflation. This year´s pay settlements, which cover the majority of workers, are expected to result in average annual wage growth in the economy as a whole of 2.8 per cent in 2013-15 and so pave the way for low inflationary pressure in the coming years.

Economic data during the spring were largely in line with the Riksbank's latest forecast, so the NIER does not expect the repo rate to be lowered in July. However, as inflation is well below the target level and unemployment is high, the NIER does see a case for cutting the repo rate again before the autumn to accelerate recovery and help push up inflation more quickly.

Fiscal policy expansionary this year

The NIER´s forecast assumes unfunded fiscal measures of SEK 25 billion this year and SEK 20 billion next year. Tax rises will then be required to maintain the standard of public services and achieve the target of a 1 per cent surplus in general government net lending.

Selected Indicators

 

2010

 

2011

 

2012

 

2013

 

2014

 

2015

 

2016

 

2017

 

GDP

6.6

3.7

0.7

1.5

2.5

   

GDP, calendar-adjusted

6.3

3.7

1.1

1.5

2.7

3.1

3.0

2.6

Current account (1)

6.9

7.3

6.7

6.3

6.2

5.4

4.9

4.3

Hours worked (2)

2.0

2.4

0.6

-0.1

0.8

1.4

1.4

1.2

Employment

0.6

2.3

0.7

0.7

0.5

1.2

1.3

1.1

Unemployment (3)

8.6

7.8

8.0

8.3

8.3

7.7

7.1

6.6

Labour market gap (4)

–2.3

–1.1

–1.2

–1.8

–1.7

–1.1

–0.5

0.1

Output gap (5)

–3.6

–1.5

–1.9

–2.1

–1.7

–0.8

–0.1

0.3

Hourly earnings

2.6

2.4

3.1

2.8

2.7

2.8

2.9

3.1

Cost of labour, business sector (2)

0.1

2.9

3.7

2.7

2.8

2.9

3.0

3.2

Productivity, business sector (2)

5.0

2.4

1.2

2.3

2.3

2.0

2.0

1.8

CPI

1.2

3.0

0.9

0.1

0.8

1.7

2.6

3.0

CPIF

2.0

1.4

1.0

1.0

1.3

1.6

1.8

2.0

Repo rate (7) (8)

1.25

1.75

1.00

1.00

1.00

1.50

2.25

3.25

Interest rate, 10-year government bond (7)

2.9

2.6

1.6

1.8

2.4

3.2

4.0

4.5

Index for the Swedish krona, KIX (9)

114.3

107.6

106.1

102.8

102.6

102.1

101.9

101.8

GDP world wide

5.2

4.0

3.2

3.2

4.0

4.4

4.5

4.5

General government net lending (1)

0.0

0.0

–0.6

–1.5

–1.2

–0.3

0.5

1.2

Maastricht dept (1)

39.4

38.4

38.1

41.2

40.8

39.7

38.0

35.8

Cyclically adjusted net lending (10)

1.9

1.4

0.3

–0.7

–0.5

0.2

0.7

1.2

Percentage changes unless otherwise stated

Sources: Statistics Sweden, National Mediation Office and NIER.
Footnotes:

  1. Percent of GDP
  2. Calendar-adjusted
  3. Percent of labour force
  4. Difference between actual and potential hours worked as percent of potential hours worked
  5. Difference between actual and potential GDP as percentage of potential GDP
  6. According to Short-term Wage Statistics
  7. Percent
  8. At year-end
  9. Index 1992-11-18=100
  10. Percent of potential GDP

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