2014-03-26

Swedish Economy March 2014

Tentative economic recovery

Sweden had the fastest-growing GDP in the whole of the EU in the final quarter of 2013. This was due partly to temporary factors but still marks a tentative turnaround in the economy. The recovery will continue in 2014 and 2015. Such are the results of the latest forecast from the National Institute of Economic Research (NIER), published today.

GDP grew by 1.7 per cent from the third quarter to the fourth quarter last year. This reflects broad-based improvements, but also temporary effects such as stockbuilding and high general government consumption.

The outlook for exports is increasingly bright, with GDP growth continuing to accelerate in the US and the euro area. The NIER´s Economic Tendency Survey also reveals clear growth in export orders.

Reduced economic uncertainty, tax cuts and expansionary monetary policy mean that household consumption will rise more quickly this year. Household disposable income will increase by SEK 15 billion as a result of a fifth earned-income tax credit and a tax reduction for the over-64s. The Riksbank´s lowering of the repo rate in December 2013 will further boost consumption.

The stronger economy will also impact on the labour market. The normal pattern is for employment to be influenced by GDP growth, and so employment will continue to rise while unemployment will fall. The jobless rate is expected to average 7.9 per cent in 2014. With GDP growth averaging 2.8 per cent in 2014-2017, unemployment is then forecast to fall to 6.2 per cent in 2018.

Inflation is very low both in Sweden and abroad. Inflation will remain low in 2014 and then climb only slowly, not reaching 2 per cent as measured by the CPIF (consumer price index with constant mortgage rates) until the end of 2017. In the NIER´s forecast, the Riksbank begins to raise the repo rate in the summer of 2015 and raises it at a comparatively slow pace to 3 per cent at the end of 2018.

The severe economic downturn has prompted expansionary fiscal policy. To return net lending to the target level, fiscal policy needs to be tightened in the coming years. The NIER´s forecast assumes tax increases at both central and local government level.

Is an unchanged public sector commitment A sustainable COMMITMENT?

A new study by the NIER examines the long-term sustainability of public finances through to 2060. The question analysed is whether current tax rates will be sufficient to finance an unchanged public sector commitment in the future.

The conclusion is that there are currently not any serious imbalances threatening the long-term sustainability of public finances. Demographic developments will, however, mean an increased need for welfare services in the future.

To maintain an unchanged personnel density in the production of welfare services in the long term, taxes will need to be raised by 1.5 to 2 per cent of GDP unless there is a gradual increase in the retirement age.

Selected Indicators

 

2011

 

2012

 

2013

 

2014

 

2015

 

2016

 

2017

 

2018

 

GDP, market price

2.9

0.9

1.5

2.6

3.2

3.1

2.5

2.3

GDP, calendar-adjusted

2.9

1.3

1.5

2.7

2.9

2.9

2.7

2.4

Current account (1)

6.2

6.5

6.6

6.1

5.8

5.3

4.8

4.5

Hours worked (2)

2.0

0.7

0.4

1.1

1.3

1.4

1.1

0.8

Employment

2.3

0.7

1.0

0.9

1.3

1.1

0.9

0.8

Unemployment (3)

7.8

8.0

8.0

7.9

7.3

6.8

6.5

6.2

Labour market gap (4)

–1.4

–1.5

–1.7

–1.3

–0.8

–0.4

0.0

0.3

Output gap (5)

–1.5

–1.8

–2.0

–1.3

–0.6

–0.2

0.1

0.3

Hourly earnings (6)

2.4

3.0

2.6

2.8

2.9

3.1

3.1

3.3

Labour cost, business sector (2)

3.3

3.5

1.8

3.2

3.1

3.1

3.2

3.4

Productivity, business sector (2)

1.6

1.3

1.7

2.0

2.0

1.8

2.0

1.9

CPI

3.0

0.9

0.0

0.1

1.2

2.3

2.6

2.8

CPIF

1.4

1.0

0.9

0.7

1.4

1.6

1.9

2.1

Repo rate (7),(8)

1.75

1.00

0.75

0.75

1.25

1.75

2.25

3.00

Interest rate, 10-year government bond (7)

2.6

1.6

2.1

2.4

2.9

3.5

3.9

4.3

Index for the Swedish Krona (KIX) (9)

107.6

106.1

103.0

102.5

100.5

99.2

99.5

99.8

GDP, world-wide

3.9

3.2

3.0

3.7

4.0

4.1

4.1

4.1

General government net lending (1)

0.0

–0.7

–1.3

–2.0

–0.8

–0.3

0.6

1.3

General government consolidated gross debt (Maastricht debt) (1)

38.6

38.2

41.5

42.4

41.2

40.3

38.8

36.8

Cyclically adjusted net lending (10)

1.1

0.2

–1.0

–1.3

–0.5

0.0

0.6

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 Earnings Statistics
  7. Per cent
  8. At year-end
  9. Index 1992-11-18=100
  10. Per cent of potential GDP

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