2016-06-22

Swedish Economy Report June 2016

Booming economy and falling unemployment call for fiscal tightening

The Swedish economy will continue to strengthen in 2016 and 2017. Domestic demand is being stimulated by expansionary fiscal and monetary policy, and unemployment will fall to 6.3 per cent in 2017. The booming economy and the considerable deviation from the surplus target for government net lending indicate that fiscal policy should be tightened already in 2017.

After seven years operating below capacity, Sweden will this year return to a positive output gap. Firms’ recruitment plans are positive, and vacancies are high. Employment is expected to continue to grow rapidly, especially in the government sector.

One driver behind the strong economy is Sweden’s expansionary economic policy. The low interest rate policy has stimulated domestic demand while also keeping down the value of the krona. Together with continued global economic recovery, the relatively weak krona will contribute to further strong growth in exports this year and next.

Despite the booming economy, the government is expected to pursue expansionary fiscal policy both this year and next, with the result that the deviation from the surplus target will widen further.

In this situation, there is reason to tighten fiscal policy, arming the economy for harder times and preserving the credibility of the fiscal policy framework.

Negative repo rate due mainly to global conditions

The Riksbank will continue to focus on inflation over the next couple of years. Despite the strong economy, the repo rate will remain negative in 2017, due largely to low rates abroad.

The low level of interest rates does have its risks, but is justified in a situation where the credibility of the inflation target is being questioned after a sustained period of weak inflation.

Selected indicators

Percentage change, unless otherwise indicated. 


2014

2015

2016

2017

2018

2019

2020

GDP, market prices

2.3

4.2

3.6

2.1

1.8

1.5

1.9

GDP per capita

1.3

3.1

2.4

0.6

0.5

0.4

0.7

GDP, calendar-adjusted

2.4

3.9

3.4

2.3

1.9

1.6

1.7

GDP, world

3.4

3.1

3.1

3.5

3.8

3.8

3.8

Current account
balance (1)

4.2

4.8

4.9

4.5

4.3

4.0

3.9

Hours worked (2)

1.8

1.0

2.1

1.5

1.0

0.3

0.2

Employment

1.4

1.4

1.6

1.4

0.9

0.5

0.4

Unemployment rate (3)

7.9

7.4

6.9

6.3

6.3

6.4

6.6

Labour market gap (4)

−1.1

−1.1

0.1

0.7

0.9

0.8

0.3

Output gap (5)

−2.2

−0.5

0.7

0.9

0.9

0.6

0.2

Hourly earnings (6)

2.8

2.5

2.9

3.3

3.5

3.4

3.3

Hourly labour costs (2)

1.8

4.2

3.8

3.4

3.5

3.4

3.3

Productivity (2)

0.5

2.6

1.2

0.9

1.0

1.2

1.4

CPI

−0.2

0.0

0.9

1.4

3.1

3.5

3.1

CPIF

0.5

0.9

1.4

1.7

2.2

2.5

2.2

Repo rate (7,8)

0.00

−0.35

−0.50

0.00

1.00

1.75

2.50

Ten-year government bond rate (7)

1.7

0.7

0.9

1.7

2.8

3.7

4.3

Effective krona
exchange rate index (KIX), (9)

106.8

112.6

109.2

107.9

106.5

105.3

104.1

Government net
lending (1)

−1.6

−0.1

−0.2

−0.3

0.6

1.2

1.4

Structural net lending (10)

−0.8

−0.2

−0.4

−0.7

−0.1

0.7

1.2

Maastricht debt (1)

44.8

43.4

41.3

40.0

38.6

36.8

34.8

 

1. Per cent of GDP.

2. Calendar-adjusted.

3. Per cent of labour force.

4. Difference between actual and potential hours worked in per cent of potential hours worked.

5. Difference between actual and potential GDP in per cent of potential GDP.

6. According to the short-term earnings statistics.

7. Per cent.

8. At year-end.

9. Index 18 November 1992=100.

10. Per cent of potential GDP.

Sources: IMF, Statistics Sweden, National Mediation Office, Sveriges Riksbank and NIER.

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