World Economy

Swedish Economy Steams Ahead

Swedish Economy Steams AheadSwedish Economy Steams Ahead

As anticipated, the Swedish National Institute of Economic Research revised up its GDP forecast substantially. NIER sees GDP growth at around 3.5% for 2015 and 2016, while growth will slow somewhat to 2.7% 2017.

As a consequence of the strong growth, resource utilization is higher than normal already next year (positive GDP gap by +0.8%!), Yahoo reported.

Cost plus incentive fee-inflation will rise gradually but not stabilize around the 2% target until 2018, according to the NIER’s forecast. The repo rate is seen at -0.25% and 0.75% year-end 2016 and 2017, respectively.

The NIER’s forecasts and medium term outlook are based on the Statistics Sweden’s population forecast from November, in which the Swedish population will grow with a full one million people up to and including 2020.

The inclusion of refugees boosts the economy in the short term and will lift the labor supply. Unemployment bottoms at 6.5% in 2017 and 2018 but rises to 7.4% in 2020 due to the immigration.

The government budget will show deficit in the coming years. The budget will balance in 2019, mainly due to assumed tax hikes. The general government debt (Maastricht) will decline during the forecast period from the current 44.2% of GDP to 41.1% of GDP 2020.

“The NIER’s forecast for 2015-2017 is very much in line with our view. We agree with the NIER that resource utilization is rather high, and bottlenecks may limit growth going forward. The strong growth trend underlines that there will be no more easing from the Riksbank, despite the fact that inflation will not reach all the way to the 2% target”, says Nordea Bank.