Sweden Cautioned About Overheating Economy

An election-year spending spree by Sweden’s center-left government could overheat an economy already supercharged by ultra-low interest rates, an independent fiscal watchdog said, Reuters reported. Inflation remains subdued in Sweden, despite years of negative interest rates and bond buys by the central bank, but the Social Democrat-Green coalition’s expansive fiscal policy could help push up prices and salaries further ahead and add more fuel to the housing market, the Fiscal Policy Council said.

“Inflation is now around the target and there is no need for fiscal policy to support monetary policy,” said council Chairman Harry Flam, professor of economics at Stockholm University.

The government argues its finances are in good shape and hopes its spending plans will help it win a tight election.

Debt is at its lowest as a share of economic output since the late 1970’s and the coalition sees a fiscal surplus of 1% of GDP in 2018 growing in the years ahead. The target is 1% of GDP, but that will drop to 0.33% next year.