Swedish economy determined to slow down amidst turbulence in the world economy


Tuesday, 16 August 2011
The Swedish National Institute for Economic research (NIER) in its recent preliminary assessment determined that the European debt concerns  and the American weak economic recovery are now taking its effect on the  Swedish economic growth especially in the  next 3-4 quarters.

Preliminary GDP forecast for 2012 has been written down to about 2 percent from the previous 2.9 percent in the last forecast in June, according to latest assessment by the institute on Tuesday with connection with the Institute's Director-General Mats Dill´┐Żn and forecasting director Jesper Hansson.

NIER writes that a weaker real economic development particularly in the U.S. during the summer has created increasing concern. They add that fiscal situation in both Europe and the United States have made that the financial markets have reacted to falling share prices and rising government bond yields in countries with weak public finances.


This uncertainty has spread to households and businesses, which is expected to dampen growth in consumption and investment in the OECD area substantially in the second half of 2011.
NIER’s main scenario is, however, that further fiscal tightening will be implemented so that the financial turbulence subsides relatively quickly in 2012. Restraint will however help to dampen growth.

Sweden is directly influenced by both the financial turmoil and weaker demand in the world. Household consumption expenditure is expected to increase much more slowly in the coming quarters, but when the financial turmoil settles household confidence be regained and consumption will pick up again in the course of 2012.

NIER expects that GDP growth will be weak in coming quarters and the forecast for 2012 is therefore written provisionally down to about 2 percent. For 2011, it will create only "minor changes" to the GDP forecast.

This weaker growth dampens employment growth and unemployment is estimated to lie still at about 7.5 percent by the end of 2012, then after, the recovery in the labour market continues.

At the same time it is expected that there will be reduced inflationary pressure as a result of slower Swedish growth and lower energy and commodity prices.
"Together with the highly uncertain situation, it is therefore appropriate that the central bank, the Riksbank is awaiting a further interest rate hikes by spring 2012, "writes the body.

The Swedish central government finances are strong and expected to continue to show a small surplus in 2011-2013. This based on the assumption that the government decides on unfunded spending increases or revenue reductions totalling Skr30 billion in 2012.

NEIR notes that these estimates are preliminary and may be revised when the National Institute publishes its annual forecast on August 31.
By Team

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