Archive: Term of service 06 October 2006–04 October 2010

The Swedish Economy

Sweden's gross domestic product (GDP) is set to grow by 3.2 per cent in both 2007 and 2008. Open unemployment is forecast to decline to 4.4 per cent in 2007 and 4.0 per cent in 2008. General government net lending is projected at 2.9 per cent of GDP in 2007 and 2.8 per cent of GDP in 2008.

Global economy set for solid growth

Global growth is set to taper off in 2007 and 2008. But the slowdown is likely to be relatively modest, and growth should remain high from an historical point of view. U.S. GDP is increasing more slowly in 2007 due to the weak housing market, but growth is expected to recover partially in 2008. In response to a more cautious investment climate, less vigorous growth is anticipated in the euro area in 2007 and 2008. Asian economies are still delivering very rapid growth. Recent turbulence in the financial markets has made the forecast more uncertain, but at present only limited impact on global economic growth is expected.


Sweden's GDP and labour market continue to perform strongly

Sweden's GDP is projected to grow rapidly in 2007 and 2008. Growth in goods exports has decelerated in 2007 but is likely to recover in 2008 as demand for Swedish products abroad picks up again. The strong momentum in investment growth over the past few years will culminate in 2007. Due to rapidly increasing disposable income, rising employment and a solid wealth position, household consumption is projected to improve substantially. Strong finances in the local government sector are driving growth in the sector's consumption.


Demand for labour is strong, the number of newly reported vacancies is high and firms are planning to hire more people. As a result, employment is expected to continue rising in 2007 and 2008. Rapid expansion is anticipated in hours worked, particularly in 2007, leading to a slowdown in productivity growth. Labour supply is set to increase considerably in 2007, followed by more moderate growth. Substantial declines in open unemployment, as well as unemployment according to the definition of the International Labour Organization (ILO), are expected in 2007 and 2008.


The percentage of firms reporting labour shortages has risen progressively in tandem with higher employment. Wages are set to grow faster in the next few years due to increasing resource utilisation and finalised collective agreements, which are accelerating inflationary pressure. The Riksbank is expected to respond by raising the repo rate to a maximum of 4.75 per cent in 2009. The cumulative impact is likely to dampen Swedish economic performance in 2009 and 2010. The reforms that the government has announced and adopted since taking office are set to considerably boost employment and GDP in the long run.


Public finances

General government net lending in 2006 totalled SEK 67 billion, or 2.4 per cent of GDP. At the end of 2006, financial assets exceeded liabilities by SEK 444 billion, or 15.7 per cent of GDP. Consolidated gross debt was 47 per cent of GDP, well below the EU reference value of 60 per cent.


Tax cuts previously adopted and currently proposed will substantially reduce tax receipts as a percentage of GDP in 2007 and 2008. Because the reduction in expenditure as a percentage of GDP will be even greater, net lending will improve compared to 2006. The financial surpluses will continue to bolster the general government sector's net financial position. Consolidated gross debt is expected to be 24.5 per cent of GDP in 2010.


Net lending and the structural balance are both expected to exceed 2 per cent of GDP in 2007-2010, ensuring an adequate margin to the surplus target of 1 per cent of GDP on average over a business cycle.


Both the financial results and net lending of the local government sector are expected to continue showing surpluses in 2007-2010.


For a comprehensive presentation of macroeconomic and public finance forecasts, refer to "The Swedish Economy", Appendix 2 to the Government Budget Bill for 2008, at www.regeringen.se, scheduled for release in English at the end of September.


Contact

Per Jansson
Statssekreterare
Henrik Braconier
Director
+46 8 405 14 64
+46 70 791 10 20

Matts Karlson
Director
+46 8 405 13 98
+46 70 686 77 90