The Swedish economy remains strong although major injections will be needed to cope with welfare over the next few years.
In Finance Minister Magdalena Andersson’s latest forecast, most of the curves indicate a positive trend. Growth is high, unemployment is low and the strength of the global economy is helping fatten up Sweden’s finances. Only small adjustments have been made in the forecast since December and unemployment and GDP growth are at the same level.
The finance minister expects the big issue to be securing quality in welfare. “Our assessment is that SEK 20 billion in general state contributions will be needed to be able to meet the demographic challenge. In addition we have ambitious increases. We have presented five more billion for healthcare and six billion to education.”
The Moderates believe the government ought to have used the strong economy to prepare Sweden for the next recession. “We have a very strong economy but a weak government. There is now a reason to save even more for when things change,” says Elisabeth Svantesson the party’s economic spokesperson.
Tuesday was another roller coaster day on the US markets, and Stockholm’s leading index fell 2.1%. In this situation, investors are searching for information that will give them an idea of what is ahead. All new information, often exaggerated, gains significance.
US economic data can be useful for investors to decide when to sell, but Annika Winsth, head economist at Nordea, says it is most important of all to listen to what the heads of the Federal Reserve are saying. Previously they have indicated three interest rate rises this year, but now they are starting to believe it will be four.
“The Fed has seen that the economy is performing strongly, but previously investors have not really chosen to take that in,” says Winsth.
Eight scientists and economists write in SvD today that they do not share the view of Finance Minister Magdalena Andersson that the economy is strong and Sweden is equipped for the future. Sweden’s government is focusing on the country’s economic growth just now while critics question the Swedish economy’s long-term ability to maintain high productivity growth. “Swedish competitiveness is a decisive factor for maintaining our economic welfare. Seen from this perspective, it is not at all certain that it is going well for Sweden,” they write.
The authors reference a new report from the Swedish Entrepreneurship Forum that shows that Sweden is ranked among the bottom when it comes to factors that are important for competitiveness such as taxes, employment market regulations and general complexity of the administrative burden.
Sweden is in a significant structural transformation driven by technical developments digitalisation, urbanisation and globalisation. The focus of Swedish economic policy is too short-term, they write and suggest one step would be to create a structural institute that focus on the long-term perspective and develops reform proposals to improve competitiveness.
As Finance Minister Magdalena Andersson presented her forecast for Sweden on Tuesday, the main risk factors in the economy were the fall in house prices, a slowdown in China and political uncertainty in the US.
Magdalena Andersson calls the price fall a “correction”. “There are factors here that indicate that we ought to be able to move towards continued strong demand for housing in Sweden, which is most likely to be able to counteract the slowdown we are seeing just now on the housing market,” she said, but added that it is always hard to predict house prices and the property market is holding back growth in Sweden.
The economy will grow at a faster rate in coming years with a rise of 0.3 and 0.2 percentage points respectively for GDP growth of 2.8% in 2018 and 2.2% in 2019. The government is lowering growth for 2017 from 3.1% to 2.5%. However that is related to a revision of historical figures from Statistics Sweden. In absolute numbers, Sweden’s economy is as large as the government thought in the autumn.
Unemployment is falling more slowly and the government will achieve its new surplus target with a structural surplus of 0.33% over the entire forecast period.
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