The Swedish economy will shrink by 4.2% in 2020 and unemployment will rise to 10% by the summer, predicts Swedbank in its latest economic outlook. In January, the bank forecast economic growth of 1.4% in 2019 and of 1.8% in 2021.
The economy is expected to shrink by 6% in the second quarter, compared to the first, which is the fastest slowdown ever recorded, according to Swedbank. Nevertheless, it forecasts a rebound of 3.9% in 2021.
The new assessment is based on the assumption that measures taken to reduce the spread of infection will decrease “in the near future,” according to the bank's acting chief economist Andreas Wallström.
“If that doesn't happen, the economic downturn will be even deeper,” he says.
Extra fiscal stimulus will be required, according to the bank’s analysts. The measures announced to date amount to 0.3% of GDP. In total, Swedbank forecasts measures for a total of SEK 100 billion or 2% of GDP. This includes direct support to affected companies and increased state subsidies to the municipalities.
The global economy is expected to shrink by 2% this year and then to rebound and grow by 6% next year in the main scenario. Swedbank emphasises that the forecast is uncertain and is based on assumptions that the spread of infection in the US and Europe reaches its peak in the second quarter and that the measures against the spread of infection will be rolled back within a few weeks.
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