Sweden Cuts Economic Forecasts as Debt Crisis Hits Exports

Sweden’s government cut its economic outlook for this year and next as the crisis in the euro zone erodes demand for exports from the largest Nordic economy.

Gross domestic product will grow 0.9 percent this year, less than a previous forecast for 1.6 percent, according to a release handed out by the government in Stockholm today. The economy will expand 1.1 percent in 2013, versus an earlier estimate for 2.7 percent expansion, it said.

“The international uncertainty has caused households to increase their savings and this in turn makes companies postpone investments,” Finance Minister Anders Borg said at a press conference in Stockholm today.

Sweden’s central bank this week cut its repurchasing rate for a fourth time in a year, bringing it to 1 percent, as policy makers seek to boost growth and limit unemployment. Some of Sweden’s biggest companies, including TeliaSonera AB and Volvo AB have cut thousands of jobs in an effort to adjust to shrinking export markets. Sweden sells about half of its output abroad, of which about 70 percent goes to Europe.

“The takeaway from today is that Borg indicated the government may be prepared to increase the scope of stimulus, while acknowledging that tax income will be lower,” said Anna Fellander, an analyst at Swedbank AB in Stockholm.

Deficit Widens

The krona dropped for the first day in six against the dollar to trade 0.2 percent lower at 6.5174 as of 11:52 a.m. local time. It was little changed versus the euro at 8.6122.

The government will post a 0.4 percent deficit of gross domestic product this year, bigger than a previous estimate for a 0.3 percent shortfall, it said. The deficit will reach 1.3 percent next year, it said, more than double its previous estimate.

The government in September said it will spend about 0.7 percent of gross domestic product on new initiatives next year including infrastructure, research and a corporate tax cut to 22 percent from 26.3 percent.

Sweden’s central bank should consider cutting its key rate to 0.25 percent next year to support growth, Mats Dillen, director-general at the Swedish National Institute of Economic Research, said earlier this week.

“It’s natural for the Riksbank to take the biggest responsibility at this stage to stabilize the economy since they’re quite some way from the inflation target and growth is weak,” he said.

Inflation will average 0.9 percent this year and 0.6 percent in 2013, well below the Riksbank’s 2 percent target.

“We are currently revising our economic growth forecasts and now also expect the Riksbank to cut rates one more time in the first half of 2013 to 0.75 percent,” Fellander said.

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