Swedish Government Cuts Growth Outlook as Exports Remain Elusive

The Scania Truck Plant In Sodertalje, Sweden
Swedish gross domestic product will expand 2.5 percent this year and 3.1 percent in 2015, compared with April estimates of 2.7 percent and 3.3 percent, respectively, the government said today. Photographer: Casper Hedberg/Bloomberg

Sweden’s government cut its growth forecasts as weak developments abroad weigh on an expansion in the largest Nordic economy.

Gross domestic product will expand 2.5 percent this year and 3.1 percent in 2015, compared with April estimates of 2.7 percent and 3.3 percent, respectively, the government said today. The economy grew 1.6 percent last year.

“The risk of weaker growth still predominates, primarily because of the outlook for the euro area,” the Finance Ministry said in a statement. “While little risk is seen of a sharp downturn, the risk of protracted stagnation remains. Employment is continuing to rise and unemployment is falling.”

Sweden’s central bank yesterday unexpectedly lowered its

main interest rate by half a percentage point to 0.25 percent, matching a record low from 2010, and predicted no increases until the end of next year. Policy makers are acting to prevent deflation from taking hold as low demand is preventing business from raising prices.

Slow growth and high unemployment are hampering the government’s bid to win a third term in September’s election. The four-party alliance is trailing by more than 10 percentage points in most polls.

Swedish unemployment will average 7.9 percent this year and 7.5 percent in 2015, compared with April forecasts of 7.7 percent and 7.3 percent respectively, the government said. It lowered its inflation forecast to 0.0 percent from 0.2 percent for this year and to 1.4 percent from 1.6 for 2015.

Export Growth

Exports will grow 3.3 percent this year and 5.2 percent next year. The government will post a trade deficit this year as imports grow faster.

Sweden will post deficits of 1.9 percent and 0.7 percent of GDP this year and next year, respectively and won’t reach is 1 percent surplus target until 2018, the government predicted.

The four opposition parties are accusing the government of jeopardizing public finances through tax cuts. Both sides have pledged to return public finances to surpluses if they win elections on Sept. 14, saying any new spending initiatives will have to be fully funded.

The government this year cut income taxes for a fifth time since coming to power in 2006 to boost domestic demand as exports are struggling to pick up to levels seen before the financial crisis. Sweden, which boasts one of Europe’s lowest public debts, sells about half its $560 billion output abroad of which about 70 percent go to debt-stricken Europe.