Sweden Bets Economic Boom Will Help Pay for Migrant Inflows

Swedish Finance Minister Magdalena Andersson raised the economic growth forecast for 2016 and predicted narrowing deficits in the coming years as an economic boom helps the nation cope with a record influx of asylum seekers.

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Gross domestic product will expand 3.8 percent in 2016 and 2.2 percent in 2017, compared with December forecasts of 3.1 percent and 2.6 percent respectively, the Stockholm-based Finance Ministry said in a statement. It now predicts budget deficits of 0.4 percent of GDP in 2016 and 0.7 percent in 2017, compared with earlier forecasts of 0.9 percent and 0.8 percent.

Still, the economic forecast is “uncertain and there is a substantial risk of a weaker outlook,” the government said.

Sweden in 2015 received the highest number of immigrants per capita in the European Union -- 163,000 asylum seekers, most of them fleeing conflict in the Middle East. Such high volumes have pushed up public spending, with the government now expecting to balance its budget in 2019. It has also said it won’t reach its target of a 1 percent surplus until after 2020.

However, the additional spending is also helping the economy -- SEB estimates it will contribute 1.3 percentage points to GDP growth in 2016.

“In the spring budget, the government continues to address the refugee situation and sets out the future direction –- building our society takes precedence over new tax cuts,” Andersson said in a statement.

The ruling coalition of Social Democrats and Greens is increasing taxes and boosting spending to cope with migrant arrivals and pay for government programs to lower unemployment. It’s transferring an additional 10 billion kronor ($1.24 billion) a year to municipalities and has also added 31 billion kronor in migration spending this year.

As exports rise and the central bank unleashes record stimulus, the government last week lowered its unemployment forecast for the coming years. It now sees the jobless rate at 6.6 percent in 2020. The coalition has promised more labor market reforms to help fulfill an election pledge of having the European Union’s lowest unemployment rate by 2020.

Sweden’s government is carrying out many minor adjustments, but it doesn’t deal with the big challenges, such as making sure refugees enter the labor market more quickly, according to Anna Breman, chief economist at Swedbank AB.

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