Deeper Slowdown Signaled in Sweden Amid Upbeat Budget Forecasts

The Swedish government’s upbeat take on the economy was given a beating on Thursday.

Less than 24 hours after Finance Minister Magdalena Andersson predicted growth would top 3 percent this year, economic data is flashing that a more marked slowdown is on its way.

Here’s the bad news:

  • The economic tendency survey, which measures confidence of companies and households, fell to its lowest level in almost three years;
  • Household borrowing slowed for a second month in a row;
  • Seasonally-adjusted unemployment unexpectedly rose, to 7 percent;
  • Producer prices fell for the 13th month in a row

“What’s come out today highlights that there are downside risks to the government’s forecasts,” said Torbjoern Isaksson, chief analyst at Nordea Bank AB. “Exports are struggling and there are also signs that domestic demand is entering a calmer growth phase.”

Andersson on Wednesday emphasized the economy’s strength as the government raised its growth forecasts for 2017 and 2018 and predicted that public finances would improve at a faster pace than previously thought. The government now sees a budget surplus of 0.7 percent of GDP in 2019, while public debt is now seen falling to below 40 percent by 2018. 

According to Nordea, the latest indicators suggest the government may be too optimistic.

“In the long-run, tax revenue could also be lower than what perhaps they have thought,” Isaksson said. A slowing economy would also be “bad news” for the Swedish central bank, which has failed to meet its 2 percent inflation target for more than four years, he said.

Slowing growth also means Nordea doesn’t expect the Riksbank to raise interest rates from their record low of minus 0.5 percent before the end of next year.

On that they agree. The government also expects negative rates until at least 2018.

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