The recession in Sweden will be “relatively short-lived” and a series of interest rate cuts are planned. This was announced by the Norwegian Economic Institute in a new report – which also states that the labor market continues to look strong.
– Despite the recession, there are no signs that the labor market is weakening, it is defying the recession, says Ylva Hedén Westerdahl, head of forecasting, KI.
Despite the fact that the Swedish economy is entering a recession that will continue next year – it will only be seen to a small extent on the labor market.
According to the institute, the recession is expected to be relatively short-lived. It is also announced that unemployment is increasing significantly less than during previous low periods.
“However, demand for labor remains strong and there are no signs yet that
the labor market is weakening,” writes KI.
– It is the service sector that drives this development. There is a pent-up need to consume services such as going to a restaurant, traveling, staying in a hotel, says Ylva Hedén Westerdahl.
Interest rate cuts coming
According to the report, the Riksbank will also initiate a series of interest rate cuts during the second quarter of next year.
“High inflation and increased interest rates have hit interest-sensitive Swedish households hard and housing construction, which is now declining rapidly. Together with a slowdown in exports, this means that GDP will decrease slightly in the next few quarters,” writes KI.
GDP Shrinks
The Swedish economy will shrink by 0.4 percent this year and recover by 1.4 percent next year, according to the forecast. This can be compared with the KI forecast from March, where the forecast was for a GDP decrease of 0.6 percent this year and a growth of 1.3 percent in 2024.
– An important explanation for that is that housing investment falls abruptly. They have already fallen and they will continue to fall this year. It is higher construction costs, falling housing prices and increased interest costs that are putting pressure on construction companies, says Ylva Hedén Westerdahl.
The text is updated.