Facts: The revised forecast in brief
Swedish Business Association’s economists are adjusting the forecast for 2023. Sweden’s GDP will only shrink by 0.9 percent, according to updated figures from the business association. Previously, the forecast was minus 1.6 percent.
The recovery in 2024 will also be slightly better than economists thought. Growth next year is estimated at 0.9 percent, compared to the previous 0.8 percent.
Inflation according to the so-called CPIF measure is estimated this year at an average of 6 percent to fall to 1.6 percent in 2024. At the same time, the forecast for unemployment is adjusted down to an average of 7.8 percent this year and 8.1 percent in 2024, against previously 7.9 and 8.2 percent respectively.
The Riksbank’s key interest rate is expected to peak at 3.75 percent this year and fall to 2 percent in 2024.
Source: Swedish Business: The economic situation
It is currently a strained and problematic situation for many households and companies in the inflation and interest rate shock. And the recession will last for several years – right into 2025, warn the Swedish Business Association’s economists.
Halved number of building permits
Consumption is under pressure and the construction industry is struggling, with a halving of the number of building permits. There has also been widespread pessimism among companies, with concerns about notice.
— But it seems that the economy itself has been a little more resilient than most had thought, says Sven-Olov Daunfeldt, chief economist at Swedish Enterprise to TT.
— One explanation is that the interest rate increases the Riksbank has made have not really taken effect yet and many households have used the savings they built up during the pandemic for consumption. This has caused the recession to come a little later, he adds.
In addition to raising GDP forecasts for 2023 and 2024, Daunfeldt and his economists are lowering the unemployment forecast. And when the organization talks to its member companies, a marginally more positive picture is seen in the future plans.
“When asked if the member companies see a risk of layoffs and notices within six months, 23 percent now answer that there is such a risk, while the corresponding figure from January was 26 percent. Despite this slight improvement, almost one in four companies indicates that they may be forced to say staff in the coming period,” the economists write in an economic report.
Daunfeldt expects the Riksbank to start lowering the policy rate next year.
— When inflation drops below the inflation target of 2 percent in 2024, the Riksbank should start lowering the interest rate, in order to bring inflation up. Then mortgage rates follow downwards, he says.
— There is a possibility that the Riksbank chooses to be a little tougher and keep the interest rate up longer, to signal something. There is always uncertainty around this, if you have now changed your behaviour, he adds.
“High degree of uncertainty”
He adds that it is uncertain how quickly inflation will fall.
“There is a high degree of uncertainty,” says Daunfeldt.
Lower mortgage rates make households more positive about the future and can also provide a recovery for housing investments, according to the Swedish Business Association’s economists. But the danger cannot be overstated.
“The economic situation is negative throughout the forecast period and the recession will extend right into 2025,” they write in the report.
At the same time, they warn of risks in the commercial real estate sector, which faces problems when interest rates rise rapidly. They are also worried about protectionist currents, both in the US and the EU.