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FINANCE

Swedes more downbeat about the economy

Consumer confidence continues to fall in Sweden, with more households taking a negative view of the economy.

The National Institute of Economic Research’s Consumer Confidence Indicator (CCI) dropped from 5.9 in January to 0.9 in February, a level not seen since early 2004 and well below the historical average of 5.0.

Additionally, the number of households believing the Swedish economy has worsened in the past year has more than doubled in the last six months, from 14 percent in August 2007 to 33 percent today.

The Institute’s research also points to increasing gloom about the prospects for Sweden’s economy in the future.

In the past year, the number of households projecting further deterioration in economic conditions for the year ahead more than doubled from 19 percent to 41 percent. Conversely, the number of household predicting economic improvements shrank from 35 percent to 15 percent between February 2007 and February 2008.

On the positive side, households remain cautiously optimistic about their personal finances.

While the Institute’s index measuring personal finances dropped slightly, it remains just above the historical average.

Nearly 30 percent of households see their personal finances as better than a year ago, while 15 percent feel that their family budgets have deteriorated.

In addition, three out of four households project that they’ll have household budget surpluses in the next twelve months.

ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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