The state-run National Institute for Economic Research (Konjunkturinstitutet – KI) said on Friday that Sweden’s GDP would fall by 0.9 percent in 2009 and grow 1.9 percent in 2010. Unemployment is expected to increase from 6.1 percent this year to 7.9 percent in 2009 and 9 percent in 2010.
Some 135,000 jobs will be lost over the next two years, KI predicts.
“The number of layoff notices has increased dramatically, at the same time, newly reported job openings have continued to decrease, and firms have cut back on their hiring plans,” the report notes.
Retail prices are expected to fall 0.2 percent next year and 0.4 percent in 2010. Interest rates will keep falling, KI predicts, but Sweden will not experience a repo rate of zero percent as in the US. The report predicts that the Riksbank will reduce rates to 1 percent by the end of next year. This rate will likely be maintained until the end of 2010.
The institute expects the government to introduce further expansionary measures to fight the downturn. Government finances are currently strong, KI says, but predicts that the government will push through new unfinanced spending increases as tax revenues fall.
Spending increases and falls in revenue will cost 7 billion kronor ($911 million) in 2009 and a further 50 billion kronor ($6.5 billion) in 2010.
“It will therefore be necessary to strengthen cyclically adjusted net lending in the years immediately following 2010 if Sweden is not to keep falling short of the surplus target,” the institute wrote in its report.