What you need to know about the state of the Swedish economy

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A decade-low for the Swedish krona

The Swedish krona hit its lowest level against the euro in ten years over the weekend, after a 5.4 percent drop over the past year alone. Against the dollar, it has seen an even bigger decline of eight percent.

Photo: Pontus Lundahl/TT

Growth forecasts revised down

Sweden's GDP is expected to increase by 1.6 percent in 2019 and 1.7 percent in 2020, according to a report by banking giant SEB, also published on Wednesday. This was a slight downward adjustment from the previous forecast, released in January, of 1.6 percent for 2019 and 1.9 percent for 2020.

"The development [of the economy in the first quarter] has confirmed the expectation of a clear slowdown, but no collapse in the housing market and in 2020, something of an increase is expected again in the construction industry," wrote SEB.

The bank also revised down its forecasts for global economic growth, predicting that the global economy would grow by 3.3 percent this year and not the 3.5 percent earlier forecast. And in Sweden, it predicted that low inflation would force the national bank (Riksbank) to postpone any increase in interest rates until July 2020.

Slowdown to come

The Swedish economic boom has reached its peak and the economy is approaching a slowdown, the country's Fiscal Policy Council wrote in its annual report on how the government is managing the economy on Tuesday. This shouldn't be a surprise to those who have been following developments closely, but what does it mean?

Speaking about the slow development of GDP per capita in recent years, the council's chairman Harry Flam told the TT news agency: "I don't consider it to be very serious. One cannot draw conclusions from one or two years." 

Flam added that it was "too early to say" if growth had picked up, and said that over the long-term view, growth had been "in line with comparable countries".

The council wrote that there was no immediate need for government action, but recommended that steps be taken for better preparedness in the future. If the slowdown turns out to be a long-term trend, it could become a "serious problem", the report stated.

File photo: Marcus Ericsson / TT

Impact of immigration and reaction to recession

The arrival of thousands of refugees in 2015 is one possible factor behind the slow economic growth, Flam suggested. 

Another reason Sweden's growth has been slow over the past two years could actually be its strong performance in the wake of 2008's global recession, especially compared to other European countries such as Germany, Finance Minister Magdalena Andersson said.

"It is crucial for us politicians to look at this. Basically, it is about investing in education and infrastructure," the minister said.

She put forward another explanation for the slow growth GDP: a weak development in productivity, which could be linked to Sweden's high employment rate. Although this is overall a positive thing, the minister said that above-average rates of employment could lead to a drop in productivity.

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Labour market

The Fiscal Policy Council's report highlighted that the Swedish employment rate was strong "both from a historical and an international perspective", with employment in Sweden and Estonia the highest of all EU countries.

But despite that, it warned that the labour market suffered from major shortages of workers with in-demand skills, particularly in the public sector, and it criticized the fact that people born outside of Sweden faced a much higher likelihood of unemployment than native-born Swedes,

"The council welcomes the government's measures to reduce these problems, but believes, like previously stated, that they are insufficient," it wrote.

File photo: depositedhar/Depositphotos

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