Sun. Jul 14th, 2024

Stockholm, 30 June 2023

The effects of rising prices and interest rates on the Swedish economy are becoming increasingly clear, according to the Ministry of Finance’s latest macroeconomic and public finances forecast presented today.

Swedish household consumption has declined for four consecutive quarters, a trend that is expected to continue and intensify somewhat during the year. A decline in the housing market is evident, and falling housing investments are weighing on economic growth.

“High inflation and rapidly rising interest rates have reduced households’ room for manoeuvre and we’re now seeing a clear effect on consumption and housing investments,” says Minister for Finance Elisabeth Svantesson.

The Ministry of Finance estimates that GDP in Sweden will fall by 0.4 per cent this year, which is a slightly smaller drop compared with the April forecast. The reason for this is that growth has been supported by relatively strong exports early in the year. Positive trends are also visible in the labour market, where labour demand has been greater than expected.

“The resilience of the Swedish economy and labour market is, of course, positive. But the full effects of the tighter monetary policy have probably yet to be seen,” says Ms Svantesson

The Ministry of Finance expects economic activity to strengthen in 2025 once inflation subsides, households’ real income rises at a faster rate and global demand increases.

“There is still considerable uncertainty about future developments. Core inflation is high and that has an impact on economic growth,” says Ms Svantesson.

Inflation and the weak economic climate are also weighing on the public finances. The Ministry of Finance expects weak growth in central government revenue between 2022 and 2024, while high prices are expected to lead to an increase in expenditure, especially in the local government sector.

The forecast is still clouded in uncertainty stemming from factors including high inflation and the effects of higher interest rates on indebted households and property companies in Sweden. At the same time, Sweden could be facing a dry, hot summer.

“The drought could hit Swedish farmers hard, which will likely push up the price of food and other goods even further,” says Ms Svantesson.

Source – Swedish Government

Forward to your friends