Sweden’s economy shows strong recovery – reforms worth SEK 74 billion in budget offer favourable conditions to underpin recovery
Today, Minister for Finance Magdalena Andersson presents the Ministry of Finance’s latest economic forecast and the direction of the central government budget for next year. The Ministry of Finance forecasts growth of 4.4 per cent this year and 3.5 per cent next year.
“Thanks to responsible fiscal policy and low national debt, we can assertively tackle the recession brought about by the pandemic. In the budget, the Government will present reforms and investments worth SEK 74 billion to take Sweden forward after the crisis. We must not repeat the mistakes that followed the financial crisis by tightening policy too early,” says Minister for Finance Magdalena Andersson.
The new forecast is in line with the latest assessment presented in June. Strong growth is forecast for the next few years. Several confidence indicators are at historically high levels in both the service sector and manufacturing industry.
One of the drivers of growth is household consumption, which is expected to increase when more people have been vaccinated and restrictions have eased. Swedish exports are also expected to increase during the forecast period. However, supply problems due to long delivery times and high commodity prices risk slowing exports in the short term.
In the Ministry of Finance’s assessment, expansive fiscal policy has been crucial to kick-starting the recovery. So as not to risk interrupting the rapid recovery, fiscal policy must remain vigorous next year.
As economic demand increases, the labour market outlook is improving. Labour market participation and employment are expected to grow more strongly than was forecast in June. The forecast for unemployment over the next year remains largely unchanged.
Despite last year’s deep economic recession and major public finance deficits in 2020 and 2021 largely resulting from extensive crisis measures, in an international perspective Sweden’s public finances are strong. Maastricht debt as a proportion of GDP is expected to decrease already this year and return to the same historically low levels as before the crisis next year.
In the June forecast, the Ministry of Finance made the assessment that net lending should be in balance next year. When upcoming budget measures worth around SEK 74 billion are taken into account, a deficit of SEK 35 billion is expected next year, with a surplus from 2023 onwards.
“This is a balanced level at this point. If we tighten policy too early, there is a risk that the recovery will suffer and unemployment will become entrenched at a high level. International observers such as the OECD, the EU and the IMF point to the importance of maintaining fiscal policy stimulus measures. There are also major risks linked to the pandemic, not least the spread of the Delta variant. The reintroduction of tougher restrictions would of course change the conditions for the recovery,” says Ms Andersson.
The macroeconomic forecast is based on information up to and including 9 August 2021.
Press Secretary to the Minister for Finance Magdalena Andersson
Phone (switchboard) +46 8 405 10 00
Mobile +46 73 086 32 01
email to Johan Ekström
Head of the Division for Public Finances
Phone +46 8 405 47 18
email to Thomas Bergman, via senior registry clerk