Sweden’s government shrugged off the potential for a contraction next year, while projecting meager growth for the economy as consumers remain under pressure from higher costs.
(Bloomberg) — Sweden’s government shrugged off the potential for a contraction next year, while projecting meager growth for the economy as consumers remain under pressure from higher costs.
Gross domestic product will expand 1% in 2024 after shrinking 0.8% this year, according to figures made available at a gathering of ministers in Harpsund on Thursday. It had previously estimated a 0.4% decline this year followed by 0.8% growth.
“Swedish growth will be weaker than expected and we will see a weak economy until 2025,” Finance Minister Elisabeth Svantesson told reporters. “This is obviously uncertain but we know that we are in an economic winter even though there are some bright spots. The situation going forward is bleak but we are convinced that we can get through this together.”
That’s still a more optimistic view than set out by Swedbank AB, which on Wednesday said that a lengthy downturn has begun with household incomes remaining under pressure and warned that “things will get worse before they get better.”
Read More: Sweden Set for Two-Year Contraction With Households Squeezed
The government expects to submit a budget that contains added measures, including support to households and strengthened security, totaling 40 billion kronor ($3.6 billion), Svantesson said.
The Swedish economy has been dragged down by households paring back spending in the face of a high inflation rate and rising credit costs stemming from interest-rate hikes by the central bank that’s sought to tame price increases. The effects of tighter monetary policy are already being felt in the economy due to short fixations on mortgages.
While the labor market has held up, home values experienced a steep drop in 2022. That’s since eased, but recent data shows the construction of new housing is plummeting, threatening employment and bankruptcies in the construction industry.
Read More: Sweden Housing Starts Nosedive in Sign of Worse Shortage to Come
A weak krona also continues to hamper the Riksbank’s work to bring inflation under control. Governor Erik Thedeen repeated on Thursday that the currency is fundamentally undervalued and that he expects it to strengthen, while adding “it is almost impossible to predict currency moves over the short an medium term.”
Contrasting with the government’s view, the most recent forecast from the Riksbank in June shows a 0.5% contraction for this year followed by stagnation, while the European Commission shares the central bank’s expectation for 2023 but expects 1.1% growth in 2024, according to figures given in May.
–With assistance from Christopher Jungstedt, Veronica Ek and Love Liman.
(Updates with details from third paragraph, Riksbank comment in 9th.)
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