Sweden’s leading think tank said yesterday that growth would slow this year, casting a further shadow over the chances of re-election for a centre-right government that has marketed itself as the guardian of prosperity for the Nordic nation.
Swedes go to the polls on September 14, but the Alliance government – trailing the centre-left in polls by a margin of around 10 points – cannot rely on any economic feel-good factor as a slowdown in Europe crimps demand for Swedish exports and the rest of the global economy is too weak to pick up the slack.
“The prolonged economic slump is continuing, and recovery is taking time,” the National Institute of Economic Research said.
The government agency forecast gross domestic product (GDP) will grow 1.8 per cent this year and 3.1 per cent in 2015. In its June forecast, growth was seen at 2.2 per cent this year and three per cent in the next.
Public finances, including local government and the pension system, are seen running a deficit of 2.2 per cent of GDP this year compared to its June forecast for a deficit of 2.1 per cent, the agency said.
The NIER has said that Sweden may need to raise an additional 100 billion Swedish crowns (€10.9 billion) over the next few years in taxes to bolster public finances, much more than the current government’s plans of additional measures totalling around 25 billion.
The eurozone economy – Sweden’s biggest export market – stalled in the second quarter and recovery could be further hampered by global political uncertainty and sanctions against Russia imposed in July over its involvement in Ukraine crisis.
Swedish central bank has a forecast for a 0.1 per cent dip in CPI in 2014
Underlying the gloomy mood, consumer confidence slipped to its lowest level in more than a year, data for August from the statistics office showed.
Households also lowered their expectations of where inflation will stand in a year, despite a cut in interest rates by the central bank to 0.25 per cent in July.
That, and figures which showed the pace of borrowing by households picking up in August, is likely to worry the central bank, which will publish its next decision on interest rates on September 4.
NIER forecast consumer prices would be flat this year, before edging up 1.1 per cent in 2015. This compared with its previous forecast for a fall in prices of 0.1 per cent and a rise of 1.1 per cent, respectively.
The Swedish central bank has a forecast for a 0.1 per cent dip in CPI in 2014, far below its two per cent rise target.