Country Report Sweden February 2009

Outlook for 2009-10

• Despite a stronger showing in opinion polls for the four centre-right governing parties in recent months, the road towards a full recovery by the next general election, scheduled for September 2010, will still be difficult.
• The government will continue to work towards tax and welfare reforms. The stability of the government is not likely to be threatened, although the public finances will go into deficit from 2009.
• The global economic downturn will continue to have a direct impact on the Swedish economy, encouraging a tightening of lending criteria and contracting domestic and external demand until at least the end of 2009.
• The Economist Intelligence Unit has lowered its GDP forecast to a deceleration of -2.1% for 2009, following estimated growth of just 0.5% in 2008. We expect only a modest recovery, to growth of 0.3%, in 2010.
• As a result of easing economic activity, the EU harmonised measure of inflation is expected to fall from an average of 3.3% in 2008 to 0.6% in 2009, followed by a slight rise to 1% in 2010.
• The Swedish krona will continue to weaken against the US dollar from 2009.

Monthly review

• The opposition has attacked the government for not doing enough in response to the weakening economic environment and rising unemployment, but so far, its criticisms have not resonated with the public.
• Concessions to its government partners may not have irreparably damaged the Christian Democrats, but it has led to internal unrest among the more socially conservative faction of the party.
• The government has announced its submission of a bill to parliament that sets out its proposals to counter the effects of the economic downturn. These proposals were made known at the beginning of December 2008.
• The state returned to the international capital markets in January, issuing a successful three-year bond in Eurodollars.
• A significant slowdown in the economy is underway. Industrial output and orders have slumped, and exports and service sector activity is falling.
• Falling asset prices are causing significant problems for some of the countrys pension firms, as asset/liability ratios have deteriorated. In January, AMF Pension warned that it might have to cut its dividend rate.
• Consumer price inflation has continued to fall. The EU harmonised inflation rate fell from 2.4% in November to 2.2% in December.

Source: Country Report