Country Report Sweden May 2009

Outlook for 2009-10

• The centre-right Alliance coalition government has made a significant recovery in the opinion polls. It has clearly regained the momentum, yet the general election, scheduled for September 2010, remains too close to call.
• The government will focus on responding to the economic downturn, but will also continue to work towards tax and welfare reforms. The public finances will go into deficit from 2009.
• Following its descent into recession in 2008, the economy is heading in 2009 for its most severe decline in decades. Contracting domestic and external demand will last until at least the end of 2009, although this could be delayed.
• The Economist Intelligence Unit forecasts real GDP for 2009 to contract by 5.3%, after a fall of 0.5% in 2008. We expect only a modest recovery to begin during the latter part of 2010, but the economy will still contract by 0.3%.
• We expect the annual inflation rate (national measure) to fall to -0.5% (0.9% according to the EU harmonised measure) in 2009, from 3.5% (3.3%) in 2008, Inflation of 0.8% (1.1%) is forecast for 2010.
• The Swedish krona will continue to weaken against the US dollar for most of 2009, before gradually making a moderate recovery.

Monthly review

• Recent polls show the Alliance government coalition just ahead or level with the Social Democratic Party (SAP)-Greens-Left opposition bloc, after having trailed by double digits in 2007 to late 2008.
• The SAP's spokesman on economic affairs, Thomas Ostros, criticised the governments spring budget, arguing that it should spend more to stimulate the economy.
• The governments spring fiscal policy bill was announced in mid-April, promising increases in funding for local governments and a rise in spending on labour market policy measures.
• Industrial production continued to plummet in February. In month-on-month terms, output fell by 2.2%, which was a little better than January's figures, but it was still a weak performance, with a year-on-year decline of 19.2%.
• Although there have been some signs of a turnaround in the Swedish financial markets, market optimism is likely to prove premature.
• After five consecutive monthly declines, house prices appear to have stabilised in March. Nevertheless, given the extent to which they surged in the last decade, they are unlikely to have reached the bottom yet.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11