Country Report Sweden November 2009

Outlook for 2010-11

• The Economist Intelligence Unit's central forecast is that the current centre-right Alliance coalition will be returned to office in the election due in September 2010, despite current opinion polls slightly favouring the left.
• There is a risk that the far-right Sweden Democrats might win enough votes (4%) to enter parliament and prevent either main grouping from achieving an overall majority.
• Economic policy would change significantly, but not drastically, in the event of a left-wing election victory. Either coalition will be faced with the challenge of combining election commitments with the need to rein in the budget deficit.
• The 2010 budget is expansionary and some of its measures will continue in 2011. We forecast that the budget deficit will reach 5.1% of GDP in 2010 before easing to 4.5% in 2011.
• Following an estimated decline of 4.5% in 2009, we forecast that the economy will return to growth of 1.3% in 2010 and of 1.4% in 2011, which would be somewhat stronger than the EU average.
• Inflation according to the EU harmonised measure is forecast to fall from 1.8% on average in 2009 to 1.1% in 2010, as a result of a stronger krona, before rising to 1.5% in 2011.

Monthly review

• The three centre-left opposition parties each presented alternative budget proposals in early October, following the government's budget in September. The proposals vary, but all indicate higher taxes and higher spending.
• The Swedish presidency of the EU has been low-key so far. It has given priority to preparing for the December climate conference in Copenhagen. Sweden faces a difficult time finalising the ratification of the Lisbon treaty.
• The government has said that it would guarantee a US$590m loan to troubled car company, Saab, if the European Investment Bank were willing to advance the loan and the European Commission were to approve it.
• Despite some favourable economic indicators, employment fell by 3.1% in the year to August and unemployment rose by 2.8 percentage points to 8%.
• Both exports and imports of machinery and vehicles have declined sharply in the first seven months of 2009.
• Although the national measure shows inflation as negative in recent months, the EU harmonised index increased by 1.4% in the year to September compared with a euro area fall of 0.3%.