Sweden: Summer optimism has been reversed
OCTOBER 17, 2012
The downward revision of second quarter GDP, combined with fading short-term growthindicators, have led us to revise our 2012 GDP forecast downward to 0.8% (from 1.3% inthe August issue of
). This means that our GDP forecast for 2012 is back tothe level predicted in May, reversing the upward revision in August. Our forecasts for2013 and 2014 are unchanged at 1.5% and 2.5% respectively.
Slowdown but not a recession
continues to be the main scenario. Slightlyexpansionary fiscal policy and low interest rates will sustain growth, while strong realincome growth and lower mortgage rates will help household consumption. Still, GDPgrowth is expected to be only marginally above zero in the second half of 2012.
The labour market continues to slow
. Labour market indicators are slowing graduallyand in many cases are now close to levels where unemployment can be expected to rise.We predict that unemployment will increase above 8% in the first half of next year.
CPIF inflation will be well below the Riksbank’s forecast
throughout the forecastperiod, mainly due to lower core CPIF (ex food and energy). Lower mortgage rates areexpected to push headline CPI below zero in the first half of 2013.
Government finances appear to be slightly weaker
than expected but remainexceptionally strong in an international comparison. Lower than expected tax revenues in2012 indicate that the central government deficit will rise to 1% of GDP. The generalgovernment financial deficit will be less than 1.0% every year in 2012-2014.
The Riksbank will cut its key interest rate in December and February to 0.75%,
butstay on hold in October. Low inflation and rising unemployment are driving forces.
SEB Trading Strategy
2011 2012 2013 2014
GDP* 3.9 0.8 1.5 2.5GDP working day adjusted* 3.9 1.2 1.5 2.6Unemployment
8.4 7.4 7.5 8.0Inflation* 3.0 1.0 0.3 1.4Government savings*** 0.1 -0.5 -0.8 0.2
* Percentage change ** Per cent of labour force *** Per cent of GDPSource: SEB