Sweden Raises Economic Forecast as Manufacturers Bounce Back

Sweden’s economy is poised for a sharper rebound than the government previously expected as its manufacturers make a strong comeback.

Gross domestic product will grow 3.2% this year, compared with the 3% predicted in December, Finance Minister Magdalena Andersson told reporters in Stockholm on Monday. Next year, the expansion is seen at 3.8%, up from the previous forecast of 3.7%.

The biggest Nordic economy has weathered the pandemic better than much of the rest of Europe, thanks in large part to its generous welfare system, widespread digitalization and a relatively low reliance on tourism. So far this year, Sweden’s main stock index is up roughly twice as much as the benchmark for European equities.

“By the end of this year, we’ll be back at the GDP level we had before the crisis,” Andersson said. “The Swedish economy’s resilience is impressive.”

But the vaccine roll-out remains a point of uncertainty. The government said earlier this month it was postponing its inoculation target due to delivery delays. Sweden now expects that everyone older than 18 will be able to get at least one dose of the coronavirus vaccine by Aug. 15. It had previously planned to reach the entire adult population by mid-year.

Negative Rates

The ministry reiterated its forecasts for the benchmark interest rate to be cut to a negative 0.3% next year and to -0.5% in 2023, with the same level kept in 2024. The forecast was called “a bit odd” by Swedbank’s Head of Forecasting Andreas Wallstrom.

While the Riksbank policymakers have reiterated the possibility of rate cuts, the bank’s official guidance shows the key repo rate kept at zero into 2024. When asked about the rate forecast, Andersson said the ministry never adds “assumptions about new policy measures” in its forecasts, declining to say whether new stimulus measures are needed on the fiscal or monetary front.

“It’s not very likely that this autumn we would present a budget completely without reforms,” she added. “We’ve never done that before, at least.”

The finance ministry sees unemployment this year at 8.7%, and 7.9% in 2022, with both forecasts lower than previously expected.

“Growth is expected to rapidly increase again during the second half of the year when the infection rate drops and restrictions can gradually be lifted,” the ministry said.

©2021 Bloomberg L.P.

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