Key Government Ally Throws Cold Water on Swedish Stimulus Hopes

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(Bloomberg) --

A key government supporter rejected growing calls from economists for Sweden to boost fiscal spending as the economy cools and the Riksbank struggles to exit negative interest rates.

Mats Persson, appointed as economic policy spokesman for the Liberals on Tuesday, said instead that Sweden needs to keep the necessary buffers should an economic slowdown erode finances. Given Sweden’s generous welfare state, automatic stabilizers can quickly throw Sweden into a deficit, he said.

“We need to be careful and ensure that we have funds put a side for the day a crisis hits,” Persson said in an interview on Tuesday.

The comments come as Sweden’s minority Social Democratic government prepares to present a budget in September and it needs the support of the Liberals. Sweden has been running surpluses for years, pushing down public debt to levels not seen since the late 1970s even as the central bank has been forced to cut rates deep below zero to stabilize inflation.

“We’ll have to see how things develop,” Persson said. “But our starting point must be to make sure that we ensure stable public finances, for the sake of the welfare system.”

Persson, who sits on the parliamentary committee currently reviewing the framework for the central bank, isn’t overly worried that the Riksbank will run out of tools as markets are beginning to bet that the bank will have to cut rates again.

“I trust the Riksbank when they are saying that they still have ammunition,” he said.

©2019 Bloomberg L.P.

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