The Swedish government expects a sharp contraction in the GDP

  • New data from the Swedish government expects GDP to contract more than expected, exacerbating an already “bleak” outlook for the economy.
  • Swedish GDP is now expected to contract by 1%, instead of 0.7%, according to government data.
  • Inflation eased slightly in March, but wages still oscillate and the housing market could see a “false dawn”.

People in Sweden are feeling the effects of rising inflation and collapsing house prices.

Jonathan Nakstrand / Contributor / Getty Images

The Swedish government now expects a deeper-than-expected contraction in gross domestic product in 2023, according to data It was released on Monday, exacerbating an already bleak outlook for the country’s economy.

Sweden’s Finance Ministry estimated in December that GDP would contract by 0.7%, but now expects a contraction of 1% as it reassesses the “difficult economic environment”.

“We are facing great challenges, but we will overcome them together,” Sweden’s Finance Minister, Elisabeth Svantesson, said in a press release on Monday.

“Many people are struggling to make ends meet, so it is important for the government to fight inflation and support those who are in the most difficult circumstances.”

The Swedish government has already described the country’s economic outlook for 2023 as “bleak” in a paper a report in October 2022, with the economy expected to slip into recession. The latest CPI data shows that inflation is finally starting to slow, but wages are oscillating and home prices are facing a serious slowdown.

The European Commission, the EU’s executive arm, echoed the downbeat tone in its work recent growth prospectsSweden is the only country where GDP growth is expected to slip into negative territory this year.

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The committee forecast a decline of 0.8% for 2023, and a gain of 1.2% in 2024, the second lowest estimate after Italy. So where is the economy faltering?

Sweden’s inflation rate is beginning to ease, according to core figures CPI data Released on Friday, the headline rate for March fell to 8% from 9.4% in the previous month, but the figure was still well above the central bank’s target rate of 2%.

While the CPI data for March suggests that inflation is moving in the right direction, Swedish households are unlikely to get much of a put off from these figures.

“People have less purchasing power than they have for a number of years…so many people struggle with basic things and also reduce their consumption,” Ola Olsson, professor of economics and deputy dean at the School of Business and Economics and Lu at the University of Gothenburg, told Network. CNBC before publishing the inflation figures.

National Institute for Economic Research He said It predicted last month that inflation – excluding energy – would remain high throughout the year, and it would take until the second quarter of 2024 before it finally fell below 2%.

The Swedish think tank also warned that it will take until 2025 before the economy has clearly moved upward and the expected recession may not now be assumed to be over until 2026.

Homeowner expenses have increased sharply since 2020, according to homeowner index Through the comparison service Zmarta. Housing expenses, which include house and plot costs such as electricity, water, taxes and interest costs, are currently 206,039 SEK ($20,000) a year, compared to 116,483 a year as calculated in the first half of 2020.

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The inflation figures are unlikely to affect the central bank’s rate-raising cycle, which began unexpectedly in April last year, according to Swedbank.

“We keep after [Friday’s] Data to be lifted by Riksbank by 50 basis points [on April 26]the bank said in a note.

Most European countries are experiencing rising inflation, leaving real wages far behind. In Sweden, the new two-year wage agreement puts the record real wage increase at 4.1% for 2023 and 3.3% in 2024 – well below even the latest slightly lower inflation rate.

The numbers give Riksbank more time to tame inflation, but mean Swedish people are missing out on roughly six to eight years of real income growth with the new agreement, Jens Magnusson, chief economist at Sweden’s SEB bank, told CNBC.

“Families are under pressure and we see that raising interest rates has not had a full impact on families,” he added.

The pressure on household income has led to wage strikes in parts of Europe — but not in Sweden, where people accept a real drop in wages as inevitable, according to Olsson.

“There was a huge acceptance…among the workers that we should have a real wage decline this year because otherwise it would be like a wage spiral that could spin out of control, which is what happened in the 1970s,” Olson said.

House prices then defied economists’ expectations when they saw a second consecutive monthly rise in March, according to data from Svensk Maklarstatistik, but analysts warned that a further decline still looms.

“We were quite surprised by the unchanging price development [at] Starting the year in unadjusted numbers… I would call this a false dawn,” Nordea analyst Gustav Helgeson told CNBC ahead of the release of the latest house price data from Svensk Maklarstatistik.

“We are not out of the woods,” he added.

Danske Bank recently revised its previous estimate of a 20% drop in real home prices, from peak to trough, to a drop of 25%. Prices are currently down 12% from the peak recorded in February 2022, according to Danske, leaving prices “still halfway to bottom.”

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