The Low-Growth Period More Prolonged Than Expected

The Government is lowering the growth forecast for the remainder of its term of office, 2024-2026. The low-growth period in the wake of the inflation shock is becoming more protracted than expected, according to Finance Minister Elisabeth Svantesson (The Moderate Party).

» Published: December 18 2024

The Low-Growth Period More Prolonged Than Expected
Photo: Fredrik Sandberg/TT

Unexpectedly weak consumption is pointed out as a main reason for the weak development.

We have a dampened domestic demand. Consumption is lagging. It's not really taking off as we had expected. We have a very weak growth also in the surrounding area. The recovery will come, but it will take time, says Finance Minister Svantesson (M) at a press conference.

We also know that interest rate cuts often have a lag. Now it's starting to take off.

Lowered prognosis

The Finance Minister hopes for an increased demand when the interest rate cuts take effect, but also that the tax cuts that will come next year will give a boost to the recovery.

The growth prognosis for the years 2024, 2025, and the election year 2026 is lowered to 0.6 percent, 2.0 percent, and 3.0 percent, respectively. When the autumn budget was presented in September – three months ago – the prognosis was 0.8 percent, 2.5 percent, and 3.2 percent, respectively.

It's a more prolonged low-growth period than we thought, says Elisabeth Svantesson.

Inflation is expected to hover around levels in line with the Swedish Central Bank's inflation target of 2 percent going forward. Svantesson notes that inflation expectations look well anchored.

The labor market is developing slightly weaker than expected according to the new prognosis, where the government expects an unchanged unemployment rate of 8.4 percent in 2025 and a decrease to 8.1 percent in 2026.

The labor market is developing somewhat weaker since we will have a low-growth period that will last a bit longer, says Svantesson.

"Tariffs would be bad for Sweden"

Sound public finances, a fiscal policy framework that is followed, and a stable political situation mean that there is an opportunity to act if the development would deteriorate, according to Svantesson.

We have good conditions, she says.

The risks for new setbacks are seen, among other things, in the Middle East or the Ukraine war. But she also sees a risk for setbacks if the US's incoming president Donald Trump follows up his threats of tariffs with actual decisions.

It remains to be seen. If there will be more tariffs and more trade barriers, it's clear that it's bad for Sweden, says the Finance Minister.

She adds that the most important challenges that must be addressed for the Swedish economy are in the EU, which "is lagging behind" in the major transformation that is taking place globally.

Our fate lies primarily in our own hands and not in the USA's.

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TTT
By TTThis article has been altered and translated by Sweden Herald

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