Perspectives

Growth continues to slow

st  
23  
EcoPerspectives // 1 quarter 2020  
economic-research.bnpparibas.com  
Sweden  
Growth continues to slow  
GDP growth slowed sharply in 2019, and this trend is expected to be confirmed in 2020. Uncertainty surrounding the business climate  
and international trade are straining exports and investment. Consumption is barely rising and is unlikely to revitalize growth. Despite  
this environment, and with inflation near the central bank’s 2% target rate, the Riksbank opted to raise its key policy rate from -0.25%  
to 0%. Even so, monetary policy is still accommodating.  
After rising to 2.4% in 2018, Swedish GDP growth fell back to 1.4%  
1
- Croissance et inflation  
in 2019, the lowest level since 2013. With sluggish demand and  
uncertainty straining exports and the business climate, growth is  
unlikely to accelerate in 2020. Consequently, we are forecasting a  
growth of 1.2%.  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
2
.7  
2.3  
A deteriorated business climate  
2
.0  
With its very open economy (45.6% of GDP is exported), Sweden is  
sensitive to fluctuations in international trade. In 2020, the economy  
will be hit by sluggish trade, notably with the European Union  
1.9  
1.8  
1.8  
20  
1.8  
1
.4  
1
.2  
1.2  
(
58.3% of exports). Given Sweden’s high exposure to the UK, the  
1
risk of Brexit strained its market prospects in 2019. At the end of  
the year, PMI (which averaged 46.3 in Q4 2019) and corporate  
investment both declined. Although business leaders’ fears should  
ease with the signing of the withdrawal agreement between the EU  
and the UK (see EcoFlash of 20 December 2019), the risk of a hard  
Brexit without a trade agreement in January 2021 could maintain a  
high degree of uncertainty. Under this environment, investment in  
machinery and capital goods should continue to contract in 2020.  
17  
18  
19  
20  
21  
17  
18  
19  
21  
Source: National accounts, BNP Paribas  
have negative induced consequences. With a repo rate of 0%,  
however, Sweden’s monetary policy is still expansionist.  
In recent years, the public debt ratio has declined sharply (to 34.6%  
of GDP in 2019, from 45% in 2014) and Sweden has reported  
recurrent fiscal surpluses. The government is now using part of its  
leeway to stimulate activity by 0.5% of GDP in 2020. Incentives will  
be set up to encourage investment (notably for the energy  
transition), and households will benefit from additional tax cuts. A  
substantial part of the budget will also be devoted to healthcare,  
education and improving employability.  
After plunging by 8% in 2019, housing investment could stabilise at  
2
a low level due to the absorption of the stock of surplus housing on  
the market.  
Private consumption continues to rise very slightly. It rose only 1%  
in 2019, after 1.6% in 2018. Despite the government’s tax cuts,  
consumer confidence has eroded with the upturn in the  
unemployment rate, which rose from 5.8% in November 2018 to  
6
.8% in November 2019. Wage growth will also remain very  
moderate in Q1 2020.  
At 1.8% in November, the inflation rate is approaching the  
Riksbank’s 2% target. Looking beyond fluctuations arising from oil  
pricing trends, core inflation (excluding food and energy prices) has  
tended to accelerate, notably due to rent increases.  
On 19 December 2019, the Riksbank opted to raise its key policy  
rate from -0.25% to 0%. The central bank considers that the  
application of negative interest rates over a long period of time could  
1
According to the Insee (Evaluating the impact of Brexit on the activity of the  
UK’s trading partners: the foreign trade channel), Sweden is the seventh ranking  
country in terms of the loss of value added due to Brexit. Swedish GDP would  
decline by 0.6% in case of a hard Brexit, and by 0.3% for a soft Brexit.  
2
It is likely to hit a record low in 2020, falling below SEK 200 billion for the first  
time since 2015 (SEK 198 bn). It could recover thereafter.  
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