Perspectives

Resilient but not off the hook

EcoPerspectives // 2nd quarter 2020  
23  
economic-research.bnpparibas.com  
Sweden  
Resilient but not off the hook  
After the economic slowdown was confirmed in 2019, the global shock of the coronavirus pandemic will probably drive Sweden into  
recession in 2020. The evaporation of global demand, notably from the European Union and China, will trigger a drop-off in exports,  
and production channels will temporarily freeze up. Investment and consumption will both be hit. The central bank has adopted  
unprecedented support measures while the government is devoting its financial manoeuvring room to funding a fiscal stimulus policy  
that supports jobs and businesses.  
In 2019, GDP growth slipped to 1.3%, the lowest level since 2013.  
1
- GDP Growth and inflation  
The economic fallout of the Covid-19 pandemic, coupled with the  
slowdown already underway, will probably drive Sweden into  
recession in 2020, even though official forecasts are still in positive  
territory (+0.8% according to Magdalena Andersson, Minister for  
Finance).  
(
Y/Y, %)  
GDP Growth  
Forecast  
Inflation  
Forecast  
5
4
3
4.3  
Demand falters  
2.3  
2
2
1
0
1
2
1.7  
1
.3  
1.4  
With exports accounting for 45.6% of GDP, the Swedish economy  
will be hard hit be the slowdown in global trade engendered by the  
Covid-19 crisis. Swedish exports will decline in the first half of 2020  
as demand is bogged down for its main trading partners, notably  
0.4  
-
-
-3  
-4  
1
-3  
China and the European Union .  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
The Covid-19 crisis will affect corporate production chains in  
Sweden and aboard, resulting in a decline in private investment. For  
example, 90% of Swedish business leaders operating in China  
foresee a sharp drop in sales in 2020.  
Source : National Statistics, BNP Paribas  
2- Economic stimulus measures  
-
Monetary policy: to defend the value of the Swedish krona and to  
For the moment, the virus has not hit Sweden very hard (only 180  
Covid-19 victims at the time we went to press, which as a share of  
its population is 12 times less than in Italy). It has not had to impose  
strict confinement measures either. Consequently, it is counting on  
household spending to be relatively resilient. Even so, private  
consumption will be squeezed by several negative factors (rising  
support the economy, Riksbank announced an exceptional  
quantitative easing programme with SEK 300 bn in securities  
purchases in 2020 (covered municipal bonds and government bonds).  
On 23 March, the central bank also authorised USD lending to ensure  
the ongoing supply of dollars, a vital currency for Swedish companies.  
Yet it did not reverse its decision to maintain the repo rate at 0% for all  
of the year 2020.  
2
unemployment , higher precautionary savings), and is likely to level  
off at best in 2020, after rising 1.2% in 2019. Lastly, after declining  
by 8% in 2019, residential investment is expected to stabilise at a  
-
Fiscal policy: on 16 March, the Swedish government announced a  
series of measures amounting to SEK 300 bn (6% of GDP) that would  
cover the cost of all sick leave taken in April and May, and that would  
allow companies to defer tax and VAT payments (retroactively, for all  
of the year 2020). The Debt Office is also authorised to provide State  
guarantees on bank loans to companies hit financially by the Covid-19  
pandemic (up to 70% of loans outstanding). Guaranteed loans will  
amount to a maximum of SEK 75 million and are geared notably to  
supporting the airline companies.  
3
low level thanks to the absorption of surplus house stocks for sale  
on the market.  
Source: Swedish government, central bank  
1
Swedish exports to the European Union and China account for 58.3% and  
5
% of total exports.  
2
The upturn in the jobless rate was already alarming in the first months of  
020, reaching 8.2% in February after 6% in December 2019.  
It is expected to drop to a record low in 2020, falling below the  
2
3
SEK 200 bn threshold for the first time since 2015 (SEK 198 bn).  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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