Perspectives

A hard-hit economy

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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SWEDEN  
A HARD-HIT ECONOMY  
Since March 2020, Sweden has adopted a more relaxed approach to the COVID19 outbreak as no lockdown has been  
imposed to the population. However, the recent pick up in new infections could slow the recovery down in Q4 2020.  
Pervasive uncertainty will continue to hamper exports and corporate investment, while household consumption is  
fuelling the economic recovery. In 2021, the Riksbank will maintain and expand its vast asset purchasing programme.  
New expansionist measures are expected to bolster an already accommodating fiscal policy.  
After falling by 8% in Q2 2020, GDP rebounded by 4,9% in Q3 2020. The  
GROWTH AND INFLATION (%)  
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020 full-year decline is expected to be 3.4% according to the European  
Commission’s forecast. In 2021, the GDP is expected to grow by 3.3%.  
However, It will take time, for the economy to recover pre-pandemic  
levels. The effects of a new Coronavirus wave on the economy are to  
be feared since Sweden has one of the highest mortality rate among  
the European countries with 7,000 deaths per 10 million inhabitants.  
GDP Growth  
Inflation  
Forecast  
Forecast  
4.0  
3.0  
3.3  
2.4  
1
.7  
2
.0  
1.0  
.0  
1.3  
1.3  
0
.8  
0
.6  
THE HOUSEHOLD CONSUMPTION’S RESILIENCE  
0
Sweden’s small, open economy was hard hit by the massive drop-off in  
world trade in 2020 as exports fell by more than 18% in Q2. However,  
they turned out to be resilient as their level in May was close to their  
December 2019 level. However, the pandemic resurgence particularly  
-1.0  
-2.0  
-
-
3.0  
4.0  
1
in the US and the UK combined with the risk of a hard brexit, could  
-3.4  
2020  
hamper exports in Q1 2021. Since exports experimented a further de-  
cline in Q3 and Q4 2020, they are unlikely to return to pre-crisis levels  
before H2 2021.  
2019  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
Regarding corporate investment, uncertainty persists, but manufactu-  
ring leaders are less pessimistic than they were in Q3 (manufacturing  
PMI reached 59.1 in November). Even so, investment is expected to  
recover slowly given the currently low level of corporate financial ca-  
pacities despite the government’s financial support.  
Fiscal policy is also accommodating since new measures were  
introduced in the 2021 and 2022 budget, representing additional  
Soaring house prices since May have illustrated the renewed optimism amounts of SEK 105 billion in 2021 (2% of GDP) and SEK 85 billion in  
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of households . Private consumption, down 4% in 2020 should regain 2022 (1.7% of GDP). These measures are geared mainly for companies  
strength in 2021 if a vaccine is widely expanded. Retail sales growth and the most hit by unemployment such as youngsters - from 19 to  
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was stronger in Q3 2020 than in December 2019 . However, household 23 years old - low skilled workers and immigrants. Large training  
savings rose sharply during the pandemic, due to restrictions on out- programmes will also be set up. The government is also providing  
door leisure activities and deteriorating labour market conditions. The support for the regions by doubling their allocated funds and extra  
unemployment rate is expected to reach 8.6% in 2020 and then 9% in SEK 10 billion subsidies were dedicated to hospitals in early Q4 2020.  
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021, up from 6.8% in 2019.  
Such measures will widen the public deficit to 4% of GDP in 2020  
and 3.8% in 2021. Public investment in the ecological transition and  
infrastructure should continue to boost domestic demand.  
A STRENGTHENED MONETARY AND FISCAL SUPPORT  
Inflation slows down in 2020 and should reach 0.6%, away from its  
Completed on 7 December 2020  
2
% target in 2020 according to the Commission estimates. Inflation  
could accelerate again to 0.8% in 2021 thanks to an accommodating  
monetary policy and depending on the economic recovery. Moreover,  
the Swedish central bank announces that it will expand its quantitative  
easing program to SEK 700 billion which is SEK 200 billion more than  
its earlier target of SEK 500 billion. However, Riksbank governor Stefan  
Ingves stated that he saw “no hurry to raise the repo rate” and decided  
to keep it at 0% until the end of 2023.  
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The United States and the UK, Sweden’s third and fourth largest trading partners, are  
among the economies most impacted by the Covid-19 crisis.  
The house price index has risen constantly since May 2020 to 261.81 in October 2020,  
up from 239.55 in April (100 = January 2005).  
The retail price index, excluding vehicles and repair services, averaged 112.28 in  
June-October 2020, compared to 110 in December 2019 (100=2015).  
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for a changing  
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