Perspectives

The health situation is still fragile

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Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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SWEDEN  
THE HEALTH SITUATION IS STILL FRAGILE  
After a second, particularly long and severe wave of Covid 19 in late 2020, Sweden has been dealing with a third wave  
of the pandemic since mid-February. Although the vaccination campaign is unfolding satisfactorily, the resurgence  
of the pandemic risks pushing back the expected profile of the recovery. Monetary and fiscal policy will remain ac-  
commodating as long as necessary.  
Since the beginning of the pandemic, Sweden has endeavoured to  
respond to the health crisis using milder and less coercive social  
distancing measures and restrictions than most of its European  
neighbours. At the end of 2020, the country was hit by a second  
wave of contamination that was especially long and severe, and that  
only partially dissipated during the month of January. Since mid-  
February, a third wave has been taking shape with a high level of new  
contaminations. With more than 1,200 deaths per million inhabitants  
to date, Sweden has paid a relatively heavy toll, especially compared  
to its Nordic neighbours, who have been largely spared from the worst  
of the pandemic.  
GROWTH AND INFLATION (%)  
GDP Growth  
Inflation  
Forecast  
4.0  
Forecast  
4.0  
3.0  
2.7  
1.7  
2.0  
1.0  
0.0  
1.4  
1.3  
1.1  
0.7  
From an economic perspective, Sweden was hit by a relatively mild  
recession last year compared to the European average (-3%), similar to  
the ones reported by its northern European neighbours. The expected  
recovery in 2021 could nonetheless be delayed by several months if  
the current vaccination campaign does not rapidly cut short the third  
wave of the pandemic. After an especially robust Q3 rebound –which  
explains why Sweden’s full-year 2020 performance was better than  
expected– GDP dipped again in Q4 (-0.2% q/q), pulled down by the  
second wave’s impact on consumption. Sweden is the only Nordic  
country that reported a slight relapse, while its neighbours continued  
to benefit from a mild recovery in end-2020.  
-
1.0  
-2.0  
-
3.0  
4.0  
-3.0  
-
2
019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
NEW CASES PER MILLION PEOPLE (7-DAY AVERAGE)  
ECONOMIC OUTLOOK FOR 2021  
DEN  
SWE  
FIN  
NOR  
9
00  
While the timing is less certain, it is relatively clear which factors  
will drive the recovery. Consumption will rebound first, fuelled by  
the end of social distancing measures and the release of “forced”  
savings accumulated during the health crisis. This will be followed by  
an upturn in exports (which account for nearly 47% of Swedish GDP),  
which are already picking up, especially in the manufacturing sector.  
In the first quarter, trade is likely to be hit by the impact of Brexit (the  
800  
700  
6
5
00  
00  
400  
th  
UK is Sweden’s 6 largest trading partner), but it will then get a boost  
3
2
1
00  
00  
00  
0
from the global recovery that will accompany the end of the pandemic.  
Given the high level of uncertainty, however, productive investment  
is unlikely to recover before 2022. For the moment, total investment  
expenditure is mainly being driven by a slight upturn in residential  
investment, in keeping with another acceleration in house prices since  
the beginning of 2020.  
Mar-20  
May-20  
Jul-20  
Sep-20  
Nov-20  
Jan-21  
Mar-21  
CHART 2  
SOURCE: REFINITIV  
In the labour market, adjustments have hit unskilled and non-resident  
workers hardest, especially since they tend to be more numerous in  
sectors like hotel and restaurant services. On the whole, employment  
declined 1.4% year-on-year in Q4. The jobless rate was still holding  
at 8.9% in January 2021, compared to 7.2% in the year-earlier period.  
So far, the upturn in activity has helped reduce the number of  
workers participating in short-time working schemes. After peaking at  
ECONOMIC POLICIES CONTINUE TO PROVIDE SUPPORT  
Inflation picked up sharply in Q1 2021, a trend largely linked to a base  
effect after the drop-off in energy prices in early 2020, but also to  
the current upturn in oil prices. According to Eurostat, the harmonised  
index of consumer prices (HICP) rose to 1.8% in February, from 0.6% in  
December 2020. The Riksbank’s target rate (CPIF) followed the same  
trend and rose to 1.5% in February. Even so, the central bank considers  
that underlying pricing pressures are still low and are unlikely to rise  
sharply in the next few months given the underutilisation of production  
2
70,000 workers in May 2020, or about 5% of the active population, the  
number of furloughed workers dropped to 59,000 last December. It is  
only after the economic recovery gains a second wind that it should be  
strong enough to fuel a rebound in job creations and a lasting decline  
in unemployment.  
The bank  
for a changing  
world  
nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
2
5
capacity and the strength of the Swedish krona (up about 4.5% from the  
Q1 2020 average).  
Under this environment, the monetary policy status quo will probably  
be maintained. At its most recent meeting, the Riksbank let it be known  
that it intended to pursue its securities purchasing programme (with an  
envelope now set at SEK 700 bn) and will maintain its key rate at 0% at  
least through the end of 2021. Fiscal policy will be dancing to a similar  
tune: whereas the initial 2021 finance bill called for SEK 100 bn in  
support measures (equivalent to about 2% of GDP), four supplemental  
finance bills have already added another SEK 40 bn in spending.  
Completed on 31 March 2021  
Frédérique Cerisier  
frédérique.cerisier@bnpparibas.com  
The bank  
for a changing  
world  
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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