Is Sweden Heading Towards an Economic Slowdown?

Sweden’s economy seems to be moving towards a tough time. Due to increased inflation and high-interest rates, economic growth is expected to slow in the second half of this year. While the labor market is still strong, unemployment is expected to level out next year. The economic growth is predicted to drop to 2.2% this year and 1% in 2023. A lot of business investments and exports will be impacted by increased global uncertainty.

An Uncertain Economic Situation

The current economy is volatile since inflation is causing havoc in the World, and a crisis is expected in the near future. Moreover, Russia’s war has driven up prices of energy and food, which impacts those already in a difficult economic situation. Therefore, financial policy is essential to support households with the weakest finances, says Minister for Finance Mikael Damberg.

(OECD Sweden Economy Snapshot)

The Swedish Krona responds positively to the Riksbank’s announcement

Responding to soaring inflation, Sweden’s central bank joins the global monetary authorities by raising interest rates by half a percent. The Riksbanka nnounced it would raise its policy rate by 50 basis points to 0.75 percent, signaling further increases during the year. This move aligns the Swedish Central bank with its counterparts, including the U.S. Federal Reserve which implemented its first rate hike post-pandemic. The  European Central Bank is also targetting to constrict its monetary policy.

The Swedish currency, the Krona, rose slightly versus the Euro after the Riksbank’s announcement as against its fall of 3.8 percent against the Euro and 11.6 percent against the U.S. dollar since the  beginning of the year.

Labor Market – a positive indicator

The labor market condition considerably improved after the pandemic. Indicators suggest an increase in the employment rate in the near future, but by the beginning of the year’s second half employment growth will slow down. The unemployment rate  is expected to decline this year before leveling out at 7.4% in 2023, somewhat higher than the Spring Fiscal Policy Bill prediction.

Strong HouseHold Saving Rates

EUROSTAT Sweden’s household saving rate in March 2022 was 16.98 percent. Historical records show that Sweden’s household saving rate peaked in December 2020 at 21.81 percent and hit a record low of 16.63 percent in December 2021.

The Sweden – Household saving rate – latest updated from the EUROSTAT on July of 2022 – actual figure from Trading Economics is given together with relevant indicators, a historical data chart, and the current real value.

(Eurostat household savings rate from TradingEconomics)

Key Economic Indicators

(Ministry of Sweden – key economic indicators)

Preventing Financial Crisis

It’s imperative to control a financial crisis as it can potentially lead to economic losses, economic downturn, bankruptcies, and increased unemployment. Information about the dangers involved and staying heedful of any changes or weaknesses that could trigger a catastrophe can help avoid potential financial disasters.

Preparedness is vital to eradicate any pitfalls or triggers leading to an economic calamity. A well-established crisis management team and robust decision-making procedures play a pivotal role in managing a crisis—the Riksbank conducts regular crisis management exercises with businesses in line with Swedish and´foreign authorities.