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September 17th 2020
Sweden is presenting a very favorable business climate being n.10 in Doing Business 2020 ranking. Then, economy is very diversified with a specilization in high-tech and green economy. Public finances are sound and there is an increasingly dynamic demographics. On the opposite side, there are some weaknesses, like high dependence on global demand, tensions in on the real estate market, finally a highly concentrated banking sector
The economic outlook for 2020 is impacted by the COVID-19 pandemic. The first case in Sweden was diagnosed in late January, but the wide-ranging outbreak started in early March and 81,012 cases were reported, representing 0.8% of the population. This is by far the highest infection rate in Northern Europe. 5744 deaths were recorded. The Swedish COVID-19 restrictions, the softest in Europe and mainly based on voluntary social distancing, were the reason behind this contagion dynamic.
This different approach to the Covid-19 crisis helped the economy in the short-term. Contrasting with other European countries, the Swedish economy did not enter into recession in the first quarter of 2020 (GDP Q1 2020: +0.1% QOQ), on the back of very strong exports and a high increase in inventories. However, despite voluntary restrictions, household consumption, especially service-consumption, decreased significantly in March and April. Exports, which represent 48% of GDP in Sweden, have been on a downward trend since February 2020. This combination resulted in a delayed recession, with an expected single strong downfall of the economy in Q2. Starting from the second half of 2020, the Swedish economy should initiate a gradual recovery. Nevertheless, the recession in the year 2020 will still be the strongest one in post-World War II and the effects of this downturn will be felt for long. Since March, almost 200,000 people have registered as unemployed, increasing the unemployment rate from 7.1% in February to 9.3% in June (the highest level since the beginning of the time-series in 2001). Furthermore, companies have applied for short-term work schemes for around 600,000 employees (11% of the labour force).
External accounts remain positive
The country’s external position will remain positive, as exports have been surprisingly strong in June thanks to a revitalization of economic activity in Scandinavia and Germany, the main export destinations. Nevertheless, the lack of tourism will weigh on the current account, as some neighbouring countries kept their borders closed to Sweden for longer, because of the high number of Covid-19 cases in the country. Conversely, the general government budget should shift from a surplus to a high deficit in 2020. Nevertheless, the increased public debt will stay at a moderate level and remain sustainable.
A surprising stable alliance
After the election in September 2018, none of the traditional alliances secured a majority. In the end, Prime Minister Stefan Löfven from the Social Democratic Party (100 seats) could continue his governmental work with the Green party (16 seats), after he stroke a “confidence and supply agreement” with the social-liberal Centre Party (31 seats) and the Liberals (20 seats). This new alliance seems quite stable. Even with a lot of international critique towards Sweden’s lash Covid-19 restrictions, the current government is expected to pursue its work until the next regular general election in 2022.
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