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Sweden’s economy contracts unexpectedly

Sweden’s economy is shrinking, and the state of the market is changing. During the second quarter of this year, the nation’s GDP fell by 0.1 percent, compared to the same period in 2018. This happened in spite of the Swedish central bank’s forecasts, which estimated growth by 0.1 percent.

The GDP is falling, the Swedish krona is underperforming and the unemployment rate is increasing. The state of the market in Sweden is changing in several ways. At the beginning of August, the National Institute of Economic Research (NIER), presented a forecast showing an unexpectedly rapid contraction of the economy.

Several factors behind the contraction

Ylva Hedén Westerdahl, director of forecasting at NIER, explains some of the underlying factors:

– Trade war, Brexit and conflicts between Iran and other countries regarding oil are all important factors contributing to the development, Hedén Westerdahl says to Dagens Nyheter.

Global stock markets fell on Monday as the trade war between USA and China intensified. Since Boris Johnson got elected as Prime minister in the UK, the uncertainty surrounding Brexit has increased. Furthermore, there have been fewer investments than forecasted in the business sector, and household spending has not increased at the projected rate.

Also, both import and export have developed slower than NIER thought.

Rate of unemployment is increasing

The Swedish Public Employment Service recently issued a press release, stating that the rate of unemployment is increasing. 344 000 people were registered as unemployed in July 2019, which can be compared to 339 000 as of July 2018.

Anders Ljungberg, head of the department of analysis, stresses mainly two reasons causing the rise of the unemployment rate.

– It is a significant increase, and we assess that the unemployment rate will continue to rise during the autumn of 2019, and 2020. This is partly due to the contraction of the economy and fewer subsidized jobs.

According to Ljungberg, low-skilled labor is facing a substantial risk of long-term unemployment.

Boom will last throughout 2019

In spite of the unexpectedly rapid contraction, NIER forecasts that the economic boom will last throughout 2019, but gradually fade during 2020. The inflation will fall back during 2019 and be under two percent in both 2019 and 2020.

Additionally, their forecasts show that the Swedish economy will grow by 1,5 percent during 2019, and 1,3 percent during 2020. The Swedish central bank has delayed the planned increase of the repo rate, because of the indirect consequences this will have on the economy. It will be postponed until 2020.