As in many other countries, the slowdown in the world economy will also affect the Swedish economy. But since Sweden did not have any direct exposure to the American subprime loans or derivative related products in our banking system, the business decline doesn’t have to be too heavy. The double surplus, both in foreign trade and in public finances, could reduce the negative business effect even further.
In its report, IMF states that the Swedish economy looks good in general. Production and employment growth is high, public finances are solid and inflation has been moderate. GNP growth is estimated to 2 percent this year and somewhat lower in the coming years. Unemployment will probably increase, although not to the high levels we’ve seen in the past. However, IMF is concerned about the inflation that keeps increasing at the same pace as prices and inflation expectations.
“With increasing energy and food prices, inflation has reached the upper level…” says IMF in the report.
To control inflation, IMF advices the Swedish Central Bank to wait with further lowering of interest rates and to keep a stricter monetary policy. If the economy needs incentives, IMF believes that finance policies rather than interest rates should be used. How long should the monetary policy be kept strict? Bob Traa, head of IMF’s Swedish delegation, doesn’t want to speculate, but refers to how future financial indicators develop.
Emelie Ring, Editor
Read the report