The Swedish growth is strong, but will slow in the future with a decrease in housing investment. Household indebtedness remains a risk.
It writes the OECD, the industrialised countries of the economic cooperation organization, in the spring forecast, the Economic Outlook, which was presented on Wednesday.
The OECD forecast that Sweden’s GDP will grow 2.7 per cent this year and 2.3% next year. In the autumn saw the OECD, GDP would increase by 2.7 percent this year and 2.2 per cent next year.
The OECD notes that the Swedish economy continued to grow strongly, supported by solid demand, increased labour, rising productivity and a brighter international outlook.
The unemployment rate will decline gradually, but the unemployed consists in increasing the degree of newcomers and people who are difficult to employ. Lönetillväxten, negotiated with the eye on international competition, is slow given the strength of the economy.
Households ‘ saving rate is high, which holds back private consumption and dampens inflationary pressures. Monetary policy has thus remained expansionary, which continues to draw investment and asset prices, albeit at a slightly slower pace.
The repo rate has remained at – 0.5 per cent since February of 2016, which pulled up prices and inflation expectations. Low interest rates, strong employment growth, favourable tax conditions for housing and a slow response in supply has led to house prices increasing at double-digit rates the last two years, and the rising level of indebtedness among households.
Measures in the macro-prudential supervision, including amorteringskravet, seems to have dampened the upswing slightly.
But the current measures should be complemented with skuldkvotstak if prices continue to increase. The OECD also recommends a more liberalised rents, higher property tax, and phased out interest deductions, which should mitigate the price rise, improve the allocation and increase mobility on the housing market.
The OECD notes that the reduction in the surplus target of 0.33 percent of GDP increases the fiscal space in the coming years, and plans to use this to measures for the improved integration of newcomers is welcome.
GDP growth is expected at the same time subdued in the next two years. Labour shortages and lack of land with planning permission will hold back residential investment. Consumption is expected to increase more slowly than GDP, then real wage growth will be dampened by restrained wage agreements. The high savings rate, partly related to uncertainty and increased amortization, also suppresses the growth.
Domestic inflationary pressure is expected to remain subdued, and monetary policy will thus remain expansive. The decline in the unemployment rate is expected to decline with greater difficulty to get jobs for newly arrived and low-skilled workers.
Interest rates expected to remain low for a while and a failure to dampen household debt will increase the financial risks and household vulnerability to downturns in housing prices and increases in interest rates.
The OECD also notes that Sweden is a small, open economy that is highly integrated in global value chains, and thus especially exposed to the currency fluctuations, international handelstillväxt, protectionism and the development of its trading partners.
The global economic outlook has improved, but is not yet good enough to be in a sustainable way to improve the prosperity of the citizens also wrote to the OECD, in its spring forecast.
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