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Sweden anticipates GDP contractions despite decreasing inflation rate

By Al Mayadeen English
Source: Agencies
18 Apr 2023 16:51

Scandinavia's largest economy warns of a growing economic crisis as salaries lose purchasing power due to economic conditions.

Sweden's Finance Minister Elisabeth Svantesson rings a bell to signify the start of a meeting of EU finance ministers at the European Council building in Brussels on Tuesday, March 14, 2023. (AP)

With a deeper-than-anticipated GDP drop in 2023, the Swedish government has revised its economic forecast, which continues to gradually get worse.

Sweden's inflation is still significantly higher than the government's expectations, despite some reprieve. The problem is made worse by stagnant earnings, reduced spending, and a decline in the property market, long seen as the foundation of the nation's economy.

Elisabeth Svantesson, the Swedish Finance Minster, announced that the GDP forecast has been downgraded from 0.7% to 1% due to a "challenging economic environment."

Svantesson explained that "many people are struggling to make ends meet, so it is important for the Government to fight inflation and support those in the most difficult circumstances," and recognized that the nation is faced with "major challenges."

While Sweden's headline inflation rate had dropped from decades-high levels, the country still experienced inflation that is considered significantly higher than the central bank's objective rate of 2%.

However, the modest reduction in inflation is unlikely to have an influence on the central bank's strategy, which has already led to a series of interest rate hikes beginning in April 2022.

Furthermore, despite the fact that inflation appeared to be on a downward trend, Swedish households are unlikely to be able to take advantage of that, as peoples' actual purchasing power has significantly declined in contrast with the "fat years." As such, many residents were forced to cut back on their consumption in order to balance the budgets.

Back in October 2022, a government report had already described the economic outlook for 2023 as "gloomy" and anticipated a recession in Sweden, Scandinavia's largest economy.

Swedish inflation shows slight decrease after reaching a record 12.4%

As energy costs shrunk, Swedish inflation marginally decreased, while the consumer price index stalled at 10.6%, according to official sources.

The national statistics agency revealed that electricity prices were on a downward trend for three consecutive months, marking a 2.2% decrease in March.

Statistics Sweden (SCB) stated that over the last 12 months, fuel prices have decreased by 8%.

Carl Martensson, a statistician at SCB said, "The inflation rate fell in March, which was partly due to the slowdown in the rise in energy prices."

Energy costs pushed "prices for food and non-alcoholic beverages rose by 19.7 percent in the past year and 1.2 percent since February."

Inflation peaked in December and was recorded at 12.4%, which is also a more than 30-year record. It went down to 11.7% in January but quickly changed course in February, increasing to 12%.

The interest rate in Sweden was increased by the Central Bank (Riksbank) in an attempt to halt and reverse increasing price trends.