The Swedish government plans tax cuts and extra investment next year, sticking to its usual surplus approach even as the labor market shows signs of a rapid decline, and a regional economic slowdown looms.
As part of Sweden’s annual national budget, submitted to parliament, Finance Minister Magdalene Andersson announced a budget outlook that bets on surpluses over the next three years.
Minister Andersson outlined plans to boost employment, meet the challenge of climate change, increase security, strengthen democracy and safeguard welfare, saying that Sweden is well equipped to deal with a regional economic slowdown.
“The Swedish economy is well equipped to meet the uncertainties in the world and nationally. Government finances show a surplus, national debt is the lowest since the end of the 1970s, and unemployment has fallen. We have implemented a responsible fiscal policy so that Sweden can meet the slowdown with well-balanced reforms,” Minister Andersson said.
The Swedish economy grew moderately over the last five years. Eurozone nations — including Sweden — are now expecting a slump in growth.
Recent labor market figures indicate that Sweden’s economic downturn could be worse than previously forecast.
Forecasts released in July by the European Commission predicted Sweden’s economy to grow by 1.5 percent of GDP in 2020, but on Tuesday, data showed that unemployment had risen unexpectedly last month. At 7.4 percent, unemployment is the highest in four years and significantly above the 6.4 percent the government had forecast for 2019.
Martin Enlund, global chief foreign exchange (FX) strategist at Nordea, called the surprise unemployment figures a “catastrophe” and “a very bad sign for Swedish growth” and for the krona.
Mikael Sarwe, head of Nordea Market Strategy tweeted last week that Sweden “should be heading for 0 percent growth late 2019/early 2020.”
The 2020 budget bill delivered on a promise for 5 billion kronors worth of stimulus spending directed at some of the country’s most disadvantaged municipalities, including a tax reduction for housing in certain geographical areas.
In line with recent announcements, the budget also includes record spending on military defense and initiatives to protect nature and combat climate change, including establishing an “electrification commission” to speed up the work of electrifying the heavy road transport and the transport sector as a whole.
Sweden is expected to achieve a budget surplus of 0.3 percent for 2020, rising to 1.2 percent in 2022 when the government plans to introduce a tax on the financial industry. Enditem (1 U.S. dollar =9.72 kronors)