Sweden will remain a growth outperformer among developed states, but the economy is set to cool significantly in 2017-18.
The surge in migrant inflows in 2015-16 will lead to higher economic growth over the medium term, but will present challenges to the fiscal accounts, the labour market, and domestic political stability.
Interest rates will remain low through 2018 as the central bank (Riksbank) will maintain a negative policy rate and disinflationary conditions will persist. The bank's quantitative easing cycle will be extended.
Major Forecast Changes
Our real GDP growth forecasts for 2017-18 are now an average 2.5%, compared with 2.8% previously.
We now expect the next Riksbank rate hike to occur in 2018, rather than 2017 in our previous set of projections.
Sudden Reversal Of Easy Monetary Policy: A sudden, unexpected increase in interest rates could cause a painful adjustment for private sector borrowers and generate instability in the financial sector.
Downside Growth Risks From Europe: A relapse in the European economic recovery would leave Sweden's open economy vulnerable to external demand shocks. The UK's vote to leave the EU presents longer-term risks to political stability.
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