View of Stockholm’s old town rooftops from top of a building at the Riddarholmen island in Sweden´s capital InternationalIndiaAfricaDespite a little relief, Sweden’s inflation remains well above government targets. The situation is exacerbated further by wages falling behind and hemming in consumption and a downturn of the housing market, long seen as the pillar of the country’s economy.The Swedish government has revisited its economic forecast from bad to worse, predicting a deeper-than-expected GDP contraction in 2023.The Swedish Finance Ministry downgraded its negative GDP forecast from 0.7% to 1%, citing a “challenging economic environment.”
"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," Finance Minister Elisabeth Svantesson of the ruling Moderates Party said in a statement, admitting "major challenges."
Already, one of the government’s previous reports from October 2022 described the economic outlook for 2023 as “gloomy,” envisaging recession for Scandinavia’s largest economy.While Sweden’s inflation has eased somewhat from decades-high levels, with the headline rate having abated from 9.4% in February to 8%, the figure remains well above the central bank’s target rate of 2%. The little inflation relief is, however, unlikely to impact the central bank’s policy, which has already resulted in a string of interest rates hikes starting from April 2022.Furthermore, despite the fact that inflation seems to be moving in the right direction, Swedish households are unlikely to get much benefit, as people’s real purchasing power has dropped markedly in comparison with the “fat years,” prompting many to cut back on their consumption.Energy Crisis in EuropeSweden Swept by ‘Major Bankruptcy Wave’ as Inflation, Energy Crisis Bite3 January, 05:14 GMTSince 2020, homeowners’ expenses have soared, according to the Homeowners Index by comparison service Zmarta. Housing costs alone, which include electricity, water, tax and interest costs, have nearly doubled since 2020, reflecting Sweden’s – and by extension Europe’s – energy crisis. However, unlike other parts of Europe, and even neighboring Norway, which saw wage-related strikes amid enormous pressure on households, Swedes are generally seen as more accepting of a decline in real earnings due to the painful experience of the wage-price spiral in the 1970s that fueled galloping inflation.Lastly, a downturn in real estate prices, dreaded by pundits including former central bank chief Stefan Ingves, is seen as yet another dark harbinger for the Swedish economy, with various forecasts placing the plunge as “only halfway to the bottom.”Incidentally, this doom and gloom was echoed by the EU’s executive arm, the European Commission, which named Sweden the only country with projected negative GDP growth this year. The Commission predicted a drop of 0.8% for 2023.