Swedish economy slows - budget prospects weaken

Sweden's central government finances will weaken in the coming years as the economy slows down. That is the picture given in the new forecast from the Debt Office, which expects a lower budget balance and reduced net lending. Despite the poorer budget prospects, the Debt Office does not need to increase its krona borrowing since it has a large cash surplus to use. 

"The slowdown of the economy means lower tax income and we also expect the money that has been deposited into tax accounts in recent years to start flowing out in 2020. Central government net lending remains positive, however, and Sweden's fiscal situation is still good," says Debt Office Director General Hans Lindblad.

The new forecast shows that the budget balance will turn from a surplus of SEK 40 billion in 2019 to a deficit of SEK 30 billion in 2020 and that central government net lending will decline gradually to 0.5 percent of GDP. The downturn is mainly explained by lower income from taxes based on wages and consumption. The change in the budget balance is also due to the Debt Office's assessment that capital investments in tax accounts will decrease by SEK 30 billion next year when market interest rates are expected to rise. 

The growth of the Swedish economy is expected to slow from 2.3 per cent last year to 1.6 per cent in both 2019 and 2020. A sharp fall in construction dampens housing investments, which have contributed noticeably to economic growth over the last couple of years. The labour market slows down in line with the economy, leading to an increase in unemployment to 6.7 per cent next year.

Sweden's economy and central government finances
Previous forecast in parentheses	2018	2019	2020
GDP (%)	2.3 (2.4)	1.6 (1.9)	1.6 (1.8)
Unemployment (% of workforce)	6.3 (6.3)	6.5 (6.5)	6.7 (6.6)
Budget balance (SEK billion)	80 (96)	40 (62)	-30 (-12)
Central government net lending (% of GDP)	1.3 (1.5)	0.8 (1.3)	0.5 (1.1)
Central government debt (% of GDP)	26 (26)	23 (23)	23 (22)

The calculations in the Debt Office's forecast are based on the decisions made by the Riksdag on the budget, which includes lower taxes on work, in particular, and slightly higher expenditure. The Debt Office has also taken account of the agreement reached between the Swedish Social Democratic Party, the Green Party, the Centre Party and the Liberal Party by assuming SEK 5 billion in new unfinanced reforms for 2019 and by having an unchanged assumption of SEK 15 billion for 2020.