The government forecasts a dark 2020, with GDP collapsing by 4 percentage points, employment falling and unemployment rising to 9 percent.
Yesterday the highest alert figures were ever presented. That being said, Sweden is entering this economic crisis with good government finances and historically low government debt. Now other times are waiting.
These are dramatic figures presented by the Minister of Finance in a highly uncertain world. What the government is now predicting is a fall in GDP that is just as deep during the financial crisis and that it will take several years for the economy to recover. The government has so far invested SEK 80 billion on various support packages and has also provided loans and guarantees worth SEK 500 billion. The spending cap has been difficult enough to keep up with in good times, right now Finance Minister Magdalena Andersson is not even looking for excuses for having any funding in place to cover the huge support packages.
The analysis is more positive than Handelsbanken, which forecasts a 7 per cent race in GDP and more negative than SEB.
The government predicts that the Riksbank will lower interest rates
In order for the calculation to hold, the government assumes that this is a short and intense crisis. Extremely uncertain light signs from China can support this thesis. But in order for the calculation to hold, the government predicts that the Riksbank will once again lower the interest rate to a minus. This is because already low inflation can very well shift to a situation where prices for goods and services are falling. The Riksbank has so far resisted, with some post-traumatic stress syndrome after its time with a negative interest rate. But given the gloomy situation, things will change.
We now see that the crisis is moving from China-exposed companies to small businesses and employees to spreading like rings on the water. No sector will be unaffected. The 1,000 billion issue is; are the already state aid packages sufficient? Probably not.
More support for the companies is waiting
The government has also received a lot of criticism for having provided the most loans and guarantees to affected companies. The criticism is great from small and medium-sized companies who experience the support for complicated and expensive. Obviously, it is not possible to work fast enough in this crisis. What is then close to a passport is to give the companies zero interest on the deferred tax amount and that the state takes even more of the salary cost for the employees.
But the questions at the press conference were very much about how reliable the forecast is. It is a forecast that depends not only on how the spread of infection develops in Sweden but the rest of the world. There are extremely many unknown variables. We are already seeing disruptions in trade with closed borders, something that could very well continue for the rest of the year.
In the forecast, the government predicts that the economic downturn will reach its peak in the spring and then it will turn up steeply after the summer. No one knows how long the crisis will last. Unfortunately, the risks are downside.