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Sweden Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Sweden will remain a growth outperformer among developed states, but the economy is set to cool significantly in 2017-2018. The surge in migrant inflows in 2015-2016 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 2017-2018 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 as we previously projected.

Table Of Contents

Sweden Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Sharp Slowdown Ahead..................................................................................................................................................................8
Swedish real GDP growth will decelerate considerably in 2017-2018 compared with the preceding two-year period. Economic activity
will weaken, highlighted by stagnant exports, a cooling residential construction market and slowing household consumption growth.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Monetary Policy........................................................................................................................................................ 11
Policy To Shift As Inflation Remains Subdued...........................................................................................................................11
The Swedish Riksbank will keep policy rates on hold until the end of 2018. However, there could be shifts in policy ahead, with
quantitative easing extended by six-to-12 months and potentially a new inflation target.
Monetary Policy Framework.................................................................................................................................... 12
Fiscal Policy And Public Debt Outlook.................................................................................................................. 13
Deficits To Return, But Structural Position Is Sound................................................................................................................13
Swedish government finances are sound, but the general government balance is set to deteriorate from being roughly balanced in
2015 and 2016, into deficit in 2017-2019. Both revenue and expen diture growth will decelerate, but the former will slow more qu ickly
than the latter.
Structural Fiscal Position........................................................................................................................................ 14
TABLE: GENERAL GOVERNMENT EXPENDITURE AND REVENUE BREAKDOWN.......................................................................................... 14
Chapter 2: 10-Year Forecast................................................................................................................... 17
The Swedish Economy To 2025.............................................................................................................................. 17
Well-Positioned For The Long Term............................................................................................................................................17
Sweden is among the most strategically well-positioned economies in the developed world, and this is reflected in our 10-year growth
forecasts, which see steady expansion through to 2025. The balance of payments are extremely stable and will be buoyed by a robust
current account surplus, fiscal dynamics are among the best in Europe, and the country will continue to benefit from a highly productive
workforce over the long term.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................17
Chapter 3: Political Outlook................................................................................................................... 19
SWOT Analysis......................................................................................................................................................... 19
BMI Political Risk Index........................................................................................................................................... 19
Domestic Politics..................................................................................................................................................... 20
Brexit Puts Sweden's European Future In Focus......................................................................................................................20
The UK's Brexit vote has raised long-term political risk in Sweden. While 'Swexit' is not our core view, Sweden may become increasingly
isolated within a European Union that is increasingly centred on preserving the euro.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................20
Long-Term Political Outlook................................................................................................................................... 22
Strong Institutions Underpin Stability.........................................................................................................................................22
With a Long-Term Political Risk score of 94.5 (out of 100), Sweden is among the most structurally stable countries in the world. Benefiting
from an advanced level of institutional development, a long history of democratic governance and an established foreign policy based on
neutrality, the country faces limited underlying risks to political stability over the long term. However, the rise of a populist anti-immigration
movement amid a quickly growing foreign-born population poses risks to both governance and Swedish civil society.
Chapter 4: Operational Risk................................................................................................................... 25
SWOT Analysis......................................................................................................................................................... 25
Operational Risk Index............................................................................................................................................ 25
Operational Risk....................................................................................................................................................... 26
TABLE: DEVELOPED STATES - LABOUR MARKET RISK...................................................................................................................................26
TABLE: DEVELOPED STATES - LOGISTICS RISK..............................................................................................................................................30
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..........................................................................................................................33
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK.....................................................................................................................35
Chapter 5: BMI Global Macro Outlook................................................................................................... 37
Global Macro Outlook.............................................................................................................................................. 37
EMs Past The Worst, But Structural Problems Persist.............................................................................................................37
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................37
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................38
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................39
TABLE: SWEDEN - MACROECONOMIC DATA and FORECASTS..........................................................................................................................41

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