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Sweden Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

Sweden will remain a growth outperformer among developed states,with domestic demand remaining strong in 2016-17.The surge in migrant inflows in 2015-16 will lead to higher economicgrowth over the medium term, but will present challenges to the fiscalaccounts, the labour market and domestic political stability.Interest rates will remain low through 2017 as the central bank(Riksbank) will maintain a negative policy rate and disinflationaryconditions will persist. However, there is an increasing chance of apolicy reversal in 2016, as extraordinarily easy monetary measuresare inappropriate given strong economic growth and rising privatesector debt.Major Forecast ChangesDue in large part to the surge in immigration, we have raised ourreal GDP growth forecasts to 3.0% for 2015 (from 2.6%) and 2.9%for 2016 (from 2.7%), and we now see growth of 2.8% on averagebetween 2017 and 2020 versus 2.4% previously.

We see a major increase in the general government budget deficitin the near-term, due in large part to spending on immigration. Wenow forecast deficits of 1.3% of GDP in 2016, 1.4% in 2017, and1.7% in 2018, compared our previous projection of shortfalls of 0.9%of GDP or less between 2016-18.

Table Of Contents

Sweden Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Government Will Not Collapse Despite Caving On Immigration8
High levels of immigration to Sweden will continue to present the biggest challenges on both the political and policy fronts for the Social
Democrat-led government The decision to end the country's 'open-door' immigration policy in November 2015 will help relieve pressure
on the government and stave off a further increase in the popularity of the rightwing nationalist Sweden Democrats
TABLE: POLITICAL OVERVIEW8
Regional Politics 10
Lack Of Regional Response Escalating Impact Of Migrant Crisis10
The ongoing migrant crisis will continue to place severe strains on the functioning of EU institutions, domestic political relations and
social cohesion across the continent With no united policy at a regional level, or agreement among parties domestically on how to
tackle the crisis, social tensions are bound to increase, raising political risk across the European Union
Long-Term Political Outlook 13
Strong Institutions Underpin Stability13
With a long-term political risk score of 945 (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 antiimmigration
movement amid a quickly growing foreign-born population poses risks to both governance and Swedish civil society
Chapter 2: Economic Outlook 17
SWOT Analysis 17
BMI Economic Risk Index 17
Economic Growth Outlook 18
Population Surge To Boost Long-Term Growth18
An unexpected surge in immigration to Sweden has altered both the near and long-term landscape for Swedish demographics and the
economic trajectory as a whole We have raised our real GDP growth forecasts out 10 years, with residential construction in particular
set to benefit from a rising population
GDP By Expenditure Outlook 20
TABLE: GDP GROWTH FORECASTS20
TABLE: PRIVATE CONSUMPTION FORECASTS21
TABLE: GOVERNMENT CONSUMPTION FORECASTS21
TABLE: FIXED INVESTMENT FORECASTS21
TABLE: NET EXPORTS FORECASTS21
External Trade And Investment 22
Bounce, But Not Full Recovery In Exports Ahead22
Swedish export growth will pick up modestly by mid-2016 However, the long-term outlook remains weak, alongside disappointing global
export volume growth
Outlook On External Position 23
TABLE: TOP 5 EXPORT DESTINATIONS AND GOODS EXPORTS (2014)23
TABLE: TOP 5 IMPORT SOURCES AND GOODS IMPORTS (2014)23
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE24
Monetary Policy 25
Riksbank To Row Back On Easing By End-201625
The Swedish Riksbank is likely to lower its benchmark repo rate further into negative territory at its December 2015 meeting, to -045
%from -035% However, this policy is inappropriately easy in our view and we believe the Riksbank will begin reversing course by late
2016, moving the repo rate to -035%, as reflationary expectations pick up amid above-trend growth and fiscal stimulus
Monetary Policy Framework 27
Fiscal And Debt Outlook 28
Debt And Deficit To Rise On Immigration Spending28
Sweden's fiscal accounts will be hit in 2015 to 2018 by soaring costs to accommodate foreign migrants, but will recover over time as
economic growth increases and expenditures subside We forecast a return to near-balanced budgets by 2020
TABLE: GENERAL GOVERNMENT EXPENDITURE AND REVENUE BREAKDOWN 29
Chapter 3: 10-Year Forecast 31
The Swedish Economy To 2024 31
Well Positioned In The Long Term31
Sweden is among the most strategically well positioned economies in the developed world and this is reflected in our 10-year growth
forecasts, which expect steady expansion through to 2024 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 work force over the long term
TABLE: LONG-TERM MACROECONOMIC FORECASTS31
Chapter 4: Operational Risk 33
SWOT Analysis 33
Operational Risk Index 33
Operational Risk 34
Labour Market Risk34
TABLE: DEVELOPED STATES - LABOUR MARKET RISK34
Logistics Risk37
TABLE: DEVELOPED STATES - LOGISTICS RISK37
Crime And Security Risk40
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK40
Trade And Investment Risk42
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK43
Chapter 5:BMI Global Macro Outlook 47
Global Outlook 47
Emerging Markets Bending, Not Breaking47
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %49

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