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