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Sweden Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views Sweden will remain a growth outperformer among developed states, with domestic demand remaining strong in 2016-2017. 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 2017 as the central bank (Riksbank) will maintain a negative policy rate and disinflationary conditions will persist. However, there is an increasing chance of a policy reversal in 2016, as extraordinarily easy monetary measures are inappropriate given strong economic growth, incipient inflation and rising private sector debt. Major Forecast Changes With higher-than-expected real GDP growth in 2015 of 4.1%, and leading indicators looking strong, we have raised our 2016 forecast to 3.6% from 2.9%. Due to strong economic growth and accelerated tax payments by businesses seeking to avoid negative deposit rates, we have seen fit to revise our overall budget deficit forecast for 2016 to 0.8% of GDP from 1.3% previously, following an estimated balance of 1.1% for 2015.

Table Of Contents

Sweden Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Sweet Spot Could Turn Sour Beyond 20168
The Swedish economy is in a 'sweet spot', with real GDP growth soaring and inflation remaining low However, the ultra-easy monetary
policy that has underpinned recent expansion is building up problems for the future, and will put the economy at risk of a shock beyond
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS11
TABLE: GOVERNMENT CONSUMPTION FORECASTS11
TABLE: FIXED INVESTMENT FORECASTS11
TABLE: NET EXPORTS FORECASTS11
Monetary Policy 12
Riksbank Risks Falling Behing The Curve12
The Riksbank's aggressive monetary easing policy may be putting it behind the inflation curve A sudden, unexpected rise in inflation
means that policy would need to be tightened quickly and aggressively, putting the highly-leveraged economy at significant risk
Monetary Policy Framework 14
Fiscal Policy And Public Debt Outlook 15
Deficit To Widen Beyond 201615
Strong economic growth and idiosyncratic factors will result in the smallest Swedish general government fiscal deficit in five years
in 2016 However, the shortfall will widen in 2017 and 2018 amid political pressure to increase spending without accompanying tax
hikes
Structural Fiscal Position 17
TABLE: GENERAL GOVERNMENT EXPENDITURE AND REVENUE BREAKDOWN 17
Outlook On External Position 18
Financial Sector Debt Presents Key Risks18
Although Sweden has a negative net international investment position, we believe that net foreign assets are understated by the official
accounts, and that the country has one of the strongest external positions in the world The main vulnerability stems from Swedish
banks' borrowing from overseas, which puts the balance of payments at risk from a sudden bout of global risk aversion or a renewed
'credit crunch'
TABLE: TOP 5 EXPORT DESTINATIONS AND GOODS EXPORTS 19
TABLE: TOP 5 IMPORT SOURCES AND GOODS IMPORTS 19
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE20
Chapter 2: 10-Year Forecast 23
The Swedish Economy To 2025 23
Well-Positioned For The Long Term23
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 2025
TABLE: LONG-TERM MACROECONOMIC FORECASTS23
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
Sweden Democrats' Popularity May Have Peaked26
Swedish politics will continues to be dominated by the issue of mass immigration However, the mainstream parties' increasingly harsh
stance on asylum seekers is pushing the populist far-right Sweden Democrats further to the margins, and makes it increasingly likely
that the opposition centre-right Alliance will win the 2018 parliamentary elections
TABLE: POLITICAL OVERVIEW26
Long-Term Political Outlook 27
Strong Institutions Underpin Stability27
With a long-term political risk score of 945, 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 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: DEVELOPED STATES - LABOUR MARKET RISK32
TABLE: DEVELOPED STATES - LOGISTICS RISK36
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK 38
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK 41
Chapter 5: BMI Global Macro Outlook 43
Global Macro Outlook 43
Tail Risks Mounting Amid Sub-Par Growth43
TABLE: GLOBAL ASSUMPTIONS 43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 44
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 45
TABLE: MACROECONOMIC DATA and FORECASTS 47

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