The recession will continue until 2023

It looks darker now than we thought in September, but there is light in the tunnel in the form of a vaccine, forecast director Elva Hayden Westerdall says at a news conference.

In the fall, KI expected a stable rebound during the second half of the year. But when the second wave of contagion now engulfs Sweden and the rest of Europe, the recovery will end in the last quarter of the year.

However, the information indicating that the COVID-19 vaccination could start relatively soon are positive signals for the economy and mean, according to KI, that the Swedish economy will recover again during the second quarter of next year.

Overall, KI expects the Swedish economy to contract by 3.1% this year and grow by the same amount next year. Earlier forecasts, published at the end of September, predicted a decline in GDP of 3.4 percent in 2020 and an increase of 3.6 percent in 2021.

But even if the vaccine means a boost to the economy, Sweden is in a deep recession with an average unemployment rate of 9 per cent next year. Elva Hayden and Westerdall says the slump will also continue for a longer period of time.

– She said it will take until 2023 before we return to normal economic condition again.

Great doubts about predictions

The National Institute for Economic Research confirms that the uncertainty in the forecast is greater than normal with a number of factors that could have a negative impact on the economy. The factor of uncertainty is whether the vaccination will succeed and whether the infection will subsequently decrease.

Brexit is also an important factor in uncertainty. The projections are based on the assumption that the European Union and the United Kingdom will enter into a trade area agreement at least before the end of the year in order to avoid the so-called “hard Brexit”. If that fails, the financial consequences can be “felt”, says KI.

Plenty of space for extra stimuli

But despite key government stimulus measures of around 250 billion SEK, Swedish public finances are good, which could be used if the economy worsens, according to KI.

“Unfortunately, risks to poorer development dominate, but there is plenty of room for new measures in 2021,” says Elva Heiden Westerdahl, adding that the Swedish central government’s debt is expected to peak at around 40 percent next year. In the international perspective is low.