KI: Sky-High Inflation in Sweden, entering a recession this year

This year’s economic downturn in Sweden may be directly attributed to sky-high inflation. This is what the National Institute of Economic Research states about the economic situation in Sweden in its most recent report on the state of the Swedish economy. The projections for growth for both this year and next year have been scaled back.

The combination of loose monetary policies implemented during the epidemic, severe disruptions in global value chains, and Russia’s invasion of Ukraine has produced the perfect storm, which has resulted in runaway inflation in many different regions of the world.

According to what’s said in the study on the current state of the economy, “the skyrocketing inflation is driving the Swedish economy into a recession.”

The organization revised its projections for the growth of the GDP for both this year and next year, bringing them down to 1.9 and 1.2 percent, respectively.

KI’s most recent projection, which was released in March, indicated that the company anticipated a growth rate of 3.3 percent in 2022 and 2.1 percent in 2023.

KI contends that Swedish people have adopted a gloomy perspective of the future as a result of the rising inflation, decreasing prices for assets (such as shares and real estate), and anticipation of interest rate hikes. All of these factors have contributed to the downward trend in asset values.

Positive with regard to the business

The tones that are used in business are distinct.

There is nevertheless cause for some hope given the reasonably healthy state of profits and order books that are well supplied.

On the other hand, a decrease in demand is anticipated since the purchasing power of households has been declining.

According to KI’s writing, “The Riksbank is thus confronted with a tough balancing act in the question of how much tighter monetary policy should be in order to both contain inflation and stop the recession from going too deep.”

The projection by KI indicates that the balancing act that KI discusses in terms of the policy rate would result in interest rate hikes, with the policy rate increasing from 0.25 percent today to 1.50 percent by the end of the year.

KI, however, feels that this amount is sufficient and projects that the policy rate will be 1.50 percent at the end of each year from now until the conclusion of the forecast period in 2026.

Big swing

There are indications of some encouraging developments in the job sector, in spite of the impending crisis.

According to KI, although there will likely be a marginal reduction in the rate of unemployment in the coming year, it will still be at a pretty high level.

The new conclusion reached by KI is a significant departure from the most recent projection, which was issued in March.

After that, it was expected that the economy of Sweden will have a moderate expansion toward the end of the year 2022.