Sweden Economy Future Outlook

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It worth mentioning that the maximum participation was in 2008 which was 49.81 %

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Unemployment:

Unemployment happens once a individual who is energetically looking for work is unable to find work. Unemployment is often used as indicator to strength of the economy.

Between 1980 and 1990 the Sweden’s unemployment rate was below 4 %. After that it start increasing until it reach its max in 1992 which was 11.41 % due to the economic crisis at that time. It then start declaim until the second crisis in 2008-9 which was not like the on in 1992-4. The increase in immigrants was one of the reasons for rise of unemployment. With the ratio of 24 immigrants per 1000 Sweden consider one of the largest country in terms of accepting immigrants.

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Inflation

Inflation is the degree at which the over-all prices for goods and services is increasing and, accordingly, the purchasing power of money is dropping. Riksbank tries to limit inflation, and escape deflation, in order to keep the economy health.

The high inflation rate in 1980’s was mainly due to oil crisis at that time which impacted the majority of the world and that applied for Sweden as well in addition to high budget deficit , wage increase and currency devaluations. In the 1990’s Sweden had economic crisis and it decided to change its currency from fixed to float which impacted the inflation rate. The Swedish government start to implement some measures aimed to control the inflation which was appoint the Swedish central bank (riksbank) in control of stabilizing the prices.

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A report from the Riksbank about the reasons behind low level of inflation in the recent yeares “which is lower the expected forecast “ that despite the fact that Riksbank tried to influence the inflation by push more cash into the system still the inflation is below the targeted rate, and the report findings were

- The service price decline sharp spicily in2013

- Goods price continue to decline

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The above graph show Sweden low inflation in comparison to other EU countries and it shows how Sweden is the lowest in terms of inflation rate. Another observation on the graph is that both Sweden and Norway share almost the same inflation rate up until 2013 and by review that period the only explanation is the exchange rate which at that time the Norway currency start to decline sharply. Anther reason for the difference in inflation between Sweden and the other countries is the indirect tax which been used in countries like UK.

Philips Curve

Philips Curve is a model the describe the relationship between the unemployment and the inflation rate in the given economy the below graph shows the Philips Curve for Sweden

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Major Economic Policies in Response to the Problems

The financial Crisis of Nordics countries in early 1990s came as surprise to many economists and politicians as well as their people (Jonung, Kiander, & Vartia, 2009). This because the Nordics countries, Sweden; Finland; Denmark and Norway, have enjoyed advanced welfare state and full employment policies and strong labor unions (Jonung, Kiander, & Vartia, 2009). In Sweden, they consolidate their debt in early eighties but this did not sustain the shock of external economic factors deterioration (e.g. EMS crisis, Russia) (Claeys, 2008). Debt has expanded to around 40% of GDP between 1990 and 1992 (Claeys, 2008). In response to the increasing governmental debt, they initially responded by unconstrained fiscal policy. They fall in the trap of continued rise in governmental spending particularly on public consumption and social transfers (Claeys, 2008). The combination of unrestrained growth in spending and the rise in taxes has lead to increasing budget deficits (Claeys, 2008).

After many years of tight financial regulation, they switch to gradual liberalization process started in early 1980s as shown in Figure 1. Deregulation of financial market in Sweden (adapted from Englund & Vihriala) to overcome the increasing debt (Englund & Vihriala, 2016). (Sven, 2010)

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Figure 1. Deregulation of financial market in Sweden (adapted from Englund & Vihriala)

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They combine exemplary institutional and numerical fiscal rules to recover. These interventions became a good example of a successful crisis management. The budget decision power has been placed firmly under the control of finance minister and the government (Claeys, 2008).

As shown in Figure 1. Real GDP growth (adapted from Honkapohja), We can appreciate the changes in Swedish economic growth in comparison to other regional countries. The Swedish real GDP has rapid growth in early 1980s and remains stable in the second have of that decade until it fell down significantly in early 1990s with negative growth as a result of deep recession. We can notice similar phenomenon but with different severity in Finland and Norway (Honkapohja, 2014). Afterward, we can see how does the growth recovered and remains stable.

After the initial crisis in 1991 of many Swedish banks, the government decided to give a lending guarantee to the owners of the affected banks (Honkapohja, 2014). These guarantees were later transformed into loans (Honkapohja, 2014). Another intervention was introducing blanket creditor guarantee that was issued by the government. The central bank of Sweden, Riksbanken, fueled the banks and lending facilities with extensive liquidity support through its currency deposits (Honkapohja, 2014). In January 1993, the central bank aimed at attaining a target for CPI inflation of 2 per cent (Berg, Johansson, Linde, Olcer, Radeschnig, & Communication Division, 2016). This year has been marked as the year when the target inflation has been set in advanced following the uncontrolled inflation rate in the previous decades. Since then, the inflation has been on average lower than target level as shown in table 1 below. [pic 17][pic 18]

Table 1. Average inflation % (adapted from Risksbank Report 2016)

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Figure