Swedish Government Sees Negative Rates in 2021-2022

(Bloomberg) --

Sweden’s government forecasts the key policy rate to return to negative territory in 2021, something Riksbank Deputy Governor Henry Ohlsson cautioned against in the minutes of the December meeting.

The government also cut its growth forecasts as the center-left coalition ruling Scandinavia’s biggest economy said a slowdown in the world economy is “becoming increasingly clear” in the Nordic country.

“In recent years we have built up a welfare reserve by paying off national debt, which makes it possible to address the slowdown without savings packages,” said Finance Minister Magdalena Andersson at a press conference at the government’s headquarters in Stockholm.

Andersson, who earlier this week came under fire from opposition parties over additional funds to cover rising welfare costs, also said it’s “possible to stimulate” the reserve to help finance welfare services in the municipalities and regions.

“The large group of people born in the 1940s is getting older and
those born in the 1990s are of child-bearing age. This means that all future expenditures will have to be balanced against increased resources to welfare,” Andersson said.

The social democrat-led government also revised upwards its forecasts for unemployment and is now expecting the country’s jobless rate to reach 7.0% in 2020.

Last month the Swedish Finance Minister said the tax reform promised in “the January Agreement,” a deal struck between the government and two centrist parties, will most likely lead to higher taxes in the future, according to an interview with TT.

©2020 Bloomberg L.P.