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Swedish economy to shrink less than feared in 2020

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Sweden’s economy will shrink less than previously expected this year due to the outbreak of the novel coronavirus and measures to control its spread, a leading think tank said on Thursday.

Sweden opted against the kind of draconian lockdown adopted across much of Europe and, though its economy has been badly hit, it looks likely to suffer a milder downturn, though still almost as bad as the recession that followed the financial crash in 2008-2009.

Economic output is expected to fall by 4.8% this year and expand 3.4% in 2021, the National Institute for Economic Research (NIER) said.

“Companies will continue, therefore, to cut their work forces and unemployment will reach 10% in winter,” NIER said in a statement.

In its previous forecast in June, the NIER saw GDP declining by 5.4% this year and increasing by 3.5% in 2021.

The euro zone economy is expected to contract around 8% this year. The Bank of England expects Britain’s GDP to shrink 9.5%.

Economists have been cautious about vaunting Sweden’s light-touch strategy in fighting the spread of the coronavirus.

Notably, the death toll has been higher than in neighbouring countries that took more stringent lockdown measures.

So far, more than 5,750 people have died in Sweden compared to just 256 in Norway, which has around half the population.

And Sweden’s economy is expected to shrink more than Norway’s or Denmark’s this year, according to a Reuters poll.

Furthermore, while the short-term hit to the economy may be less than than in many bigger European economies, longer-term prospects for Sweden, which relies heavily on exports of goods such as trucks and compressors, depend on a swift global recovery.

“It will take time to see the total effect of the coronavirus outbreak on the labour market, patterns of consumption and what it means for inflation,” said Cathrine Danin, economist at Swedbank.


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