The Finance Ministry of Sweden said on Wednesday that the economy of the Scandinavian country is moving towards a deep and long recession in the next calendar year. Higher energy prices and resultant inflation in the economy are having a significant impact on households and businesses in the country.
According to the finance ministry of the country, the gross domestic product of Sweden is expected to shrink by 0.7 per cent in 2023, mainly due to decreasing economic activity. Earlier the ministry had predicted a 0.7 per cent decline in gross domestic product.
Overall inflation is expected to be posted at 6 per cent next year, down from the 5.2 per cent seen previously.
Finance Minister of Sweden, Elisabeth Svantesson told news agencies that the economic winter in the country seems to be more protracted than what was expected by the ministry. She also said that the weak development of the economy is expected to continue till the end of 2024.
A newer prediction by the ministry states that the economy of Sweden will only grow at a rate of 1 per cent in 2024. The government earlier expected a 2 per cent growth in the domestic economy in 2024. The economy is expedited to bounce back in 2025 with a 2.7 per cent GDP growth.
The 621 billion dollar Swedish economy which is based on the export of services and goods, has been suffering from a severe economic crisis for the past few months, mainly due to rampant inflation, rising mortgage costs and record-high energy prices.
In order to bring down high inflation in the economy, the central bank of Sweden, Sveriges Riksbank hiked the key interest rate, four times this year. The Benchmark interest rate in the economy is currently standing at 2.50 per cent. The central bank is expected to continue tightening monetary policies as inflation rates are surging above 10 per cent.
In October 2022, the annual inflation rate increased by nearly 10.9 per cent making it the highest since February 1991. In September 2022, the inflation rate was standing at 10.8 per cent. The recent inflation numbers are well above the 2 per cent target set by the central bank.
Nearly all countries that are part of the European Union has been suffering from severe economic crisis for the past few months. High fuel prices triggered by Russian special military operations in Ukraine had resulted in high inflation rates in nearly all economies.
In order to bring down high inflation in the economies, central banks across the globe have been resorting to interest rate hikes. Higher interest rate hikes also push these economies into a slowdown and recession at the end.
