Business Report Q4 08: "Strong structural reforms vital in fighting unemployment"

With its large vehicle industry and low household financial reserves, Sweden has high exposure to international storm waves. Investments and employment will shrink drastically in 2009. GDP growth will not turn upward until 2010 but the labour market will be weak for several years to come. These are the conclusions of the latest Confederation of Swedish Enterprise business report.

Sweden’s economy is being hit hard by the crisis of confidence that followed the bankruptcy of Lehman Brothers. A critical point has been passed where many businesses no longer borrow to invest even though the credit market is slowly recuperating. Many actors are stowing their sails to meet the storm.

“Two of three businesses plan to reduce staff during the coming six months, according to the Swedish Enterprise business panel. Unemployment may increase by 100,000 to over eight per cent next year,” says Stefan Fölster, chief economist at Confederation of Swedish Enterprise.

The correct strategy in this storm is to rig storm sails. The vessel can be kept moving by bringing forward investment and reforms that are beneficial in the long term and provide stimulus in the short term.

“For example, pushing up large infrastructure projects where planning is already in place. Lowering tax on work is a reform that would reinforce competitiveness and stimulate employment and training as well as increase domestic demand,” suggests Fölster.

Extra consumer stimuli on top of the tax cuts and the inflation and interest decreases due next year — for example a reduction in value added tax — are not the right course to take in this situation.

“History shows that finance-political stimuli aimed at investments and structural reforms in times of deep economic downturns have provided the best long-term development. There has to be a commitment to an economic policy that also has beneficial structural effects,” concludes Stefan Fölster.

For more information:

Stefan Fölster, Chief Economist, tel +46 8-553 431 60

Göran Grahn, Economist, tel +46 8-553 431 03

Kirsten Åkerman, Communication, tel +468-553 430 95