STOCKHOLM (Reuters) – Sweden is facing a deeper economic downturn this year than previously predicted, but high inflation means that the government cannot loosen the fiscal taps in the autumn budget, Swedish Finance Minister Elisabeth Svantesson said Thursday.
“We are enduring an economic winter,” Svantesson told a news conference after presenting fresh forecasts for the economy.
New spending and tax cuts in the upcoming budget, due next month, will total around 40 billion crowns ($3.6 billion), which Svantesson said would not provide much stimulus to flagging growth.
“You cannot spend your way out of an inflationary environment,” she said.
The Finance Ministry expects GDP to contract 0.8% in 2023, against a previous forecast made in June of a 0.4% contraction.
In 2024, the economy is now expected to grow by 1.0%, up from a June prediction of 0.8%.
Sweden’s economy shrank sharply in the second quarter, contracting 1.5% compared to the previous three month period and 2.4% from the year-earlier quarter, preliminary data showed recently.
Banking group Swedbank forecast a contraction of 0.9% this year versus 2022 in its latest forecast earlier this week.
Swedish headline inflation held steady in July at 6.4% but is still too high for the central bank which is likely to hike its policy rate again.
The government will publish its budget on Sept. 20 and Svantesson said spending would be focused on welfare, defence and police and the criminal justice system.
($1 = 10.9798 Swedish crowns)
(Reporting by Simon Johnson and Johan Ahlander, writing by Terje Solsvik, editing by Essi Lehto and Toby Chopra)