There are signs of recovery after the historic drop in GDP and employment figures.
“In the short term, GDP should rise sharply as more and more people return to work, but given the depth of the crisis, we expect the road to recovery to be rather long,” says Handelsbanken’s Chief Economist Christina Nyman.
Despite the depth of the economic downturn, share prices and property prices have rebounded quickly – and in some cases they are higher now than before the crisis. The stock market rally can mainly be explained by the large stimulus measures, which have reduced the risk of bankruptcy and led to a significant decline in global interest rates. The threat to asset prices does not primarily stem from short-term cyclical variations, but from a potential rise in interest rates, according to Handelsbanken’s macroeconomic experts.
“Our conclusion, however, is that the central banks will counteract any such rise using all means available,” says Christina Nyman.
The most intensive phase of the COVID-19 pandemic now seems to be behind us, and the world has begun to open up again. The Nordic countries adopted different approaches to managing the pandemic, but all of their economies have weathered the storm better than the rest of the EU. After a historic global collapse during the first half of the year, economic activity is now starting to grow again.
“Nevertheless, companies’ recruitment plans generally remain on hold, and there is still substantial uncertainty surrounding how the economy will perform. Inflation looks like it will be below targets in the coming years, too,” says Christina Nyman.
So far, Sweden has not fared better than its neighbouring countries in the Nordic region, despite more lenient restrictions. This is partly attributable to the fact that Swedish industries are highly cyclical, particularly the automotive sector, which has been hit hard. We are now seeing signs of an upturn for household consumption, as well as for industrial production.
“We expect GDP to fall by 4.6 percent this year. However, the uncertainty surrounding COVID-19 and the accompanying restrictions will likely continue to subdue demand next year,” says Christina Nyman.
Unemployment in Sweden has risen quickly, reaching 9.2 percent in July. To a great extent, companies will be able to meet the increasing demand by gradually returning furloughed employees to full-time work.
“Although the recovery has now begun, and redundancy figures have dropped, we expect unemployment to continue to rise in the second half of the year,” says Christina Nyman.
The housing market has shown surprising resilience. The number of apartment sales has rocketed during the summer, and property prices for detached houses and cottages in particular appear to have risen sharply. One explanation may be that the crisis has disproportionately affected low-income households, many of which do not own their property. In addition, the upswing on the stock market has meant that household wealth has remained intact. Our current assessment is that residential property prices, which have recovered after the initial slide, will maintain a slightly increasing trend over the next few months, as stated in Handelsbanken’s Macroeconomic Report.
In the first half of the year, the government and the Riksbank implemented substantial measures to mitigate the damage to the economy. The focus has been on helping companies to survive the pandemic, and on reducing the risk of another financial crisis, rather than stimulating demand.
“Our assessment is that the focus will shift towards more general demand stimulus measures to support the recovery. We expect the Riksbank to keep the repo rate at zero percent for the next few years,” says Christina Nyman.
For further information, please contact:
Christina Nyman, Chief Economist, +46 8 701 51 58, +46 70 778 77 65
Joel Holm, Press Officer, +46 73 058 30 21