GDP will grow by 2.1 per cent this year and 2.7 per cent next year. Public finances are expected to show a deficit of SEK 91 billion this year, or 2.4 per cent of GDP. Next year will bring a smaller but still substantial deficit of SEK 72 billion, or 1.8 per cent of GDP. The surplus target will not be met.
GDP increased less far than anticipated in the second quarter this year, but indicators suggest that the economy is set to expand, albeit slowly. Over the year as a whole, GDP is expected to rise by 2.1 per cent in calendar-adjusted terms.
Next year, the economy is forecast to grow more quickly as exports and investment shift up a gear. GDP will rise by 2.7 per cent, and resource utilisation in the economy will improve. The recovery will continue in 2016-2018, with the economy returning to full capacity in 2018.
Monetary policy will remain expansionary in the coming years. Given the very low rate of inflation and the subdued growth outlook, we expect the Riksbank to keep the repo rate at its current low level of 0.25 per cent throughout next year before raising it gradually thereafter.
Employment is forecast to rise by just over 1 per cent this year and in each of the next two years. Average working hours will increase slightly this year, unlike last year, and so the number of hours worked will rise much more quickly.
Weak growth in tax revenues this year
Tax revenues will grow only slowly this year, due partly to tax cuts but also to weak underlying growth in all tax bases.
Revenues from taxes on labour income will be held back this year by the tax reductions introduced, but will pick up next year as the economy recovers.
Taxes on capital will grow weakly in 2014 and 2015. This year, corporation profit tax revenues will fall, and revenues from the tax on pension capital returns tax will be dampened by a low government borrowing rate. Capital taxes in the household sector will continue to climb, however, as capital gains increase and lower lending rates bring down mortgage interest deductions.
Although household consumption has increased in volume this year, revenues from taxes on consumption are expected to grow only moderately. The reason for this is that low inflation is putting a damper on value-added tax revenues. Revenues from energy and climate carbon dioxide taxes will also fall due to lower sales of fuels and electricity. Next year, household consumption will accelerate and investment will pick up, leading to higher value-added tax revenues.
Other central government revenues will fall this year, due partly to lower income from shares as a result of state-owned energy company Vattenfall not paying a dividend, and partly to the Riksbank transferring only a small surplus.
Moderate increase in expenditure
Central government expenditure excluding net lending by the National Debt Office will increase by SEK 14 billion this year and SEK 24 billion next year, or approximately 2 per cent per year. There will be relatively large increases in expenditure in some areas, but the overall rate of growth will average a moderate 1.7 per cent per year.
Still a significant central government borrowing requirement
A central government budget deficit of SEK 76 billion is forecast for this year. Revenues will be lower than last year, due partly to tax cuts and much lower dividend income. The government also sold off shares in 2013, most notably in Nordea. Central government debt increased relative to GDP in 2013 and is expected to rise further this year to almost 36 per cent of GDP.
Large deficits in public finances
Public finances are expected to show a deficit of SEK 91 billion this year, or 2.4 per cent of GDP. Next year will bring a smaller but still substantial deficit of SEK 72 billion, or 1.8 per cent of GDP. Net lending will improve from 2015 onwards, due primarily to restrained spending growth as a result of low increases in index-linked expenditure. There will still be deficits in public finances throughout the forecast period, but the size of these deficits will decrease with time.
Central government net lending is expected to remain negative in the coming years. A deficit of SEK 74 billion is forecast for this year, and SEK 57 billion for next year.
The local government sector is expected to generate a surplus of SEK 10 billion in 2014. The surplus will then fall somewhat in the coming years. Local government net lending amounts to a negative 0.5 per cent of GDP annually in the forecast.
Net lending in the old-age pension system is estimated to be around zero both this year and next, with a deficit in 2016. The main reason for the stronger net lending in the near term is weak growth in average pensions.
General government gross debt (Maastricht debt) is estimated to rise to 42.5 per cent at the end of this year.
Surplus target will not be met
The indicators for assessing the surplus target (net lending of 1 per cent over a business cycle) suggest that it will not be met. Tax increases or spending cuts will be needed to meet the target. How quickly the target should be met and how this is to be achieved are a political matter. In the longer term, net lending will be boosted by government expenditure growing less quickly than GDP due to the so-called automatic discretionary fiscal policy mechanism. Although this effect is significant, there will not be sufficient surpluses for the target to be met during the forecast period.
Adequate margins to the expenditure ceiling
There will be a margin to the expenditure ceiling in all years of the forecast. The margins of SEK 15 billion this year and SEK 17 billion next year are what is required as a safety buffer. The margins are larger later in the forecast period.
Risk of weaker growth and net lending
There is a risk of growth being weaker than forecast. Several indicators have turned downwards in recent months. The nascent recovery elsewhere in Europe has slowed, and GDP in the euro area as a whole barely rose at all in the second quarter. The economic climate in Europe may also be hit harder than anticipated by the turmoil in Ukraine and sanctions against Russia.
Expenditure on migration and integration is expected to increase sharply in 2014-2016 as a result of a very high number of asylum seekers. Our estimates for 2016 onwards assume that the number of asylum seekers will then begin to return to more normal levels, and that expenditure in these areas will therefore fall gradually. If the number of asylum seekers does not decrease as assumed, expenditure on migration and integration will be significantly higher at the end of the forecast period.
New rules for the national accounts this autumn
The Swedish system of national accounts will be brought in line with new EU rules with effect from the publication of the second-quarter GDP figures in mid-September. The estimates will also be updated with some new information. This will push Swedish GDP up by some 4-5 per cent. The sector accounts, which are used to calculate net lending, will also be affected by the new rules.
The present forecast is based entirely on the current rules for the national accounts.
ESV utvecklar den ekonomiska styrningen för regeringen, Regeringskansliet och andra statliga myndigheter samt gör analyser och prognoser av statens ekonomi. ESV är också Sveriges nationella revisionsorgan för EU-medel.