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Sweden Country Risk Report Q4 2017

Sweden Country Risk Report Q4 2017

Core Views

Sweden will remain a growth outperformer among developed states,but the economy is set to cool slightly from well-above trend levels.

The surge in migrant inflows in 2015-2016 will lead to higher economicgrowth over the medium term, but will present challenges tothe fiscal accounts, the labour market and domestic political stability.

The Swedish political scene is splintering and new realignmentslook likely following the 2018 general election. The uncertainty overfuture policy formation will continue to weigh on BMI's political riskscore for the country.

Interest rates will remain low through 2018 as the central bank (Riksbank)will maintain a negative policy rate and inflation will continueto surprise to the downside.

Major Forecast Changes

We have raised our already-above consensus forecast for real GDPgrowth in 2017 to 3.1% from 2.8%, though we maintain our 2.5%projection for 2018.

We have lowered our short-term political risk score to 86.5 from 89.0,due to increased policy uncertainty a year ahead of the September2018 legislative elections.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Domestic Demand Boom To Fade
The surge in Swedish economic activity in H117 has led us to revise up our growth forecasts. However, we believe that two of the
driving forces behind the recent strength in domestic demand, household consumption and residential construction, are set to slow.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 EXPORT DESTINATIONS AND GOODS EXPORTS
TABLE: TOP 5 IMPORT SOURCES AND GOODS IMPORTS
Monetary Policy
New Inflation Target, But Same Policy Outlook
The Swedish Riksbank is likely to change its inflation targeting regime in September, but we believe the near-term impact on
monetary policy will be limited. We remain below-consensus on rate hikes in 2018-2019 as the Riksbank is likely to remain cautious of
overtightening following years of undershooting its inflation target.
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Structural Fiscal Position
TABLE: GENERAL GOVERNMENT EXPENDITURE AND REVENUE BREAKDOWN
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Chapter 2: 10-Year Forecast
The Swedish Economy To 2026
Well Positioned For The Long Term
Sweden is among the most strategically well-positioned economies in the developed world and this is reflected in our 10-year growth
forecasts, which expect steady expansion through to 2026. The balance of payments will remain stable, buoyed by a robust current
account surplus, some of the best fiscal dynamics in Europe, and a highly productive workforce over the long term.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Contents
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Mainstream Party Failures Increase Policy Uncertainty
Sweden's two largest mainstream political parties are in trouble, which opens the door to a strong performance by the anti-immigration
Sweden Democrats in the 2018 elections. This suggests heightened policy uncertainty ahead, as the Sweden Democrats are likely to
have an unprecedented amount of sway over legislation.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Strong Institutions Underpin Stability
With a long-term political risk score of 93.7 (out of 100), Sweden is among the most structurally stable countries in the world. Benefiting
from an advanced level of institutional development, a long history of democratic governance and an established foreign policy based
on neutrality, the country faces limited underlying risks to political stability over the long term. However, the rise of a populist antiimmigration
movement amid a quickly growing foreign-born population poses risks to both governance and Swedish civil society.
Chapter 4: Operational Risk
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK INDEX
TABLE: DEVELOPED STATES – LOGISTICS RISK INDEX
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK INDEX
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK INDEX
Chapter 5: BMI Global Macro Outlook
As Good As It Gets?
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: SWEDEN – MACROECONOMIC DATA AND FORECASTS

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