The National Institute of Economic Research (NIER) somewhat unexpectedly cut growth estimates for Sweden quite aggressively in a report released today. The forecast headline is 'Weak euro area hampers Swedish growth'. This is quite interesting. The NIER manufacturing confidence indicator has been pretty upbeat for some time - but very misleading. In fact, NIER now admits that and obviously skips the survey as an input for its forecasts.
In short, the forecast says the following: weakness in Europe hampers exports, which in turn holds back investment demand in private businesses. Fiscal policy is becoming less expansionary. Construction spending, which boomed in 2014 (up by more than 30%), will continue to rise but at a somewhat more moderate pace. Admittedly we could subscribe to this.
Hence, GDP growth for 2015 has been reduced by almost a percentage point to 2.0% (2016 revised down too).
NIER's view on inflation differs from the Riksbank's, which is interesting given the fact that NIER has proven to be a significantly better forecaster of inflation, even though that does not guarantee future success. Nevertheless, the NIER CPIF forecast does not even reach 1.5% (just 1.3% to be precise) by the end of 2016. Here we identify an inconsistency. NIER expects the Riksbank to deliver a first rate hike by the end of 2016. If CPIF inflation really stays below 1.5% as expected by the NIER, we cannot imagine that the Riksbank would hike. Instead the central bank would be in serious trouble.
To Read the Entire Report Please Click on the pdf File Below