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The economists’ introduction

Jens Magnusson and Håkan Frisén

Slower growth as economic headwinds intensify 

During the late spring and the summer, the economic outlook changed. We received some positive news: pressure on global value chains seems to be slowly easing, companies are continuing to perform well, some commodity prices have fallen and labour markets remain strong. But even more things have gone wrong: energy shortages have accelerated; more and more people are now worried not only about sky-high prices but about an energy market collapse, leading to rationing and shutdowns of economic activity. Inflation has continued upward. In the euro area, the United Kingdom, Sweden and elsewhere, we expect inflation to accelerate a bit more before gradually falling next year. At the same time, growth prospects have clearly deteriorated, creating a policy dilemma for central banks. On the one hand, they want to hike key interest rates in order to curb inflation, but on the other they cannot completely ignore the risks of recession, falling asset prices and rising unemployment. 

This situation also creates tensions between fiscal and monetary policymakers. While weaker economic conditions and tight household budgets normally justify increased fiscal support to households and businesses, the current situation – with soaring inflation, large labour shortages and central bank tightening – is different. It would be unfortunate if key rate hikes aimed at combating inflation were counteracted by overly stimulative fiscal policies. It will thus be a challenge for policymakers, especially during the current Swedish election year, to be sufficiently restrictive and precise in their support measures.  

The forecast situation is more uncertain than normal. For example, no one knows what Russia will do with its winter gas deliveries to Europe, an issue that may be crucially important to the economic outlook. However, our overall view is that there will be a sharp economic slowdown during 2023 and that a recession – at least a mild one – will be hard to avoid. The coming year will be challenging for both households and businesses, before conditions gradually improve again in 2024. There are forecasting risks due to many tough-to-analyse factors such as the war in Ukraine, energy price developments, the interactions between fiscal and monetary policies, the sensitivity of economies to interest rates and bond yields and trade-offs by central banks between fighting inflation and supporting growth. In Sweden, there will also be uncertainty about the national wage round, the outcome of the September elections and the formation of a new government. We thus have a difficult but interesting autumn ahead of us, which we look forward to continuing to monitor, analyse and discuss with you.  

This August 2022 issue of Nordic Outlook includes four in-depth theme articles that discuss the following:  

  • The war in Ukraine 
  • QT & interest rates 
  • Sweden’s election 
  • Falling home prices 

 We wish you pleasant reading and a wonderful autumn! 

Jens Magnusson 
Chief Economist 

Håkan Frisén 
Head of Economic Forecasting 

Nordic Outlook Augusti 2022 (pdf)