Sweden will remain a European outperformer. But as a very open economy, it is vulnerable to external shocks, particularly from the eurozone debt crisis.

Sweden is among the best positioned developed economies in the world, with a highly productive export sector, fiscal surplus and stable banking system.

While hampered by its minority status in the Riksdag, we expect the centre-right coalition government to steadily push forward with its economic liberalisation agenda.

Major Forecast Changes

We now expect 4.5% real GDP growth in 2011 (down from 4.8% previously), falling to 2.0% in 2012 (down from 3.5% previously). We have revised down our outlook for Riksbank rate hikes in 2011. We now expect no further rate tightening until 2012 at the earliest, and risks to rates are to the downside (eg, cuts).

Key Risks To Outlook

Downside Growth Risks From Global Crises: In particular, a European financial crisis on the back of a eurozone member debt default would leave Sweden's open economy vulnerable to external demand shocks.

Upside Long-Term Growth Risks From Structural Reforms: Structural reforms will be major agenda items for EU governments in 2011. Should decision-makers take substantive steps towards liberalisation, this could push long-term growth potential higher.

Click for Report details:Sweden Business Forecast Report Q4 2011