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Key lessons from Sweden’s Covid response

Sweden’s unique response to the pandemic means that it has acted as a control experiment for economists and epidemiologists alike. We suspect that its economy would have shrunk by an additional 3-4%-points in the first half of the year if it had followed a similar approach to Germany. But this economic gain came at a human cost, albeit one which is difficult to quantify. A post-mortem of Sweden’s experience offers insights into the costs and benefits of different approaches to a second wave of the virus, one of which is that - even in the absence of a legal lockdown - behavioural changes will impose a heavy economic cost if the virus picks up again.
David Oxley Senior Europe Economist
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Nordic & Swiss Economics Weekly

Don’t bet against a 50bp Norges Bank hike in August

The Norges Bank intends to follow this week’s 50bp interest rate hike with a 25bp rate rise in August, but the combination of strong global inflation pressures, an incredibly tight labour market in Norway, and weak krone, could yet tip the balance towards another 50bp hike. It will be the Riksbank’s turn in the limelight next Thursday, and we expect it to join the Norges Bank, the SNB, and a host of other advanced central banks in the “50bp club”. Meanwhile, following the weakness of the euro-zone PMIs in June, the release of similar business surveys from Switzerland and the Nordics are also likely to make for worrying reading.

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Having begun its tightening cycle in April, we expect the Riksbank to join the trend by raising its policy interest rate by 50bps, to 0.75%, next week.

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Norges Bank joins the “50bp club”

This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” meeting in August, to 1.50%.

23 June 2022

More from David Oxley

Nordic & Swiss Data Response

Norway GDP (May) & Sweden GDP Indicator (May)

The larger-than-expected rise in mainland Norwegian GDP in May indicates that the economy is back in business following the lifting of restrictions, and it is likely to have regained its pre-virus level in June.

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The CBDCs are coming

We expect some major central banks to issue digital currencies later this decade, with those in countries where cash is rarest proceeding the fastest. The first generation of central bank digital currencies will be purposely designed not to shake up the status quo. But once established they would offer powerful new policy tools. It would be naïve to think that sooner or later central banks won’t consider using them.

6 July 2021

Nordic & Swiss Economics Weekly

Löfven exits the stage (not pursued by a bear)

The resignation of Prime Minister Stefan Löfven in Sweden has added to the period of political uncertainty in Sweden. That said, the other leading political actors would probably struggle to pass muster in the Riksdag and so there is a good chance that Mr Löfven will return in the same role before long. Next week, we expect monthly GDP data from Norway to show that mainland activity gathered pace in May, and that core inflation remained below the Norges Bank’s target in June.

2 July 2021
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