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Swedish report Swedish report
by Euro Reporter
2012-09-01 11:54:31
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Sweden plans big infrastructure spend to boost growth

Sweden announced plans on Wednesday to invest an additional 85.5 billion crowns ($13 billion) in infrastructure projects over the coming decade as it looks to boost long-term growth. The centre-right government said the investment planned for the years 2014 to 2025 would include a high-speed train line between Stockholm and the city of Linkoping, 200 kilometres to the west. "Sweden's main lines date to the middle of the 19th century and clearly Sweden is very different now," Prime Minister Fredrik Reinfeldt said a press conference.

"The Sweden of today has a greater need to bind different parts of the country together, enable people to commute to work and create the conditions for industry to be competitive," he said. Unlike many countries in Europe, Sweden's government finances are in robust shape, allowing it to consider extra spending. Borrowing is set to drop below 30 percent of output over the next few years. The four-party ruling Alliance, which will announce its budget for 2013 late next month, has already said it will loosen the purse strings to offset a slowdown in the economy.

The government is looking at spending measures and tax cuts totalling 23 billion crowns ($3.48 billion) in the budget, double this year's level, and 27 billion crowns in the 2014 finance bill. The 2013 budget will focus on infrastructure spending, research and an improved investment climate. The government has also said it wants to cut the level of corporate tax. Although Sweden has weathered the euro zone debt crisis well so far, the economy is expected to slow in the second half of this year and to remain relatively sluggish in 2013.


Sweden needs rate cut to counter crown rise

Sweden's central bank will need to cut interest rates further to stop inflation undershooting its 2 percent target as the crown is stronger than expected due to the crisis in the euro zone, a leading economic think tank predicted on Wednesday. The National Institute of Economic Research said it expected stronger economic growth in the Nordic state than elsewhere in Europe, but the pace would still be well down on 2010 and 2011, the recovery years after the global financial crisis. "In order to speed up the recovery and make progress toward meeting the inflation target, monetary policy will need to be expansionary for a prolonged period," the NIER said in new forecasts. "In the forecast, the repo rate will be lowered to 1 percent before year-end," it added. The central bank's benchmark repo rate is currently set at 1.5 percent.

The central bank kept rates unchanged at its most recent meeting in July, and said on balance it expected rates to remain at the current level for just over a year. Markets are forecasting a cut during that period. The bank's next rate announcement is due on Sept. 6, but NIER said its forecast assumed that the rate would by cut by 25 basis points at the October and December policy meetings. "If the crown were to continue strengthening, for example as a consequence of increased uncertainty about the future prospects for the euro, it might be necessary to lower the repo rate further," it added. The Rijksbank's deputy first governor said on Tuesday that the bank was keeping an eye on the crown currency, which hit a 12-year high against the euro this month, reflecting the economy's resilience and posing risks to Sweden's export-driven economy. The NIER said the crown was now at a level it had not expected it to reach before 2016.

It said that Sweden's economy was performing better than elsewhere in Europe, but said the underlying trend was less solid than gross domestic product (GDP) data showed. "For the full year 2012, GDP is forecast to increase by a modest 1.3 percent," it added. That pace would rise slightly to 1.8 percent in 2013. Gross domestic product (GDP) expanded 6.2 percent and 3.9 percent in 2010 and 2011 respectively. New data from an NIER survey also revealed a mixed economic picture. While consumer confidence for August was relatively steady at 5.4 points after 5.6 in July, manufacturing sector confidence slid to minus 9 from minus 3. The services sector, on the other hand, has become more optimistic, the survey noted, even if the reading of 16 remained below the historic average, the NIER said. "Levels suggest the manufacturing sector is moving sideways or declining slightly, while the domestic economy is growing at a sub trend rate," SEB bank said in a research note.


Sweden to Fund Innovations in Water Sector

When the international community was struggling to ward off a potential decline in development aid in early 2000, it came up with a novel idea: a proposal for “new and innovative sources of financing”, including a tax on airline tickets and a levy on foreign exchange transactions. The funding, mostly from the tax alone, first proposed at the 2002 U.N. conference on Financing for Development, has already generated over 11.7 billion dollars, according to the World Bank. And now, the Swedish government has come up with a variation of that proposal: a new finance instrument called Water Innovation Challenge Fund (WICF) whose primary objective is to capture, promote and implement “innovative ideas and new technologies” in water resource efficiency. The proposal, announced at the international water conference in Stockholm this week, comes at a time when the United Nations has repeatedly warned of an impending water crisis in the next two or three decades.

Or as Alain Vidal, director of the Challenge Programme for Water and Food (CPWF) describes as “a perfect storm” - food shortages, water scarcities and insufficient energy resources – collectively destined to hit the world by 2030. Addressing delegates here, the Swedish Minister for International Development Cooperation Gunilla Carlsson said the new fund is also about finding new ways to sustainably intensify the use of water, land and energy in production to achieve equitable social, economic and environmentally sound development. “Simply put, we need to create more with less. This to me is innovation at its best,” she said, pointing out that in a finite biosphere, achieving such a combination will require new thinking. Asked for his expert advice, Dr. Colin Chartres, the director-general of the Colombo-based International Water Management Institute (IWMI), told IPS: “I am highly supportive of the Swedish minister’s proposal.”

“The more we can do to foster and encourage innovation in the water sector, the better,” said Dr. Chartres, the 2012 Stockholm Water Prize Laureate. He added, “We can’t have water without using energy, and we can’t have energy without using water, and that an increased understanding of the water energy nexus, coupled with efficiency innovation in both sectors, is vital.” Elaborating on her proposal, Carlsson said innovations have historically changed the lives of millions of people for the better. “Just think of vaccines, improved grain varieties and, more recently, the impact of mobile phones,” she pointed out. The less well-known innovations are often found in the poorer countries, among large numbers of people surviving on very low incomes but who are very resilient and often creative entrepreneurs, she added. “These innovations are often about crafting business solutions that are relevant to poor people and about making them available to the many. Low-cost mobile financial services and insurances are among the more recent ideas”. Carlsson also said innovations have provided many new employment opportunities across Africa. Small affordable packages of improved seeds or fertilisers have reduced the barriers of upfront costs for poor farmers. Some of the most important growth markets today are African and Asian. Increasingly, business is looking for innovative models building on local ideas and demand, rather than adapting products and distribution processes that were conceived for U.S. or European markets, she noted. “If we can find similar innovations and scale up in a sustainable manner, the lives of millions of people, if not hundreds of millions, could improve,” Carlsson added. The Rome-based International Fund for Agricultural Development (IFAD) has been a leading proponent of innovative ideas relating to smallholder agriculture and rural development.

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