Sweden: new government has a will to reform but is lacking an overwhelming majority

Success at last: Sweden has a government again. Last Friday, the Social Democrat prime minister Stefan Löfven was not rejected by a majority in the “Riksdag”. According to Swedish voting rights, this is enough to confirm his candidacy for a new period in office. Having presented his cabinet today, his minority government can now resume office with the Green Party as coalition partner.

The governing Social Democrats and the Greens suffered considerable losses in the September 2018 election – together securing just under 33 percent of the votes. As in other European countries, the debate about migration and social inequality provided a boost for the right-wing populists in particular, with the two traditional political blocks failing to gain a majority in parliament as a result. The formation of a government in Sweden dragged on for more than four months. A snap election was even anticipated at times. To avoid this, the liberal and agricultural Centre Party and the Liberals overcame their differences to actually accept Löfven’s government. However, this required the former and the new prime minister to make concessions too:

Tax cuts for citizens and companies are now planned, among other things. Employment law is also expected to be relaxed. These reforms make sense indeed from an economic perspective; they could provide fresh impetus for investment and consumption, which has been flagging recently. A labour market reform could also help speed up the reduction of unemployment figures. However, Löfven not only needs the approval of the Liberals and the Centre Party to implement these reforms. He is also reliant on the Left Party. It remains to be seen if the new government can implement its proposed reforms under these circumstances. Our forecast for economic development therefore remains unchanged for now, with a noticeable slowdown expected in the pace of growth this year and the next. We expect a growth rate of 1.7 percent for 2019 and 1.6 percent for 2020.

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