Sweden: Election uncertainty and fiscal stance – Nomura

Nomura’s Global Markets Research team, led by Josie Anderson, George Buckley and Andrzej Szczepaniak, notes that Sweden’s 13 September election remains too close to call, with the centre-left only narrowly ahead. They argue coalition talks could take weeks, but Sweden’s low government debt and binding fiscal framework mean markets are unlikely to worry about debt dynamics, regardless of which bloc forms a government.

Tight race, constrained fiscal policy

"The result of Sweden’s 13 September general election is still too close to call, as the opposition centre-left and governing right-wing blocs are neck and neck in the preliminary vote count. A clearer picture should emerge as late-arriving advance-voting ballots (those that did not reach polling stations in time for election day) are tallied on Wednesday, 16 September (though this preliminary count could stretch into Thursday, 17 September). Note that Sweden's legally final, certified result (determined via a separate county-level review) is not expected until roughly a week after election day."

"Coalition negotiations may take several weeks. Following the last election on 11 September 2022, it took just over a month for the four parties involved in the current government to reach what is known as the Tidö Agreement and determine the plan for governing on 14 October 2022. However, after the 2018 election, it took 134 days to form a government."

"The election result is unlikely to have an effect on the Riksbank’s monetary policy, which faces much stronger forces from global energy price dynamics. Furthermore, Sweden’s government debt is low by international standards at about 35% of GDP, which gives it a strong fiscal position. Therefore, debt dynamics are unlikely to cause too much concern for markets, and regardless of which coalition which ends up in office, the fiscal framework will constrain policy."

"From 2027 onwards, the fiscal lending/borrowing target is to achieve a government budget balance over a business cycle, and the 2026 budget was expansionary, with many temporary tax cuts which are scheduled to expire in 2026-2027."

"A centre-left government is likely increase spending on areas such as healthcare and education, which are key issues for the electorate (Figure 2), and raise taxes. The Social Democrats have proposed a tax on banks' net interest income to “create an incentive for banks to keep their interest margins down” according to Social Democrat politician Mikael Damberg. Also, party leader Magdalena Andersson has said people earning more than around 70,000 SEK a month could face higher income taxes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)