Sweden: Weak government – Nordea Markets

Andreas Wallström, Research Analyst at Nordea Markets, points out that the preliminary election results of Sweden suggest that it may take long before a new government is in place.

Key Quotes

“Likely it will be a weak government with difficulties passing reforms. We expect no changes in fiscal stance. Monetary policy should also be unaffected.”

“The preliminary election result suggests that the government (Social Democrats & Green Party) and Moderaterna (conservatives) are the biggest losers. The winners are the tails, with both Sweden Democracy Party and the Left Party gaining larger support than in 2014.”

“The final result will not be available until Wednesday, although not much is expected to change from the current standing.”

“As expected forming a government will be tricky as neither the left block nor the right-wing block got majorities. Also, all established parties have promised not to form government together with Sweden Democrats. Neither seems a grand coalition with Social Dems and Moderaterna on the agenda.”

“Crucial for the possibility to form a government will be getting the budget proposal accepted in the Riksdag. The budget with the biggest support will be passed.”

“It may take weeks, possibly months, to settle a new government. In the meantime, the old government act as an interim solution. The latest date for the Budget Bill for 2019 is 15 November. If no new government is in place the proposed budget will be “clean”, i.e. not including any reforms.”

“Since all parties in the parliament stand up for the strict fiscal framework there will most likely be no change in fiscal stance.”

“We should therefore expect continued budget surpluses and lower public debt. Against this background we do not see that the elections result will have any impact on monetary policy.”

“A weak government will in general have trouble getting reforms through the Riksdag. On the positive side, this also implies that the risk of bad policy measures passing the Riksdag is also limited.”

“The elections result should have no significant impact on financial markets. This morning the SEK is trading at 10.46 vis-a-vis the EUR, seemingly unaffected by the elections result.”