April 24, 2020 / 10:51 AM / a month ago

UPDATE 1-Swedish finance minister warns coronavirus recession could to be worst since WWII

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STOCKHOLM, April 24 (Reuters) - The downturn in Sweden’s economy could be the worst since World War Two, a government forecast showed on Friday, with gross domestic product shrinking as much as 10%.

The coalition government has already promised to spend 100 billion crowns ($9.9 billion) to fight the effects of the novel coronavirus as they spread through the economy. In addition, Finance Minister Magdalena Andersson has offered loans and guarantees worth 550-600 billion crowns.

Sweden has not imposed the kind of strict lockdowns seen in many other countries. But broken supply chains and ruptured trade relations will still damage its economy.

The government spending will not prevent the economy shrinking more than the base case of a 4.2% decline given by Andersson in her spring budget on April 15.

“If we were to do an update of full GDP today, the judgment is that we would land somewhere in the middle (of a range) between ... -4.2% and -10%,” she told a news conference. “That means that the need for additional measures increases.”

A drop of 10% in GDP was the scenario given by the government should the outbreak, and measures to contain it, be more prolonged. A 4.2% contraction was the government’s base case.

A decline of more than 4.2% in GDP would make the downturn the worst since 1940, when the economy shrank around 10% due to World War Two.

Alongside the government’s measures, the central bank has also poured money into the financial system to prevent liquidity and credit from drying up.

The Riksbank holds a policy meeting at the start of next week. Unlike most other major central banks, it has not cut its benchmark interest rate.

Reporting by Simon Johnson; editing by Johan Ahlander and Niklas Pollard

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