A $6.3 billion question: Is the IMF or Anders Borg wrong?

On July 5th Anders Borg presented his revised (from the budget proposition in April) forecast for Swedish economic growth for the years 2010-2014. He presented it at Almedalen, the biggest political event of the year and with just about three months left until elections in September.

The new revised forecast states that "The recovery in the Swedish economy is becoming clearer with improved prospects for growth and a stronger labor market. This strengthens public finances and Sweden's ability to meet increasing economic concerns that comes with the uncertain fiscal situation in the world" (author's translation from http://regeringen.se/sb/d/13357/a/149354).

In the Table 1 below you can see that Borg revises GDP growth for 2010 up from 2,5 % to 3,3 % since the proposition in April. The changes in the forecast for the coming years are not as drastic. Unemployment rate however gets revised across the board. The new forecast predicts the unemployment to be on an average 0,5 % lower (than the April forecast) every year until 2014 where it will stay on 6 %, also notice that the GDP gap is predicted to be close to zero in 2014.

Table 1 (Yellow highlighting by the author) download here

Were this to be true this would all be very good news indeed, the economy does seem to be recovering and you are always inclined to accept good news easier than the bad.
 

However, on July 14th the IMF released their annual Staff Report for Sweden. Their predictions for 2010-2014 can be seen in Table 2 below. The interesting and maybe also disconcerting fact about it is that it, especially for the years 2010-2011 and for the unemployment forecasts, predicts drastically different numbers from that of minister Borg. The biggest different is the GDP forecast for 2011 and the forecast for the unemployment rate for the years 2010-2014. Instead of the 3.8 % growth for 2011 that Borg's new forecast predicts the IMF believes that GDP growth for 2011 will only be 1,9%, that is 1,9 percent lower! The predictions for the unemployment are also considerably gloomier than that of Borg. According to the IMF the unemployment in Sweden will not come down below 9 % this year and will stay well above 7 % until 2014. This is in stark contrast with Anders Borg's statement saying that: "The trend in the labor market is a sign of strength for the Swedish model and a development that needs to be protected" (author's translation from http://regeringen.se/sb/d/13357/a/149354). Anders Borg further claims that the stronger labor market will help to further improve the public finances and make them show a surplus in 2012. Well, you do not need to be very good at math to see that seems very unlikely if it turns out that the IMF are right and not Anders Borg.

IMF, 2010. Country Report 10/220

Now, certainly it is perfectly normal that different organizations and persons have different opinions about something as uncertain as future GDP growth. But a 1,9 % difference is too much to just be a coming from different ways of measuring. Either both the IMF and Anders Borg are mistaken or one of them is really wrong. 1,9 % may not sound like very much, but when you are talking about GDP 1.9% translates to enourmous amounts. A quick calculation gives a good idea of how much we are talking about. The CIA world factbook puts the estimated Swedish GDP for 2009 to 333,5 billion. 1,9 % x $333,5 bn = $6.3 bn. Multiplying that with the current SEK/$ gives you: 6.3 bn * 7.33 =  SEK 46 179 000 000. Now that is a lot of value that would not be created would the IMF's forecast come true!

The big question is of course who is right and who is wrong?

I cannot help to think about who has an election to win in September and who is part of a government whose most important political question is the "Job line" and who has lately been giving them self credit for the soundness of public finances?

I'm just sayin' now.