GDP is projected to grow by 2.8% in 2021 and 4.7% in 2022, driven by a rebound of foreign tourism and strong fisheries and services exports. Household consumption will rise as precautionary savings are reduced and confidence strengthens. Business investment will grow supported by improved financial conditions and the realisation of pent-up demand for infrastructure.
Monetary policy remains accommodative notwithstanding the mid-May increase in the policy interest rate. Short-term inflation expectations have risen above the central bank’s inflation target, despite a gradual appreciation of the krona since late 2020. Fiscal policy should focus on vulnerable households, and the government should implement the planned investment and recovery programme. Strengthening competition and skills would help underpin a sound recovery.