The Swedish economy will decline 3.9% this year, which would be followed by a meagre 0.9% growth in 2010, the National Institute of Economic Research or NIER said Tuesday. Further stimulus to demand with both monetary and fiscal policy is required to dampen the effects of the severe economic contraction.

The think tank said 250,000 jobs will disappear by the end of next year and see no definite recover in the labor market until 2012. Unemployment will soar to 10.7% in 2010.

Further, the central bank is expected to cut the repo rate to 0.25% in April and leave it there during 2009 and 2010. To alleviate the effects of the financial crisis, the Riksbank is also forecast to continue providing liquidity to the banking system.

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