Sweden – Weak Government on Shaky Ground

The country’s longest-ever delay in the post-election formation of a government ended at 131 days, when Stefan Löfven, the leader of the Social Democrats, was sworn in for a second four-year term, once again at the head of a minority government made up of the SAP and the Greens. As was the case after the 2014 elections, the success of the far-right SD prevented both the Red-Greens and the center-right Alliance, a four-party coalition dominated by the MS, from winning a majority of seats, and the unwillingness of both the SAP and the MS to enter into a formal partnership with either the SD or each other effectively closed off any chance of forming a majority government.

MS leader Ulf Kristersson had hoped to form a minority government, with the backing of the SD on confidence and supply issues. The Christian Democrats were on board with that plan, but the other two partners in The Alliance, the Center Party and the Liberals, rejected any form of cooperation with the SD. Although the Parliament approved a budget drafted by the Moderates and the Christian Democrats, Kristersson could not muster the necessary support to win confirmation of a minority center-right government. Facing the prospect of a snap election—and possible further gains for the SD—in the event of failure, the Red-Greens won confirmation for a minority government with the backing of the Center Party, the Liberals, and (with reservations) the Left Party.

The SAP and the Greens control a combined total of just 116 seats, which means the defection of any one of the three support parties would spell the demise of Löfven’s government. The greatest threat in that regard is posed by the Left Party, whose leader, Jonas Sjöstedt, attempted to pressure Löfven into continuing negotiations with his party, but in the end agreed to abstain, while letting other members vote as they wished.

The ideological mix of governing and support parties is reflected in the center-left government’s policy program, which includes income tax cuts, business-friendly labor reforms, the relaxation of rent controls, and the elimination of a cap on profit-taking by private firms engaged in welfare services. The details of the agenda are yet to be filled in, and adding the particulars will create ample opportunity for divisions to emerge among the partners. Although party leaders may accept compromise as a price worth paying to keep the SD out of power, the electorate may be less forgiving, and one or more of the participating parties could get cold feet if their poll numbers fall.

Löfven will not be able to count on a strong economic performance to act as a unifying glue for his government. Indeed, given the significant external risks, including the prospect of a no-deal Brexit, US tariffs on imported vehicles and car parts, and slowing growth in China (a key market for Swedish autos), the possibility of a recession cannot be ruled out. The more likely scenario is a continuation of the trend of slowing growth that will see the annual pace of real expansion fall below 2% for the first time in six years.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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