Swedish economy charges ahead while neighbours stall

By Camilla Knudsen and Simon Johnson

OSLO/STOCKHOLM (Reuters) - Sweden's economic boom will continue in 2016, allowing it to grow three to four times faster than those of Scandinavian peers Denmark and Norway, a Reuters poll showed on Wednesday, with economists raising their Swedish forecast.

Oil-producing Norway has been hurt by a crash in the price of crude, its main export, but Sweden was cited as benefiting from the arrival of a record 160,000 asylum seekers last year, spurring demand for public sector services and construction.

The Swedish central bank, fearing deflation, has cut interest rates into negative territory and embarked on quantitative easing, while public spending rose as the government tackled what is one of Europe's biggest inflows of migrants and refugees.

To cope, Stockholm will more than double spending on immigration, the minority coalition government said in its supplementary budget on Wednesday.

According to the median of 25 analysts polled in the past week Sweden's gross domestic product will grow 3.4 percent this year, faster than the 2.9 percent predicted in a January survey.

Forecasts for laggard Norway, hard hit by the plunge in oil prices, were cut to just 1.0 percent growth in 2016 from 1.4 percent in the poll three months ago, and Denmark was cut to 1.1 percent from 1.7 percent.

Swedbank economist Knut Hallberg said immigration had generated strong public service demand in the Swedish economy and that a shortage of housing was pushing up the construction of new homes.

"But there are some risks to the Swedish economy," he added. "We have to be able to handle the integration, otherwise we could face a political crisis. Also, a crash on the housing market would be very bad."

Like Sweden, Denmark has set negative interest rates to help lift growth but it also uses a peg to keep its currency stable against the euro, preferring long-term stability over the shorter-term boosts that a weaker exchange rate can provide.

Sweden's 2017 growth will ease to 2.7 percent, but would still be far ahead of the 1.7 percent seen for Denmark and the 1.8 percent economists pencilled in for Norway, the poll showed.

NORWAY TO SKIRT RECESSION

Oil sank to a 12-year low in January, pushing Norwegian energy firms to lay off staff and avoid spending cash on all but the most necessary equipment and services.

Analysts raised their average oil price forecasts for 2016 for the first time in 10 months in March but cautioned investor sentiment may sour short-term without solid improvement in market fundamentals. [O/POLL]

Still, high public spending will probably keep the economy out of recession, economists said.

"Growth prospects in Norway are weak, mainly because we expect oil companies to cut investments further. This will also hit the mainland economy, but we think we are close to the bottom now," Nordea Markets economist Erik Bruce said.

"Low rates, a weak currency and solid demand from the public sector with an expansive fiscal policy are reasons why we will avoid recession in Norway. In the longer run, we expect the oil price to pick up, which will also boost growth from 2017 and onwards," he added.

(For other stories from the Reuters global economic poll:)

(Writing by Terje Solsvik; Polling by Vartika Sahu and Sujith Pai; Editing by Ross Finley and Raissa Kasolowsky)