The right parties’ bloc has overtaken the Social Democrats on the back of surging support for the far-right Sweden Democrats
While we expected that the Social Democrats would see a strong performance in the 2022 election, it was not enough to defeat the right bloc coalition. The surprising outperformance of the Sweden Democrats, the support of which will be much needed by New Prime Minister Ulf Kristersson, suggests that policy unpredictability is set to increase. While MNCs are likely to benefit from the planned reduction in taxes, mostly through the positive impact on consumption, the ruling coalition will likely be unstable, which will complicate strategic planning.
Overview
- A bloc of right-wing parties, which includes the far-right Sweden Democrats, gained a narrow win over the Social Democrats/Green coalition.
- PM Magdalena Andersson resigned in the aftermath of the elections despite her party, the Social Democrats, gaining the largest share of the vote.
- Leader of the Moderates, Ulf Kristersson, has begun talks with the Christian Democrats, the Liberals, and the Sweden Democrats to form a new government.
Our View
The far-right Sweden Democrats managed to gain a substantially larger number of seats compared to the 2018 election and have overtaken the traditional main opposition party, the Moderates. Despite this, negotiations for a new government are still likely to be led by Kristersson, especially in light of the fact that other right-wing parties are generally reluctant to be seen as directly supporting a far-right cabinet. The structure of the new cabinet itself remains unclear, and it is likely that the Moderates-led government will rely on informal support from the Sweden Democrats. Additionally, Kristersson has ruled out giving ministerial positions to the Sweden Democrats. The Sweden Democrats’ early popularity in the polls, however, has already forced the right-wing bloc to shift further to the right on certain issues, most prominently on immigration policy. The fact that the Sweden Democrats are now in a kingmaker position further suggests that even though the party will not directly control a ministry, government policy will be heavily impacted by the cabinet’s reliance on its support. These developments underline the far right’s resilience and growing popularity, even within traditionally left-leaning countries, and underpins expectations about future policy developments, including greater focus on migration. Stricter migration control might complicate hiring in the long term, and it may also draw the ire of the EU in the short term, but it is unlikely that this will result in a standoff similar to the one in Hungary. Furthermore, the Sweden Democrats’ strong performance may further legitimize far-right movements in the rest of Europe and reinvigorate their core support base.
In terms of fiscal policy, virtually all members of the right party bloc have indicated that they support lowering taxes on lower-income households, fuel, and property, while also expressing continued support for the economy. The means through which these objectives are to be achieved, however, remain divisive and will likely translate into early intra-coalition pressures, as both the Liberals and the Christian Democrats have said they want to cap support for the economy at 1.0% of GDP—an objective that seems unfeasible given rising external pressures and surging inflation. Fiscal policy is thus likely to remain supportive of domestic consumption but also more unpredictable, as the Moderates will need to reach a broad compromise with their coalition partners, while also ensuring continued support from the Sweden Democrats.
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