LONDON Sweden’s economy is likely to be heading for a dip before it recovers, London strategists told The Swedish Wire, warning of turbulence on the Stockholm exchange.

As stock markets around the world continue their advance, analysts and strategists are voicing concerns over the outlook of the global economy and whether investors may be tripping ahead of the consumer.

While the Stockholm OMX 30 has tacked on more than 38 percent since the beginning of the year, and recent data showed that seasonally adjusted GDP rose quarter-to-quarter, Sweden’s unemployment rate hiked to 5.4 percent in August according to the Swedish Public Employment Service. Unless this figure improves notably, a so-called W-shaped recovery pattern is more likely than a straight out economic revival, strategists say.

“Well I am very much a W man and not a V man,” comments David Buik, strategist at BGC Partners in London. “I think people underestimated something that is enormous and that is that unemployment is still going up”.

Joblessness then has a direct effect on retail as consumers remain cautious as they fear being made redundant.

“No matter how much the economy is improving, and I do not doubt that it is, I believe there will be a setback because people think that consumers will be spending money and I have reason to believe that they won’t,” Buik adds.

The question is therefore whether the recovery, which has been fueled by fiscal and monetary policy to a large extent, is sustainable.

Philippe Gijsels, European market strategist at Fortis in Brussels draws on the experiences of previous crises to gather clues as to where the economy might be headed.

“In the previous cycle in 2003, unemployment peaked almost a year and a half after the recession ended. So, if the recession is now behind us, then it will take at least until the end of the year,” he says.

Gijsels further notes that governments, in the wake of first optimistic signs of a recovery, are likely to shift their attention away from the monetary and fiscal stimulus focus of the past months and towards containing the deficit instead.

“After a while when things stabilize, they will start to think about the future and start talking about increasing taxes and cutting spending,” Gijsels argues.

This also partly accounts for the buoyant stock markets as people look for a recovery that is, according to Gijsels however, not self-sustainable and therefore likely to disappoint.

“If they increase taxes then eventually instead of a stimulus, the government will start to be a drag on the economy and the real economy will have to start growing again to counterbalance”.

Corporate analysts are however less gloomy about the outlook.

Hermann Reith, engineering analyst at BHF-Bank in Frankfurt doubts that we will see W-shaped recovery and notes that the private sector has taken substantial steps to get in shape.

“We came out of the left dip of the ‘W’ through expansionary monetary policy. Of course the effects of this policy are slowly dissipating, but the restructuring efforts in the private sector are counterbalancing that,” he says, adding that “companies are now much more stable then for instance 9 months ago”.

This, he notes, makes it easier to obtain loans for example.

In terms of the global equity markets, however, opinions divide as to how a potential W-shaped economic recovery would translate.

“No, the stock markets have sailed off to the sunset,” David Buik at BGC Partners says. “Everyone is simply interested in whether the shares they bought represent value and they probably do. There is not necessarily a correlation between stock market performance and the respective economy. They have divorced,” he argues.

Philippe Gijsels at Fortis on the other hand points to the notable correlation between the stock markets and the economy so far.

“There is now a realization that the world is not coming to an end and the problem with the entire story is that people now expect too much. Everyone is talking about the recovery and corporate profits and if they see that there is a double dip, which I think is very likely, then they will be disappointed”.

A second leg down in equity markets is therefore, according to Gijsels, probable.