Alliance and Red-Green blocks equal in size - SD has strong veto power.
New government will be a historically weak one - first challenge to pass budget.
The political risk premium in EUR/SEK may not go away just yet.
The result
The Social Democrats retained their position as Sweden's biggest party although they had their worst election ever. The Moderates performed better than expected, too, and kept their position as Sweden's second biggest party. The Sweden Democrats (SD) did not live up to initial expectations of close to 20%, but appear to have come close to 18%. The Left Party also made a strong advance, mainly taking votes from the Social Democrats. The Christian Democrats made another strong advance. The Green Party was on the verge of dropping out, but managed to pass the 4% threshold.
In terms of political blocks, the Red/Green block including the Left Party currently stands at 40.6% and the Alliance is at 40.3%, which means they have an equal number of mandates. The Sweden Democrats will be the kingmakers.
This is a complicated situation in which to form a government. The Social Democrats will probably try to stay in charge. However, there is a high probability in our view that a vote of confidence would bring it down since it has a majority against it. The Alliance will probably get a chance, but it still needs support from the Sweden Democrats.
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