Riksbank head: financial crisis 'over' in Sweden

The head of Sweden's central bank said on Thursday that the financial crisis is over, but warned about the potential risks associated with an increasingly strong krona.

• 'Record growth' for Sweden's economy (1 Mar 11)
• Swedish housing 'bubble' about to burst: agency (23 Feb 11)
• Sweden's central bank hikes interest rate (15 Feb 11)

Riksbank Governor Stefan Ingves described the Swedish economy as fully recovered during a hearing on monetary policy during a Thursday morning hearing in front of the the Riksdag Committee on Finance.

"Output has largely returned to the pre-crisis level and unemployment is in retreat. Our assessment is that the high growth rate in the economy will gradually decrease in the period ahead and will approach normal levels," he said.

World commodity prices are rising and resource utilisation is increasing, which will contribute to higher inflation in the coming period, Ingves explained.

"The Swedish economy and monetary policy are normalising. A balanced development of the Swedish economy assumes a gradual increase in the repo rate towards more normal levels."

Ingves also argued that the financial crisis mainly manifested itself in Sweden in the form of decreased demand from abroad.

“World trade fell heavily, as did Swedish exports. Sweden is a small, open economy that is very export-dependent, and GDP fell by more than 5 per cent in 2009, which was the largest fall since the Second World War,” he said.

According to new figures, GDP growth amounted to 5.5 per cent in 2010. This is the highest growth since 1970 and Sweden is now among those economies with the highest GDP growth rates in the world. At the same time, the indicators are very strong, suggesting continued high levels of growth throughout early 2011.

“All in all, it can be said that the financial crisis is now behind us and that the situation is in the process of normalisation. This also requires a normalisation of monetary policy in the form of rising repo rates in the years ahead,” he said.

Ingves warns, however, that a too strong currency could mean future crises.

“It may form a 'problem' in so far as the demand for Swedish exports will decrease and inflation may not increase in line with expectations, as imported goods become cheaper. Should this be the case, it may not be necessary to increase the repo rate as rapidly. But let me clearly emphasise that the Riksbank has no target for the level of the exchange rate,” he said.