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INTERESTRATES

Rates will rise further ? bank chief

Sweden’s high growth rate means that further interest rate rises are to be expected, the new governor of Sweden’s central bank, the Riksbank, has said.

Stefan Ingves, in his first speech as governor, said on Monday that the circumstances that led to the bank’s last rate rise in January have not changed. High growth and the threat of inflation were not the only factors that made rate rises likely, Ingves said.

“Household debt and house prices are also important factors, although they are not in any way decisive for this interest rate decision.”

The housing market is now heading for a soft landing, Ingves predicted.

“A gentle readjustment is likely to be ahead of us with the speed of house price rises slowing somewhat,” he said.

“If house prices and household debt were to continue rising very rapidly, there would be a risk of a more dramatic correction further down the line, with real economic effects and effects on inflation. Against this background a further interest rate increase seems appropriate.”

TT/The Local

ECONOMY

Swedish job losses set to soar in 2009

The global financial crisis is set to have "substantial effects" on the real economy in Sweden over the next two years, a new report has predicted, with large numbers of people expected to lose their jobs.

Swedish job losses set to soar in 2009

The state-run National Institute for Economic Research (Konjunkturinstitutet – KI) said on Friday that Sweden’s GDP would fall by 0.9 percent in 2009 and grow 1.9 percent in 2010. Unemployment is expected to increase from 6.1 percent this year to 7.9 percent in 2009 and 9 percent in 2010.

Some 135,000 jobs will be lost over the next two years, KI predicts.

“The number of layoff notices has increased dramatically, at the same time, newly reported job openings have continued to decrease, and firms have cut back on their hiring plans,” the report notes.

Retail prices are expected to fall 0.2 percent next year and 0.4 percent in 2010. Interest rates will keep falling, KI predicts, but Sweden will not experience a repo rate of zero percent as in the US. The report predicts that the Riksbank will reduce rates to 1 percent by the end of next year. This rate will likely be maintained until the end of 2010.

The institute expects the government to introduce further expansionary measures to fight the downturn. Government finances are currently strong, KI says, but predicts that the government will push through new unfinanced spending increases as tax revenues fall.

Spending increases and falls in revenue will cost 7 billion kronor ($911 million) in 2009 and a further 50 billion kronor ($6.5 billion) in 2010.

“It will therefore be necessary to strengthen cyclically adjusted net lending in the years immediately following 2010 if Sweden is not to keep falling short of the surplus target,” the institute wrote in its report.