SHARE
COPY LINK

INTERESTRATES

Swedish Riksbank reiterates further rate hikes

The Riksbank's deputy governor Irma Rosenberg said that since both the demand and supply sides of the Swedish economy are growing, it sees inflation being held back in the future, but reiterated that the central bank 'envisages' further rate increases.

“Productivity growth is strong and one cannot rule out the possibility that the growth in the labour force will be higher over the coming years than we have previously assumed, partly due to the government’s proposals for tax and labour market policy reforms.

“Moreover, the oil price has fallen. It therefore appears as though inflation will remain subdued,” Rosenberg said.

“All in all, I therefore see no reason today to proceed more quickly with

the interest rate increases than the markets were expecting (in) the weeks

prior to the monetary policy meeting in December,” she added.

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.