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INTERESTRATES

SEB predicts two years of strong growth

Swedish bank SEB expects interest rates to rise sharply over the coming years, reaching 4.5 percent in 2008. The bank's prognosis comes just a day after suggestions by Irma Rosenberg, deputy governor of Sweden's central bank, the Riksbank, that interest rates would slow down.

The Swedish economy is firing on all cylinders and growth is set to remain high. SEB’s economic experts also expect to see a good deal of job creation.

“This growth period will see the creation of a quarter of a million new jobs and we believe that the Riksbank will present an interest rate that is above market expectations. We believe that the interest rate could eventually peak at 4.5 percent and we expect two increases before the summer,” said Klas Eklund, chief economist for SEB.

The bank’s predictions contradict those made on Monday by Irma Rosenberg, who toned down the risk of inflation and the need for interest rate increases.

“She obviously thought the market was moving too fast in the short and medium term. But she actually didn’t say anything about the long term,” said Eklund.

SEB estimates that interest rates will reach 4 percent by the end of 2007, before hitting 4.5 percent in the first half of 2008.

The bank’s economists also predict that this year’s round of wage negotiations will result in wage increases that are one percentage point above those of the previous period.

This means average wage increases of 4 percent for 2007 and 2008, a level which would not hinder a continued drop in unemployment figures. According to SEB, there will be 5 percent open unemployment this year and 4.5 percent in 2008.

Inflation measured in terms of Key Performance Indicators (KPI) is set to reach 1.5 percent this year and 2.4 percent next year.

When measured according to UND1X inflation is expected to reach 0.7 percent in 2007 and 1.8 percent in 2008.

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.