Swedes ‘shopping up’ the economy

The Swedish Research Institute of Trade (Handelns utredningsinstitut - HUI) has upped its forecasts for household consumption, imports and investment in Sweden. The institute now predicts that GNP will rise by 3.6 percent in 3007, a slight increase on its earlier forecast.

Strong household finances mean that Swedes are ‘shopping up’ the country’s economy, according to HUI.

A combination of a strong labour market and an increase in spending power thanks to tax cuts and salary rises has lead the institute to predict an overall increase in household consumption of 3.9 percent this year.

“Everything looks fantastic for the next two years,” said Jonas Arnberg, analyst at HUI.

He pointed to three factors which are driving the surge in consumption: the Riksbank’s recent decision not to increase interest rates , tax cuts since the beginning of the year, and now, the icing on the cake, the abolition of property tax .

For retail, which has enjoyed ten solid years, there is barely a cloud on the horizon.

“Everyone is pushing forward, nobody wants to be the one to hit the brakes in this situation,” said Arnberg.

But he warned that there is a downside to the good news.

“It could force the Riksbank to raise interest rates quicker than expected,” said Arnberg.

“A one percent on a million kronor loan is 10,000 kronor extra in repayments. That will have effects on the part of the retail industry that is growing fastest today – the occasional items such as home electronics, furniture and DIY.”

But Arnberg added that the risk of that happening is small compared to all the positive signs identified by HUI.