Swedish interest rates up again

Sweden's central bank, the Riksbank, has raised interest rates by 0.25 percentage points to 3.75 percent. The bank said the repo rate would need raising again the the coming months, roughly in line with its prognosis in June.

Swedish interest rates up again

“This is expected to contribute to inflation being close to the target of 2 per cent next year and onwards, and to production and employment developing in a balanced manner,” the bank said in a statement.

The bank added that Sweden’s economy was developing strongly, and that while signals from abroad were mixed, developments have generally been positive. GDP growth in Sweden was higher than expected in the second quarter and the labour market is “tighter than the Riksbank anticipated in June,” the statement said.

Lending and house prices have increased rapidly, it added.

Cost pressures have been higher than expected, the statement continued. Rising food prices have put pressure on inflation.

The bank said the recent market turbulence would have “some negative consequences for growth abroad and in Sweden.”

“It is as yet too early to determine the extent and duration of these effects.”


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.