Swedish growth to slow in 2011: IMF

Swedish growth will slow in 2011, from around 3 percent today to 1.9 percent, according to a new prognosis from the International Monetary Fund (IMF).

Swedish growth to slow in 2011: IMF
Photo: Henrik Montgomery/Scanpix (file)

Unemployment will fall slightly from 9.3 to 8.8 percent, the fund predicts.

The Swedish economy’s recovery from last year’s 5.1 percent fall in GDP is entering an uncertain phase. The debt crisis in the eurozone is the main reason, the IMF says.

The IMF’s expectations for the Swedish economy are considerably more modest that those outlined by Finance Minister Anders Borg earlier this month.

Borg said he expects the rate of growth in the Swedish economy to rise from 3.3 percent this year to 3.8 percent next year. Unemployment will fall to 7.5 percent in 2011, Borg believes.

The IMF argues that the Swedish krona, the weakening of which was a crucial factor in reversing the fall in Swedish GDP, has now turned a corner. The strengthening currency together with austerity measures in crisis-hit eurozone countries will hit demand for Swedish exports, the fund believes.

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IMF warns of Swedish housing bubble

The International Monetary Fund has warned that Sweden is suffering from a housing bubble and has called for a halt on loans that don't require amortization.

IMF warns of Swedish housing bubble

“A sudden and sizeable fall in Swedish property prices could have a knock-on effect on consumption and unemployment, with negative repercussions on banks through non-performing loans and funding costs,” the IMF wrote in a new report published on Thursday.

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The IMF warns that the fall out could have regional consequences across Scandinavia and the Baltic region and identified the main risks as the high level of household debt, which is amongst the highest in the OECD.

Furthermore the IMF warns of banks that are excessively large in relation to the country’s GDP and weaknesses in bank financing models, explaining that the risks are more pronounced due to the low levels of amortization on mortgages and deficiencies in the tax system.

“Domestically, household debt is high and rising, reflecting tax incentives, easy access to low-amortization mortgages, and very low interest rates,” the report stated.

With regards to the tax system, the IMF recommends a review and raises the prospect of phasing out breaks and mortgage interest tax relief.

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Sweden’s Riksbank on Thursday confirmed that the main base (repo) interest rate will remain at one percent and left its forecast unchanged. The repo rate is due to be raised towards the end of 2014, according to the forecast.

The Riksbank’s decision means that fluctuating interest rates are set to remain the same (at around 2.9 percent) for the time being.

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