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'Financial crisis over in Sweden': Nordea

TT/The Local/vt · 19 Jan 2011, 13:24

Published: 19 Jan 2011 13:24 GMT+01:00

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The crisis has passed in the country, according to Nordea's economists. Sweden's economy is expected to grow by 4.5 percent this year and by 2.8 percent in 2012, according to a new forecast from the bank.

At the same time, unemployment is expected to fall, but inflation is seen taking off. The bank estimates that inflation will rise to 2.7 percent in 2011 and 3 percent in 2012.

"Unemployment will fall quickly, but we also see signs that structural unemployment is increasing," cautioned Nordea economist Torbjörn Isaksson.

The GDP growth forecast for 2011 of 4.5 percent is a significant hike from the bank's autumn forecast of 2.8 percent.

Meanwhile, the unemployment rate forecast this year of 7.3 percent is a slight lower than a previous forecast of 7.7 percent. Next year, unemployment is expected to fall further to 6.8 percent.

The Swedish economy's unexpectedly strong recovery demonstrates an increasing need for rate increases from Sweden's central bank, the Riksbank, according to Nordea.

"We now see higher wage growth and rising inflation ahead of us and it increases the need for rate hikes from the Riksbank," Nordea's chief economist Annika Winsth explained.

Inflationary pressures are increasing the need for tightening measures by the Riksbank, according to Winsth.

"Accordingly, the Riksbank needs to shift the monetary policy onto a considerably less expansionary course so that the economy will not overheat in the future," she wrote in a statement.

She believes that Sweden's benchmark interest rate will rise to 2.5 percent by the end of the year from the current 1.25 percent and to 3.5 percent in by the end of 2012.

Nordea's economist have described the upturn in the Swedish economy as "broad."

"Households are an important engine of growth, while investments are growing rapidly. Exports are rising at a healthy rate, even after the initially strong recovery from previously depressed levels," the economists wrote.

The bank's economists estimate that the government had already likely balanced public finances last year and that it will begin to report a surplus in the coming years.

For 2011, Nordea forecasts the surplus at 1.1 percent, then rebounding to 1.7 percent in 2012.

Separately, the European Central Bank (ECB) is expected to demand tightening at a faster pace than many expect, according to Winsth, who believes there may be a key interest rate hike from Frankfurt in September.

"It will be the starting shot of a normalisation of the monetary policies in industrial countries," she wrote.

At the same time, she noted that the ECB is beginning to raise interest rates ahead of their colleagues at the US Federal Reserve.

The ECB's key rate has remained at a record low of 1 percent since May 2009.

"We have not made a forecast revision since the autumn budget, but we now see that the numbers look much stronger now. Nordea's forecast that came today is considerably higher than our previous forecast, but our figures do not differ markedly from theirs," Finance Minister Anders Borg said at a conference of with the Swedish Centre for Business and Policy Studies' (Studieförbundet Näringsliv och Samhälle, SNS) trade outlook council.

Borg expects GDP growth of 2011 of up to 4 percent.

"And we also expect good growth in 2012," he added.

However, Borg is also cautious about promising new reforms.

Story continues below…

"We will make an assessment of public finances after the summer and then we also assess the scope for reform. Reductions in employment taxes are a priority and the entire election manifesto will be accomplished," he said.

Borg was also optimistic about the unemployment rate and expects that it will decline in the coming years.

"Our forecast for the unemployment rate is below 4 percent by 2014. With the new definition of unemployment, it will a notch below 6 percent," he said.

Borg also discussed the large concern about long-term financial stability in Sweden. He noted in particular that the risks for the Swedish economy were considerably higher during the crisis in the Baltics than previously known.

Swedish housing prices are another concern where there is reason to worry, according to Borg.

"There is a risk here. There is no doubt. However, it is not just about housing prices, but also about total household debt," he said.

Borg sees a need to reduce indebtedness and simultaneously be more open to more stringent requirements on banks.

TT/The Local/vt (news@thelocal.se)

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Your comments about this article

14:20 January 19, 2011 by jwlundgren
improved maybe, but 'over' might be a bit premature.
17:19 January 19, 2011 by miss79
lol--good propaganda
19:29 January 19, 2011 by Nemesis
What are these people on?

Sweden's Krona is overvalued, a lot. That is not sustainable and will soon become bad for exports.

As for the idea that Sweden is not exposed to Eurozone debt. Whoever came up with comment, needs there eyes, ears and head examined.

Swedish banks both owe and are owed massive amounts of money by Italy, Spain, Portugal, Ireland and Greece. Swedish banks owe a lot of money through interbank lending to PIGS banks and vice versa. That is why Sweden lent some money so as to avoid problems in its own banking system. Sweden is exposed to all of the PIGS countries. If one of those countries defaults, a couple of Swedish banks will disappear, literally.

Regarding the loans to Iceland and Latvia, Swedish banks were some of the worst offenders and financed quite a bit of the problem in the first place.

Sweden has a housing bubble. It will burst sooner or later.
22:46 January 19, 2011 by conboy
and the cocaine is flowing at the risk analysisi department at Nordea oh how the mighty will fall!!!
04:07 January 21, 2011 by repat_xpat
I hope thy are correct. I wish the best for Sweden.
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