Nordea predicts mixed prospects for Sweden

The Swedish economy is going to be improving slowly over the next few years, and it will be households keeping the wheels turning, according to a new outlook report from Swedish bank Nordea.

Nordea predicts mixed prospects for Sweden

The bank predicts that the Riksbank will decrease interest rates by 0.5 percentage points this year.

“With low inflation, a weaker labour market, low policy rates internationally and a risk of further SEK appreciation, the Riksbank should cut rates this year,” Nordea analyst Torbjörn Isaksson wrote in the report.

Nordea predicts a growth of 1.2 percent in 2012 and 1.8 percent the year after. Unemployment will rise above 8 percent during winter, according to the report.

According to the report, Swedish industry has been weighted down by weak demand for Swedish exports from the rest of the world, while the krona has been strong.

But Nordea predicts that the situation will improve next year when the Eurozone economy is believed to improve. A better Eurozone outlook will lead to increased demand and a weaker krona.

“The SEK has become a safe-haven currency in 2012. The reasons are the modest exposure of the Swedish economy to troubled areas, solid public finances and a highly competitive business sector that generates surprisingly strong growth and increased interest rate differentials,” Isaksson wrote in the report.

Overall, Nordea predicts mixed prospects for the second half of 2012, forecasting a subdued growth short term but a pick-up in activity in the long term.

“A benign situation for households, a slightly more expansionary economic policy and a global economy that gradually recovers are the factors that will underpin higher GDP growth in coming years,” Isaksson wrote.

Due to global weakness, growth will only accelerate slowly and unemployment will not decline until the latter part of the forecast period, according to Nordea’s analysts, who despite this predict stable finances for Swedish households.

Rebecca Martin

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Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”