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Riksbank chief forecasts dire 2009

The global financial crisis is set to continue to affect the Swedish economy in 2009, despite a sting of measures to counter falling productivity and rising unemployment Riksbank chief Stefan Ingves said on Wednesday.

Published: 31 December 2008 11:33 CET
Riksbank chief forecasts dire 2009

“The global crisis will continue affecting the Swedish economy…The prognosis is that GDP (gross domestic product) will fall next year,” Ingves wrote in an opinion piece for the Dagens Nyheter daily.

There is significant doubt as to how bad 2009 will be for Sweden and the global economy but one thing is certain – it will be a bad year, Ingves concluded.

“The outlook for 2009 is dire. Everyone had expected the economic situation to weaken but not that the economy would worsen so quickly and become as feeble as what we are now seeing,” Ingves wrote.

The exposure of Swedish banks to the Baltic region is of “particular concern” according to Ingves although he expressed confidence in the Swedish banking sector.

“Our assessment is that the banks are sufficiently strong to be able to manage increasing credit losses in the region.”

Despite the dire outlook Ingves sees some light at the end of the tunnel. A long period of high growth has made the Swedish economy resilient and in a strong position.

The effects of a string of measures from the Riksbank and the government have helped to counter the crunch, Ingves insisted.

“There will be a year of weak economic development, but a year where we, together with other countries, will continue to deal with the problems. These lays the basis for an improved development in 2010.”

The central bank has for instance rapidly slashed Sweden’s key interest rate to just 1.75 percent from 4.75 percent in September while the centre-right government has dished out several billion Euros to stimulate the economy and rescue industries such as the beleaguered automotive sector.

Swedish actions and similar international measures have “countered the most pressing problems but the financial markets are still working much worse than normal,” Ingves concluded, calling for greater cooperation to handle the crisis.

ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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