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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.

Published: 4 September 2012 10:14 CEST

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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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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