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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.

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

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.” 

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