Sweden coming out of recession: Riksbank

“The deep recession has hit bottom, but the recovery will be weak", Sweden's deputy central bank governor Svante Öberg said in a speech made on Tuesday.

The bank’s monetary policy would continue to focus on dampening the effects of the recession, with the historically low benchmark interest rate set to remain at 0.25 percent for the coming year.

“The situation in the financial markets has improved and the new information received during the summer confirms the view that the deep recession has bottomed out,” said Öberg.

Öberg said the country’s GDP drop was unlikely to be as severe in 2009 as the Riksbank had initially predicted. In its July Monetary Policy Report, the central bank saw GDP plunging by more than 5 percent.

But Öberg stressed the the recovery would take some time time, with GDP not expected to reach pre-crisis levels until 2012.

The Riksbank stood by its prediction that unemployment would peak at 11 percent in 2011, although it was encouraged by employment figures in June that were marginally better than anticipated.

Inflation remains “much higher” in Sweden than in the EU but underlying inflation was “entirely in line with our forecast” and the krona has strengthened quicker than the central bank predicted at its July monetary policy meeting.

Öberg said Sweden was now benefiting from a policy of building up surpluses in its public finances and current account.

“[T]his is a much better situation than in many other countries, such as the United Kingdom, where public finances have also deteriorated substantially, but where they had a deficit to start with,” he said.

In summary, Öberg noted that “the new information received during the summer tends to point to a slightly stronger economic activity than we had forecast at the beginning of July.”

He added however that the Riksbank “will not make an overall assessment of economic developments until it is time for our next monetary policy decision on 2 September. It is likely that more information will have come in by then and we will have to update our forecasts.”

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