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.”

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


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.”