IMF warns of Swedish house price decline

Sweden's housing market shows signs of a bubble and is on the verge of a sustained price decline, the International Monetary Fund (IMF) has warned in a new report.

IMF warns of Swedish house price decline

“We estimate that house prices have peaked, and we believe that interest rates are set to continue to rise. Therefore house prices will probably continue to fall,” said Peter Doyle at the IMF said at a press conference on Wednesday.

The IMF warned in its annual assessment of the Swedish economy, that Swedish house prices are in line for a fall even if the eurozone debt crisis does not impact on growth.

With this scenario in mind, the IMF has cautioned against an aggressive tightening of monetary policy.

Peter Doyle also said the situation in the Swedish financial sector during the financial crisis was much worse than most people realized then. He likened the situation of an impending heart attack which required extensive coronary artery surgery.

“It is important that the Swedish people understand how serious the situation was.”

One of the reasons for the problems, the IMF explained, is that the Swedish banking sector is different from many other countries in that it is larger, more concentrated, dependent on short-term financing, and has extensive operations outside of Sweden.

The IMF also assessed that the Financial Supervisory Authority (Finansinspektionen – FI) had difficulty managing its task, primarily due to lack of resources.

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Italy’s economic policies will hit the poor hardest: IMF

Economic policies implemented by the populist government in Rome leave Italy's economy vulnerable to recession, with the poorest likely to suffer the most, the IMF warned.

Italy's economic policies will hit the poor hardest: IMF
Italy's economic policies could lead to recession, the IMF said. Photo: Andreas Solaro/AFP

“The authorities' policies could leave Italy vulnerable to a renewed loss of market confidence,” an International Monetary Fund annual report on the country said yesterday.

“Italy could then be forced into a notable fiscal contraction, pushing a weakening economy into a recession. The burden would fall disproportionately on the vulnerable,” the IMF added.

The Italian economy, the eurozone's third largest, fell into a technical recession at the end of 2018.

The fund expects the Italian economy to grow by no more than 0.6 percent this year, well below the government's own estimate of 1.0 percent.

The European Commission is tipped to lower its Italian growth forecast on Thursday, and slower growth could spell trouble for Italy, where around 20 percent of national output is swallowed up each year by payments on the public debt, the second biggest in the eurozone.

Photo: Depositphotos

The IMF report praised the coalition government's “objective to improve economic and social outcomes (as) welcome.”

But it added that the only sustainable way of achieving such goals was through “faster potential growth” that would require structural reforms, “a credible fiscal consolidation” and stronger bank balance sheets.

The coalition government of the anti-establishment Five Star Movement (M5S) and the far-right League party was forced to water down its ambitious and costly budget in December to avoid being punished by the EU Commission and financial markets.

The IMF report emphasised Wednesday that Italy “needs to tackle long-standing structural impediments to productivity growth. 

“This includes decentralising the wage bargaining regime, liberalising service markets, and improving the business climate.”

Deputy Prime Minister and M5S leader Luigi Di Maio quickly rejected the IMF report, charging that the Fund “has starved people for decades.”

The IMF, Di Maio claimed, “has no credibility to criticise a measure like the citizenship income programme,” the party's plan to introduce a welfare payment of 780 euros a month for Itay's least well-off.