France and Spain successfully raised funds at lower rates on the markets despite a raft of eurozone credit downgrades, while Greece got the prospect of more rescue loans from the IMF.

 

"/> France and Spain successfully raised funds at lower rates on the markets despite a raft of eurozone credit downgrades, while Greece got the prospect of more rescue loans from the IMF.

 

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ECONOMY

France shrugs off downgrade with successful bond sale

France and Spain successfully raised funds at lower rates on the markets despite a raft of eurozone credit downgrades, while Greece got the prospect of more rescue loans from the IMF.

 

France shrugs off downgrade with successful bond sale
Images of Money

In their first bond auctions since Standard & Poor’s downgraded their credit ratings last week, both Paris and Madrid demonstrated they can still borrow at affordable rates.

Despite S&P having dropped Spain’s rating two notches from AA- to A, investors clamoured to buy its bonds, with bids exceeding €15.3 billion ($20 billion) for the the original 3.5-4.5 billion originally planned to be sold.

Spain took advantage of the competitive rates and raised a combined total €6.609 billion in the auction.

The average 10-year bond rate plunged to 5.403 percent from 6.975 percent at a comparable auction last November 17th, Bank of Spain figures showed.

It was the sixth consecutive successful bond auction for Spain, giving the new right-leaning government of Prime Minister Mariano Rajoy some breathing room as it seeks to squeeze a stubborn public finance deficit.

Meanwhile France successfully raised €9.46 billion in a sale closely watched as a test of appetite for its debt after Standard & Poor’s stripped the country of its top AAA rating.

The average yield on benchmark 10-year bonds dropped to 1.07 percent from 2.32 percent in the last comparable sale on November 17th, with bids over three times the amount offered.

The rate of return on short-term bonds also dropped considerably, by about 0.5 to 1 percent points.

“Strong and healthy demand (for French and Spanish debt) demonstrated how undisturbed the markets were by the recent S&P downgrade that deprived France of its triple A rating,” Gekko Global Markets trader Anita Paluch told AFP.

“It seems there is little concern when it comes to the perception of risk as the cost of borrowing for both nations have fallen. It proves the liquidity is abound and that Spain’s efforts of easing the pressure on its finances is bearing its fruits and was well received in the markets too.”

The S&P downgrades could theoretically expose them to higher interest rates on their long-term bonds, although markets appear to have already largely factored them in.

Moreover, eurozone banks are flush with nearly half a trillion euros in low-cost funds from the European Central Bank, with sovereign bonds offering a potential easy return.

Meanwhile, Greece said Thursday the International Monetary Fund was ready to open talks on new rescue funds as Athens was set for further talks with private creditors on a voluntary write-down of its debt needed to save it from a default.

“After a waiting period of several weeks, the green light has been given for the country to submit to the IMF a request to begin procedures for the new programme,” Greek Finance Minister Evangelos Venizelos told parliament.

Venizelos and Prime Minister Lucas Papademos were due to resume talks at 1700 GMT with Charles Dallara, head of the Institute of International Finance (IIF) and lead negotiator for the banks.

The negotiations, aimed at cutting Greece’s staggering total debt of more than €350 billion by just under a third, stumbled last Friday over the terms of new bonds that would replace some of the debt to be written off.

The eurozone has insisted private creditors take losses of at least 50 percent on their holdings of Greek bonds to lead to a reduction of around €100 billion in the country’s debt.

Greece needs the debt reduction deal and the €130 billion in additional funds the eurozone has offered before major bond repayments are due in March or it could face a default.

Greek officials have said they see a deal as possible by the end of the week.

Japan said Thursday that it was ready to help out after the IMF called for $500 billion in new funds as the European debt crisis threatens the global economy helped.

However the United States has resisted calls for a larger IMF stand-by fund, and its success will hinge on the attitude of emerging economies like China, Brazil and India.

European states have already committed to providing around $200 billion.

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ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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