Sweden’s policymakers who seek to engineer a soft landing after a likely recession this year are facing a difficult task as households and businesses remain sensitive to rising borrowing costs, economists at Svenska Handelsbanken AB said.
(Bloomberg) — Sweden’s policymakers who seek to engineer a soft landing after a likely recession this year are facing a difficult task as households and businesses remain sensitive to rising borrowing costs, economists at Svenska Handelsbanken AB said.
The bank expects a 0.6% contraction of gross domestic product this year and no growth in 2024. The Nordic region’s largest economy is facing weakening demand for its exports and an abrupt decline in housing construction, while rising costs of living are weighing on household spending.
That’s still a less downbeat vision than a two-year recession forecast by economists at Nordea Bank Abp and Swedbank AB.
At the same time, unemployment has yet to rise and household savings remain at a relatively high level, according to Handelsbanken. It expects neither a further decline in housing prices, nor a rapid decline of consumption.
“While it is true that the Swedish economy has been experiencing greater fluctuations – both up and down – than the eurozone, the underlying growth is stronger than many think,” Chief Economist Christina Nyman said in a statement.
Handelsbanken expects the country’s central bank to raise its benchmark interest rate twice this fall, to 4.25%, and keep it at that level until September next year. That compares with a median estimate of 4% peak rate among economists surveyed by Bloomberg.
”The Riksbank will be facing some particularly difficult choices, trying to balance risk in an economic climate that is sensitive to interest rate movements and struggling with high inflation and a weak krona,” Nyman said. “The Riksbank will not start lowering its key rate until it feels certain that the rate of inflation is approaching the inflation target. Our assessment is that this will be in September 2024.”
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