Bet on a tough year – again
After a lost year for Swedish growth, the risk is now increasing that companies will hold off on new recruitment, further worsening the economic dip. The slow easing of inflation suggests that it might be next summer before the Riksbank lowers the policy rate, according to Handelsbanken’s latest Global Macro Forecast. “Although we are not expecting consumption to fall off a cliff, there are nonetheless several uncertainties”, says Christina Nyman, Handelsbanken’s Chief Economist.
Global inflation is stubbornly holding on and there remains significant geopolitical uncertainty due to Russia's war against Ukraine. Economists at Handelsbanken anticipate that several central banks will continue to raise interest rates further in the near term. Handelsbanken's latest Global Macro Forecast anticipates a continued global downturn, with several countries facing a mild recession later this year.
Global economy to rebound in 2024, with a recovery in 2025
Global monetary policy is not expected to start normalising until next year, accompanied by gradual rate cuts.
“The chink of light is that inflation will eventually subside, and we believe we will see a global growth turnaround next year, followed by a stronger recovery in 2025”, says Christina Nyman.
Unexpectedly low inflation figures have fuelled expectations of rate cuts already this year, and created a sense of calm in the financial markets, at least for the short term. But any more negative developments in the banking sector could lead to further concerns, with the risk of a serious credit crunch and widespread ripple effects throughout the economy.
“This isn’t, however, our main scenario”, states Christina Nyman.
Household finances and employment under pressure
Economic activity has started to slow in Sweden, and the country’s GDP is expected to shrink this year. High inflation and rapidly rising interest rates are eroding households’ purchasing power. At the same time, housing construction has fallen sharply as a consequence of lower house prices, higher construction costs and more expensive financing. The labour market remains strong. But moving forward, Handelsbanken's economists expect the demand for labour to recede, and believe that unemployment will rise as the economy weakens.
“Although many companies will strive to retain their workforce to avoid difficulties in finding replacements once the recovery starts in earnest – a problem they experienced after the pandemic”, says Christina Nyman.
When can Swedes stop tightening their purse strings?
Real wages continue to be constrained by high inflation, while the Riksbank’s rate hikes will push up mortgage rates rapidly in the coming months. For many households, the surplus left over in their budgets after normal living expenses has more than halved.
“After normal living expenses, our model calculation suggests that a family has SEK 9,000 less left to live on per month. This means less money to go into savings or on consumption”, says Christina Nyman.
Households’ own financial savings are now negative, and fewer households are able or willing to further cut down on their savings to keep up consumption. Handelsbanken’s economists therefore believe that consumption will have continued to decrease during the first half of this year. House prices have some way left to fall, as the number of houses and apartments going unsold is at a record high.
“On the other hand, wages are rising faster, price pressure is relenting, and variable mortgage rates are on the way down again. Therefore we do not expect consumption to fall off a cliff”, says Christina Nyman.
The second half of 2024 should see the economy start to improve, as households’ real disposable income begins to grow. After the high corporate profits reported in the past year, profit margins are expected to tighten as employers allow for slightly higher pay rises than normal also beyond the end of the current two-year agreement.
“We therefore expect real wages to recover, albeit slowly and not completely”, says Christina Nyman.
Rate cuts to start in 2024
Inflation is slowing after unexpectedly high outcomes during the initial stages of the year, and the downturn is expected to continue. There is, though, a long way left to go before the Riksbank’s two percent inflation target is achieved.
“To get there, the policy rate can’t be cut too quickly or too much”, says Christina Nyman.
The Riksbank’s first rate cut may arrive within around one year.
“We expect a final rate hike in June, to 3.75 percent”, says Christina Nyman.
Revenge of the krona many years away
The krona is expected to remain in a significantly weak state until the turn of the year, after which it will gradually strengthen as economic worries and interest rate differences dissipate.
“In a few years, our view is that we will see around 10 kronor to the euro and 8.50 kronor to the dollar”, says Christina Nyman.
For further information, please contact:
Christina Nyman, Chief Economist: +46 70 778 77 65
Joel Holm, Press Officer: +46 73 058 30 21
For the full report in Swedish, see Konjunkturprognos and in English, Global Macro Forecast
Webinar: https://www.handelsbanken.se/sv/foretag/placera/konjunkturprognos
For more information about Handelsbanken, see: www.handelsbanken.com
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