Swedbank Economic Outlook: the Riksbank picks up the pace
Higher inflation is expected to lead the Riksbank to tighten its monetary policy and raise the repo rate twice next year. The first rate hike will take place in the beginning of 2023, according to the forecast in Swedbank Economic Outlook.
The pandemic has once again gripped the Swedish economy, and restrictions have been reintroduced. Despite this, economic growth will be stronger than normal during the coming years. Increased infection rates and high energy prices are dampening growth prospects in the near term but are not expected to lead to any lasting effects.
“Economic activity in Sweden is back at the level it would have reached if the pandemic had not struck. The labour market has also recovered quickly. Unemployment has fallen back to the levels seen before COVID-19. The effects of the pandemic will, however, remain noticeable in some sectors, such as in the consumer-related service sector, where a complete recovery will take longer due to the increased spread of infection,’’ says Mattias Persson, Swedbank’s Group Chief Economist.
The pandemic has also led to higher inflation. In the near term, inflation will be close to 4 per cent. The main contributing factor is higher energy prices; inflation will decline again as energy price increases subside during the second half of this year. During this year we expect an increasing level of pass-through from producer prices to consumer prices.
Underlying inflation is expected to be around 2 per cent annually during the coming years, which is a higher inflation than is customary. The Riksbank is therefore expected to start tightening its monetary policy sooner than previously projected. We now expect two rate hikes in 2023, compared to our previous forecast in which we expected a rate hike not until the autumn 2023.
“The Riksbank will tighten its monetary policy somewhat faster than previously expected. We expect them to begin reducing their balance sheet this summer and to begin raising the repo rate by 0.25 percentage points in the beginning of 2023 – and we expect another rate hike at the end of 2023,’’ Persson says.
House prices in Sweden have risen sharply during the pandemic, and the trend is expected to continue. For 2022 and 2023, we are counting on 5 per cent price increases annually.
“House prices are expected to continue to rise, although at a somewhat slower pace. We expect that, by 2023, the average Swedish home will cost around 30 per cent more than it did in 2019,’’ Mattias Persson says.
The global economy will continue to grow at a relatively fast pace. Global supply-chain problems are expected to ease gradually but will continue to have an impact on economic development during the coming year. Global growth is expected to be 4.1 per cent in 2022 and 3.8 per cent in 2023. The Swedish economy is expected to grow by 3.4 per cent in 2022 and 2.2 per cent in 2023. Downside risks for the recovery are dominating and are linked to the development of the pandemic, and geopolitical risks in Sweden’s vicinity have also increased.
Fiscal policy is tightening, although we expect the unfinanced budgetary measures to be larger than normal this year and during 2023. We expect unfinanced budgetary measures of almost SEK 80 billion this year, as well as SEK 60 billion next year; the majority will comprise public consumption and investment. This means that public net lending will be 0.1 per cent of GDP in 2023. Public debt will fall to just below 30 per cent of GDP, which is lower than before the pandemic.
“Sweden’s public finances will emerge stronger from the pandemic, despite an expansionary fiscal policy and despite the introduction of additional support measures, as well as compensation for households facing higher electricity prices. The details of the SEK 6 billion in compensation have not been finalised. However, linking it to electricity consumption rather than to electricity prices will mean that households in different parts of Sweden are compensated by the same amount – despite prices having risen much more in the south of Sweden. This makes the measure less precise,’’ Persson says.
Please see the attached pdf for tables.
Link to the report: www.swedbank.com/seo
Contact:
Mattias Persson, Group Chief Economist Swedbank, tel +46 73 094 29 56
Amanda Billner, Press Manager Swedbank, tel +46 73 045 11 68