"Monetary policy tightening has an impact after a time lag, which creates a risk that central banks will underestimate the interest rate sensitivity of the economy. In the US, the
Last year's resilience has reduced the likelihood of a deep crisis
GDP growth in 2022 appears to have been stronger than expected in most countries. Savings buffers from the COVID-19 pandemic and the desire of households to return to a normal life provided support to private consumption. Businesses benefited from an easing of disruptions in global supply chains, as well as from continued relatively healthy demand. A recent decline in energy prices also reduced cost pressures. The delay in the downturn has contributed to some upward adjustments in our full-year 2023 GDP growth forecasts for both the US and
"Resilience during 2022 helped us avoid a situation where the economy entered a recession while inflation was on the rise. Such a development might have created a 'perfect storm' for central banks to deal with. The time we have now gained has reduced the risks of a deep recession. This has already been reflected in rising share prices," says Håkan Frisén, Head of Economic Forecasting at SEB.
However, the general increase in central bank hawkishness is delaying an economic rebound - one reason why we have revised our 2024 GDP forecasts downward. Key interest rates are nevertheless close to their peak, and long-term bond yields have already passed their peak.
Looking a bit further ahead, the inflation outlook has improved
The outlook for the energy market over the next couple of years has improved. The risk of an acute energy crisis in
"The risk of a repeat of the 1970s, with persistently high inflation, has diminished. Relatively neutral fiscal policies also suggest that the mistakes of that era, including its excessive 'fine-tuning' ambitions, are being avoided. Because of base effects − when large price increases in the spring of 2022 begin to disappear from the 12-month figures − combined with some normalisation of bloated price levels, inflation risks will actually be on the downside at the end of our forecast period," says Håkan Frisén.
The Swedish economy showed impressive resilience last year, but GDP is now falling. We have revised our 2023 forecast somewhat higher, but this year's 1.2 per cent decline will be clearly larger than the EU average. Because
We expect the downturn in real household disposable incomes to be in line with developments in the early 1980s, but far milder than during the crisis of the early 1990s. At that time a collapse in employment was an important driver, while the labour market looks significantly more resilient this time around. Employment will fall during 2023, but we expect the decline to total only a moderate 1.5 per cent. Unemployment will climb from below 7.5 per cent now to 8.5 per cent by end-2023. Despite high inflation, we expect the Swedish national wage round to result in moderate pay increases. We estimate that total wage and salary hikes will end up at 4.5 per cent this year and 3.2 per cent next year, somewhat lower than in the euro area and
CPIF inflation below target at the end of our forecast period
Swedish inflation has risen to new highs for both CPIF (the consumer price index excluding interest rate changes) and CPIF excluding energy. Due to large base effects, both metrics will probably fall in early 2023. Over the next six months, various factors will keep core inflation up, such as plans for major price hikes in the retail sector and continued rapidly rising producer prices for consumer goods - partly due to a weak Swedish krona - plus administratively set fees and rents. However, the potential for lower inflation further ahead has improved. A slight decline in electricity prices suggests that CPIF inflation will end up below target in 2024. We expect the Riksbank to hike its key interest rate by another 50 basis points to 3.0 per cent in February.
"A gloomy growth outlook, falling home prices, a weak krona and high inflation are a continued dilemma for the Riksbank. Hawkish signals from the
During 2024 the Riksbank will begin to cut its key rate, which will reach 2.25 per cent by year-end. The bank has completely stopped reinvesting bonds that have matured, which means that its balance sheet is now shrinking rapidly. Riksbank representatives have raised the possibility of actively selling government bonds with long maturities. Such divestments would tighten monetary policy without significantly affecting household mortgage costs, given the short fixed interest periods of these loans. Divestments of Swedish government bonds might also attract foreign buyers and help strengthen the krona. We are forecasting that the Riksbank will begin such sales during the second half of 2023.
"This is a remarkable feat during an economic downturn and indicates that Swedish fiscal policy is rather cautious at present. The likelihood of more fiscal stimulus measures once the downturn in inflation has come a long way poses an upside risk to our GDP forecast," says Håkan Frisén.
Key figures: International & Swedish economy (figures in brackets are from Nordic Outlook Update,
International economy. GDP, year-on-year changes, % | 2021 | 2022 | 2023 | 2024 |
5.9 | 2.0 (1.8) | 0.5 (0.1) | 1.2 (1.5) | |
Euro area | 5.3 | 3.4 (3.2) | 0.0 (-0.4) | 1.9 (1.9) |
7.6 | 4.0 (3.0) | -1.2 (-1.0) | 0.7 (1.1) | |
2,1 | 1.9 (1.9) | 1.8 (1.6) | 1.3 (1.1) | |
5.7 | 2.9 (2.7) | 0.7 (0.5) | 1.7 (1.9) | |
8.1 | 3.0 (3.5) | 5.5 (5.3) | 4.9 (5.0) | |
Nordic countries | 4.4 | 2.6 (2.6) | -0.3 (-0.2) | 1.7 (1.8) |
Baltics | 5.9 | 1.4 (1.6) | 0.2 (0.4) | 3.3 (3.3) |
World (PPP) | 6.0 | 3.3 (3.2) | 2.5 (2.3) | 3.3 (3.6) |
Nordic and Baltic countries. GDP, year-on-year changes, % | ||||
3.9 | 3.1 (2.1) | 0.6 (0.8) | 2.0 (1.9) | |
4.9 | 3.0 (2.5) | 0.0 (-0.5) | 2.5 (2.5) | |
3.0 | 2.0 (2.0) | -0.3 (-0.2) | 1.4 (1.6) | |
6.0 | 2.2 (2.2) | 0.1 (0.1) | 3.5 (3.0) | |
4.1 | 1.6 (1.5) | 0.4 (1.1) | 2.7 (3.5) | |
8.0 | -0.4 (0.6) | 0.2 (0.3) | 3.5 (3.5) | |
Swedish economy. Year-on-year changes, % | ||||
GDP, actual | 5.1 | 2.9 (2.9) | -1.2 (-1.5) | 1.1 (1.3) |
GDP, day-adjusted | 4.9 | 3.0 (2.9) | -1.0 (-1.3) | 1.1 (1.3) |
Unemployment rate (%) (EU definition) | 8.8 | 7.5 (7.5) | 8.1 (7.8) | 8.5 (8.1) |
CPI | 2.2 | 8.4 (8.8) | 9.1 (7.8) | 2.5 (1.9) |
CPIF | 2.4 | 7.7 (8.2) | 6.2 (5.9) | 1.6 (1.5) |
Public sector balance (% of GDP) | -0.1 | 1.2 (0.4) | 0.4 (0.2) | -0.7 (0.0) |
Key interest rate (Dec) | 0.00 | 2.50 (2.50) | 3.00 (2.75) | 2.25 (2.25) |
Exchange rate, EUR/SEK (December) | 10.29 | 11.15 (10.75) | 10.25 (10.25) | 10.05 (9.90) |
For further information, contact:
Håkan Frisén: +46 70 763 8067
Marcus Widén: +46 70 639 1057
Press contact:
+46 70 763 8243
niklas.x.magnusson@seb.se
SEB is a leading northern European financial services group with international reach. We exist to positively shape the future with responsible advice and capital, today and for generations to come. By partnering with our customers, we want to be a leading catalyst in the transition to a more sustainable world. In
https://news.cision.com/seb/r/nordic-outlook--a-difficult-balancing-act-for-the-swedish-economy,c3701844
https://mb.cision.com/Main/4324/3701844/1797787.pdf
(c) 2023 Cision. All rights reserved., source