Economists are describing Tuesday’s spring budget as cautious and selective. Annika Winsth, Nordea’s chief economist, believes the government is gradually paving a way for an election budget while SEB’s Håkan Frisén would have liked to see reform on the housing and labour markets. However, he acknowledges that it is too late in the business cycle for stimulus.
Anna Öster, chief economist at Länsförsäkringar, agrees with Finance Minister Magdalena Andersson that the Swedish economy remains strong but is disappointed that the government made no mention of the challenges facing the economy. “Put bluntly, there was no holistic approach,” she says.
In its response to the government’s proposal to raise bank fees for the resolution reserve (which could be used in the event of a financial crisis – ed.), the Riksbank has said that it is uncertain whether the increase in the fee would really boost resources for handling a crisis. The Swedish reserve does not consist of an actual fund and there are no liquid assets earmarked for bank crisis management, the central bank points out. The bank believes the government ought to consider whether there are better alternatives for strengthening financial stability.
Finance Minister Magdalena Andersson does not want to comment on the responses until they are analysed.
Professor Ulf Berritz, whose field of expertise is European law, has studied the government’s proposal to raise bank resolution fund fees, that is to say the reserve to shield Sweden from the next financial crisis. At a seminar organised by the Swedish Bank Association (Bankföreningen) on Wednesday, Professor Berritz concluded that the proposal is incompatible with EU law. He also criticised the memorandum sent out by the Ministry of Finance, which failed to analyse the impact of the proposed raise in industry payments, describing it as “a rush job” with insufficient preparation.
After Nordea’s threat to move its head office out of Sweden the Moderates have attacked the government. Ulf Kristersson, the party’s economic spokesperson, says, “We are driving companies out of the country with the policy the government is threatening to bring in.” He says Sweden needs more head offices, not fewer.
Nevertheless Finance Minister Magdalena Andersson is not fazed by Nordea’s threat. “If they place their head office in another country then it lowers the risk for Swedish taxpayers in the case of a crash,” she says. She points out that the banking sector is healthy, has high profits and the fees have not created any problems. She also emphasises that Nordea made billions of kronor in profits last year.
The proposal is now out for consultation.
The state owned airport company Swedavia has warned against the proposal to introduce an aviation tax, stressing the negative impact it will have. The company, which owns and runs ten airports including Arlanda and Landvetter, believes the proposal should not be implemented.
CEO Jonas Abrahamsson says, “The tax is being motivated by climate reasons however the state investigation shows that it leads to very limited climate benefits and that the total carbon dioxide emissions could in fact increase.” At the same time the tax would have very serious consequences for Sweden’s competitiveness.
Abrahamsson says the airlines have been clear that they may be forced to close existing routes and it would be harder to attract international airlines to establish new routes.
At the same time Swedavia’s airports broke passenger volume records last year after an increase of 5% to 39.5 million.
GDP in Sweden grew by 1.0% in the fourth quarter of 2016, compared with the preceding quarter, and 2.3% compared to the same quarter in 2015, according to Statistics Sweden.
Growth in exports of goods and services accounted for much of the increase while imports fell slightly. Increased household consumption, public consumption and investments also contributed.
However the increase in GDP per inhabitant was lower: 0.7% from Q4 2015 to Q4 2016, compared with a total increase of 2.3%. “This shows that the rise in GDP is not only a result of the growth in population, contrary to what many people believe,” says Finance Minister Magdalena Andersson. She is satisfied with GDP growth of 3.3% for 2016, above most EU countries.
Andersson highlighted that there is a surplus of SKr 40 billion in the public finances, saying, “This is mainly the result of the government’s work.” She also hinted that if the next GDP forecast is higher then this could create scope for more reforms in the budget.
Swedish households can count on lower interest rates for another couple of years after the Riksbank and its governor, Stefan Ingves, presented the first monetary policy forecast and interest rate announcement of the year yesterday.
The Riksbank highlighted a number of uncertainties in Europe, for example the economic effect of Brexit and forthcoming elections in the Netherlands, France and Germany. Ingves also warned of residual problems concerning toxic loans in European banks.
The bank has decided to extend the mandate which facilitates quick intervention on the currency market. However the forecast is based on a more stable series of events with inflation and interest rates normalising at a steady rate. The key interest rate remains unchanged at a negative 0.5 per cent and the new forecast states that a further lowering of the repo rate to -0.6 per cent is more likely than it being raised.
The outlook for the proposal of a new financial tax is not looking bright. After heavy criticism Finance Minister Magdalena Andersson is wavering.
Critics believe the tax would affect 318,000 companies, compared to the 10,700 that are actually active within the financial sector, according to the Swedish Tax Agency (Skatteverket).
Magdalena Andersson said on Tuesday, “Given that it has such a wide impact, it is uncertain that it would fulfil its task.” She says the responses to the proposal will now be looked at in detail but she is not ruling out the idea of a banking tax. “We want the banks, in one way or another, to be able to contribute more,” she says.
Statistics Sweden is to publish December’s inflation data on Thursday and experts are forecasting that inflation will reach its highest level in more than five years, which is bound to delight Sweden’s central bank, the Riksbank.
Swedbank, for instance, has forecast that the CPIF will rise to 1.8 per cent in November, while SEB has forecast 1.9 per cent. CPI is expected to be a fraction lower.
The bad news is that the expected increase is linked to the rise in oil prices rather than to enduring factors such as price increases on services.
In February the Riksbank will have had negative interest rates for two years. The extreme interest rate situation has forced pension companies to hunt for returns while producing halcyon days for property companies.
In DN today, governor of the Riksbank, Stefan Ingves, defends the policy. “Negative rates have been a success. Inflation is now rising and is expected to climb to two per cent. At the same time we are experiencing good growth and employment is growing,” he says. According to the Riksbank’s most recent forecast negative interest rates will remain unchanged until the beginning of 2018.
Ingves believes that as long as the Riksbank sticks to its guns then the improvements will continue and abandoning negative rates too early could have serious consequences: “the krona would probably quickly rise against other currencies. Then exports would fall and unemployment increase. Meanwhile inflation would slow and diverge from the path to the two per cent goal.”