The board of the International Monetary Fund, IMF, has stated that Sweden’s economy continues to develop well but the government ought to deal with growing household debt. It predicts Sweden’s GDP to increase by 3.4% this year and 2.4% next year. The budget deficit is expected to be small this year and next year despite migration costs and investments in training and the labour market.
“Despite beneficial conditions on the labour market it still takes too long to get new arrivals into work, and unemployment is high among workers born abroad with little education,” writes the IMF. It also suggests reforms are needed to tackle the rise in house prices.
The Swedish Financial Supervisory Authority (FSA) has warned of the growing number of indebted households and now FSA boss Erik Thedéen is calling in the banks to stop growth in lending. “The intention of the discussions is that they will together lead to a more restrictive position for high debt ratio lending,” says Erik Thedéen.
Harry Flam, professor in international economics, soon to be chair of the Swedish Fiscal Policy Council, agrees. However he disagrees that the introduction of a debt ratio ceiling, a maximum loan in relation to disposable income, is the right way to go. Instead he wants to see a cautious lowering of interest rate deductions.
It is no longer a question of if, but when Swedish house prices are going to crash, warns former Finance Minister Anders Borg. “I do not see how it can be avoided,” he said at DI Bank conference on Tuesday, claiming that Sweden’s debt and its housing shortage have exceeded levels that mean a future price fall is inevitable. In turn that will hit growth when indebted households cut down on consumption.
Anders Borg wants rent levels for new builds and existing rental properties to be reformed to stimulate the pace of construction, the possibility to build at height in urban areas and curb the potential for municipalities and neighbours to put a stop to planned construction.
In response Finance Minister Magdalena Andersson agreed that the price of rents is an important factor for the development of house prices and that rising household debt constitutes a clear macroeconomic risk. However she does not believe the house price fall is around the corner.