Andersson: the economy is strong

Social Democratic Finance Minister Magdalena Andersson’s Friday began well as Statistics Sweden released its national figures for the second quarter. GDP rose by 1.7% on the previous quarter and by 4% compared to Q2 2016.

“The Swedish economy is clearly extremely strong… It stands out clearly if you make international comparisons,” said Magdalena Andersson.

The figures exceeded expectations and Andersson pointed out several contributing factors, including household consumption increasing by 1.1%.

Top economist predicts worse times

Handelsbanken’s head economist Ann Öberg has predicted an economic downturn just around the corner. In Sweden growth has already hit its peak and unemployment has reached its lowest level, predicts the bank.

Across the entire western world central bank interest rates remain minus or around zero. In combination with record high state, corporate and household debt, this makes an imminent downturn extra frightening, she warns. “Neither the central banks nor fiscal policy have any ammunition for a shrinking economy.”

She also expects unemployment to rise from its current 7% to 7.3% in 2018.

“Could have dramatic impact on economy”

The Swedish government has proposed that certain companies in the financial sector, such as banks and insurers, will not be able to deduct interest expenses on some subordinated debt.

The country’s central bank, the Riksbank, welcomes the proposal, saying it will probably improve the quality of the capital base, which will in turn improve financial stability.

The Swedish Bankers’ Association (Bankföreningen) disagrees, saying it will be harder to safeguard financial stability, and tougher and more expensive for companies to borrow money.

Added to this, there are plans to levy a new bank tax, a new crisis management directive is in the pipeline as is Basel IV. “If you add all of this together, it could have a quite dramatic impact on the Swedish economy,” warns Bankföreningen’s MD Hans Lindberg.

Uncertainty ahead

Anna Bremen, chief economist at Swedbank, has said that growth in the Swedish economy remains healthy, but for it to remain so the labour market must continue to display strong growth. She expects the economy to slow more clearly in 2017 and 2018.

Both she and SBAB chief economist Tor Borg point out that low interest rates and rising property prices have fuelled consumption and investment. Many consumers have money to spend, which has resulted in a boom for Sweden’s restaurant business; sales in the industry rose 5.1 per cent in June. Dark clouds are looming on the horizon, however.

“Uncertainty lies ahead in that there is a general concern in the outside world that may spread,” says Anna Bremen, naming Brexit, the US presidential election, the military coup in Turkey and this summer’s terror attacks in Europe, all of which can curb investment and consumption.

Surge in Swedish economy

The Swedish economy grew by 4.5% in Q4 2015 compared to Q4 the previous year. Economist from SEB, Olle Holmgren, states the growth is due to public consumption growing faster than expectations, linked to increased spending for refugees. In addition exports increased by 2.5% in 2015.

The upswing was broad causing the krona to strengthen on Monday, which gives the Riksbank a dilemma, after it lowered the interest rate to -0.5% to boost inflation two weeks ago. Anna Breman, head economist at Swedbank, says, “It is less likely that the Riksbank will lower interest rates, but given that the krona has strengthened there is a greater risk of a currency intervention.”