Swedish economic experts are divided on whether the Riksbank will lower interest rates this fall. Despite recent economic indicators, including GDP figures and a significant reform budget, opinions vary. While some believe a rate cut is possible due to sluggish economic growth, others argue that high inflation and fiscal policies may prevent it.
Experts Debate: Will Sweden's Interest Rate Drop?
Experts Debate: Will Sweden's Interest Rate Drop?
New GDP figures, announcements from Finance Minister Svantesson at Harpsund, the latest information from the National Institute of Economic Research, and real wage increases are all factors influencing the Riksbank's next interest rate decision, dividing experts.
"The likelihood of the Riksbank lowering the interest rate further is diminishing," says Annika Winsth, Chief Economist at Nordea, to Sveriges Radio.
At the latest Riksbank meeting, the interest rate remained unchanged at 2 percent. The board indicated a 50/50 chance of a rate cut this fall.
Several key indicators of the current and future state of the Swedish economy have emerged: fresh GDP figures, an unexpectedly large reform space in the autumn budget, statistics on real wage increases, and information from the National Institute of Economic Research on price developments.
Analyses on whether and how the Riksbank's interest rate decision this fall will be affected are varied.
"We believe the Riksbank will cut the rate by 0.25 percentage points to 1.75 percent in September," says Robert Bergqvist, Senior Analyst at SEB.
He attributes this to the sluggish economy.
"We note concern among Riksbank members that the economy is a bit too sluggish and may need support."
"Sluggishness in the Swedish Economy"
He shares Finance Minister Elisabeth Svantesson's view of the Swedish economy despite modestly positive GDP figures.
"SEB expected GDP to grow by 0.6 percent in the second quarter. Now it's only 0.5 percent. It's not a big difference, and it's good that the Swedish economy is growing. But then we got retail figures for July, which were weaker than expected. As Elisabeth Svantesson described yesterday: There is sluggishness in the Swedish economy."
Several economists were surprised when it became clear that the autumn budget includes a reform space of 80 billion – larger than most expected.
Robert Bergqvist does not believe the reform space – despite being slightly higher, as he puts it, will affect the Riksbank unless all billions are spent on household consumption.
While there is a desire to boost the Swedish economy, inflation remains slightly too high – over three percent. Bergqvist calls it a summer ghost, a bit scary but mostly driven by summer activities like concerts and travel.
"It's Expensive to Live"
Annika Winsth at Nordea, however, does not share the same analysis. She argues that inflation remains a headache for the Riksbank, and Nordea's forecast is that the inflation level will remain slightly too high for a while.
"Many households find it expensive to live. So it's difficult for the Riksbank to lower the rate even if the economy is weak. It's reasonable to use fiscal policy instead," she tells TT.
She sees risks that the 80 billion will drive up inflation and that the government's announcement thus limits the Riksbank's ability to lower the rate further.
"It's reasonable to have an expansive budget in the situation we are in, and we also have an election year, so it's not surprising, but it does mean that the likelihood of the Riksbank lowering the rate further is diminishing," she tells Sveriges Radio.