Economic signals are generally positive. World trade now seems poised to take off in earnest. This will especially benefit export- and manufacturing-dependent countries, such as Sweden. Central banks are continuing to prop up the economic recovery with highly expansionary policies, and fiscal belt-tightening is being postponed in most places. Damaged financial sector and household balance sheets are now healing, thanks to rising stock markets and home prices. But because of the policies being pursued, the bill for the lending excesses of the 2000s decade also remains unpaid. Rapidly rising government debts and a global banking system under continued regulatory pressures will lead to major economic policy challenges during the next couple of years.
In the OECD countries, economic growth will be about 2.5% annually during 2010-2011, or somewhat above trend. The upturn in unemployment has been smaller than expected, but growth is insufficient to push down the jobless rate quickly. Euro zone growth is being hampered by the crisis in southern Europe, which is making huge austerity programmes necessary, and not only in Greece. The United States and Japan are regaining their strength, while Chinese economic tightening will counteract the risk of asset price inflation. Despite rising prices for most commodities, inflation pressure will continue to ease. The US Federal Reserve (Fed), the European Central Bank (ECB) and their peers can hold off on their key interest rate hikes in order to offset fiscal austerity measures and the impact of new credit regulations. The euro will continue to lose value against the US dollar.
Sweden has good potential to take advantage of the global recovery. Because of strong balance sheets, the country will be well prepared to deal with economic and financial reversals in Europe and elsewhere. Exports are about to bounce back after the disappointing winter months. GDP growth will be 3.0%in 2010 (2.7% calendar-adjusted terms) and 2.7 per cent in 2011: in line with our previous forecast. Expansionary economic policies have contributed to an unusually fast labour market turnaround, but unemployment is falling only slowly and will remain at 8.5%late in 2011. This will contribute to continued low inflation pressure in Sweden as well.
Because of positive economic growth signals and greater focus on household credit expansion, the Riksbank will raise its key interest rate in July. After that the bank will proceed rather gently, and at year-end 2011 the repo rate will stand at 2.75% Due to structural changes in the credit market, the neutral interest rate will move downward to 3.75% The krona will resume its previous appreciation, bringing the EUR/SEK exchange rate below 9.00 by late 2011. This autumn's parliamentary election will lead to a more expansionary fiscal policy, regardless of the winner. The election campaign also indicates a growing divide between Sweden's two main political blocks. If the "red-green" opposition wins and forms a new government, we expect it to pursue traditional leftist policies that rely heavily on stimulating demand. The risk of poorer economic performance in Sweden is associated with a delicate housing market situation.
"The world's economic and financial systems are still moving in a complex post-crisis environment, where the economic policy choices ahead for many countries will not be voluntary," says Robert Bergqvist, SEB's Chief Economist. "Greece is a clear example of this. To prevent secondary effects and avoid higher sovereign bond yields, credible economic plans for the future must be presented. The shape of fiscal policy will have a major impact on economic performance. There are also good reasons to carefully monitor efforts to create a new financial infrastructure. This will impact the credit situation and the cost of capital, thereby affecting growth as well as how quickly and how high central banks will hike their key interest rates. In the euro zone, the banking system accounts for about 80 per cent of all credit supply. Combined with further expec