Sweden’s economy is facing two years of recession — more than previously thought — as rising costs force consumers to continue paring back spending into next year, according to economists at one of the country’s biggest lenders.
(Bloomberg) — Sweden’s economy is facing two years of recession — more than previously thought — as rising costs force consumers to continue paring back spending into next year, according to economists at one of the country’s biggest lenders.
In 2023, calendar-adjusted gross domestic product is likely to shrink by 0.9%, Swedbank AB said in a report published Thursday. While that is a slightly milder contraction than previously seen, the bank now expects a GDP decline of 0.3% in 2024, having previously forecast 0.3% growth.
“The economic downturn has begun, and things will get worse before they get better,” Chief Economist Mattias Persson said in a statement. “We expect households to continue to cut back on consumption for a while longer, given that their incomes are under pressure from high inflation and rising interest expenses.”
Increasing interest rates have also put pressure on Sweden’s heavily indebted commercial real estate companies, and that turmoil is set to continue as vacancies may increase and landlords have to refinance large amounts of maturing bonds, Swedbank said. While some landlords could default, the bank said the effects on financial stability or on the economy in general are expected to be limited.
After a period of stabilization in the country’s market for private homes, economists at the bank now expect housing prices to end up 15% lower than at the peak in early 2022. They had previously penciled in a 20% drop.
“We expect that the current plateau for housing prices will be temporary, and that prices will fall slightly during the autumn and winter,” the bank said. “The recovery will begin in 2024, but the housing market will not take a clear upturn until later during the forecast horizon.”
Sweden’s central bank has taken its benchmark rate to 3.75% from zero since April last year, as it continues to battle stubborn price increases on services, and Swedbank believes the rate will reach a peak of 4.25% in November.
While that could support the Swedish krona somewhat, Swedbank still expects the currency to weaken further in the near term before “gaining some lost ground” from mid-2024. That is also when the bank expects a cautious recovery to begin, picking up steam in 2025.
(Adds chart, central bank and 2025 forecasts.)
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