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Surging Swedish economy raises questions over negative rates ­ FT.com
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February 29, 2016 11:02 am
Surging Swedish economy raises questions
over negative rates
Richard Milne, Nordic Correspondent
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Sweden’s economy grew at a much faster­than­expected 4.5 per cent at the end of last year,
intensifying concerns that its negative rates policy could be misguided. The Nordic country has now overtaken the US again and is well ahead of Germany and the
UK in terms of the strength of its economic recovery since the global financial crisis of 2008,
according to bank Nordea. Sweden reported a rise in GDP of 1.3 per cent in the fourth
quarter over the previous quarter, almost double economists’ forecasts, and a gain of 4.5 per
cent over a year earlier. Growth for 2015 as a whole was 4.1 per cent. http://www.ft.com/intl/cms/s/0/c9e63df6­decd­11e5­b7fd­0dfe89910bd6.html
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Surging Swedish economy raises questions over negative rates ­ FT.com
But Sweden also has one of the lowest interest rates ever seen in the developed world at
minus 0.5 per cent as its central bank struggles to boost stubbornly low inflation. “I’m not concerned about the economy overheating, yet,” said Anna Breman, chief
economist at lender Swedbank. “What I am concerned about is the usefulness of negative
rates. If you look at the Swedish numbers right now you could draw false conclusions about
how much negative rates have helped.” Other central banks such as the European Central Bank and the Bank of Japan have used
negative rates to try to boost sluggish economic growth. But the Riksbank is faced with an
entirely different problem: it has largely cut interest rates in order to weaken the Swedish
krona to head off the threat of deflation. The strong GDP numbers caused the krona to strengthen against the euro by 0.5 per cent to
SKr9.32. Economists no longer expect the Riksbank to cut interest rates any further —
especially given some opposition to the latest cut from minus 0.35 per cent to minus 0.5 per
cent — but many predict it will have to intervene in the currency markets. “Currency intervention is likely. Absurdly enough it is becoming more likely because of the
high growth,” said Ms Breman. The Riksbank earlier this year gave its governor and one deputy governor the ability to
intervene at any time in the currency markets. Currency traders say that given the strength
of the Swedish economy compared with the eurozone the krona should be significantly
stronger. The latest cut by the Riksbank three weeks ago was seen as a pre­emptive move ahead of
likely further easing from the ECB. But it has brought renewed heavy scrutiny of the
Swedish central bank only five years after it was roundly criticised for raising interest rates
too soon after the global financial crisis. Ms Breman said the current concerns were more akin to the extraordinary situation the
Riksbank found itself in 1992 when it raised interest rates to 500 per cent in an ultimately
ill­fated attempt to defend Sweden’s fixed exchange rate at the time.
Economists credited the refugee crisis for helping boost economic growth as a record
number of asylum seekers to Sweden — 160,000 last year, the highest in Europe relative to
population size — led to an increase in consumption and government spending.
Andreas Hatzigeorgiou, chief economist of the Stockholm Chamber of Commerce, said
Sweden needed to face big structural challenges including a lack of housing and difficulty in
integrating asylum seekers into the jobs market.
“The fact is that Sweden now faces more serious risks than in a long time... [Economic
challenges include] a housing crisis...and a tattered labour market that is working well for
http://www.ft.com/intl/cms/s/0/c9e63df6­decd­11e5­b7fd­0dfe89910bd6.html
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Surging Swedish economy raises questions over negative rates ­ FT.com
well­educated Swedes but fails to produce jobs at a sufficient rate for the large number of
refugees,” he added.
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Surging Swedish economy raises questions over negative rates ­ FT.com
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