Property is a big problem
Sweden’s economy runs on two tracks, says Danske Bank, a Copenhagen-based bank, which actually thinks the economy will grow slightly this year. Consumers and the housing market are dragging the economy down; but the business sector and the labour market are both proving more resilient. Retail sales fell by 11.6% in March compared with the same month last year, according to Statistics Sweden, owing to soaring inflation, which in May was at an annual rate of 9.7%.
The economy’s second track is in better shape, as the business sector and employment are both holding up. Boosted by the weak krona, Swedish exports have grown strongly since the pandemic, and companies continue to invest in machinery, equipment and research. Construction is stable in spite of the slump in the housing market, because of the government’s investment in infrastructure. The jobless rate at 7.9% is tolerable.
The worst finally seems to be over, with retail sales and consumer confidence indicating that consumption has bottomed out. House prices may stabilise. “But inflation is still very high and the krona is very weak,” says Michael Grahn of Danske Bank. That’s why Riksbank, the central bank, raised rates, for the seventh consecutive time, by 0.25% on June 29th to 3.75% and is expected to increase rates by another 0.25% in September.
Mr Grahn and most of his peers predict that Sweden will muddle through and is not heading for a replay of the very painful recession in the early 1990s when another property bubble burst. Niklas Wykman, the financial-markets minister, recently told journalists that the state has the tools to stop a property-market plunge from dragging down the entire country. Sweden’s public finances are sound and its banks are, so far, stable and profitable.
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