Swedish GDP grows by 0.7 percent, but unemployment increases to 8.4 percent
GDP is expected to increase by only 0.7 percent during the year. Above all, the thing that puts pressure on growth is falling investments in the business world and especially housing investments. Despite GDP growth increasing slightly, unemployment rises to 8.4 percent.
The policy rate will be cut five times this year, starting in May
Analyzes of inflation in recent months – in particular various measures of the underlying inflationary pressure in the Swedish economy – clearly point to the fact that the specter of inflation has already been defeated. The Riksbank is therefore expected to lower the policy rate by more than 1 percentage point during the year. As a result, variable mortgage interest rates are expected to be around 3.8 percent at the beginning of next year and then fall further as the Riksbank is expected to continue lowering the policy rate down to a neutral level of around 2 percent.
– We remain with the forecast we have stuck to since last autumn, namely that the policy rate will be lowered in five stages this year and for the first time in May. A little depending on how the ECB acts, the krona exchange rate and the geopolitical risks develop, the Riksbank may time the reductions a little differently than what is in our forecast. The signals from the ECB most recently were that they do not rule out a reduction in June. If that does not happen, I think that the Riksbank, after a first reduction in May, will choose to wait with the next reduction, unless inflation plummets in May. That the key interest rate should go down in total by at least 1 percentage point during the year – probably more – is, however, perfectly reasonable given how the inflation outlook looks in Sweden right now, says Robert Boije, chief economist at SBAB.
– Oxford Economics’ calculation of various central banks’ so-called “hawkishness index” shows that the Riksbank currently belongs to a group of more hawkish central banks. It is probably the fear of further krona weakening that shines through here, says Robert Boije.
Housing prices turn slightly upwards during the year – housing investments, however, do not
As housing interest rates fall and households’ real disposable income increases, housing prices are also expected to rise. House prices are, however, expected to grow by a moderate 4 percent, seen over the year as a whole. This is because it is the slightly longer fixed mortgage rates that primarily affect housing prices and they do not fall at the same rate as the variable mortgage rates. The total supply of housing (including soon to be sold/coming soon) is still a record high, which reasonably also contributes to a subdued trend in housing prices. House prices are expected to grow more in the spring to fall back later in the autumn in line with usual seasonal patterns.
– It is genuinely difficult to make forecasts about housing prices. Although much now suggests that the specter of inflation has been dispelled and the variable mortgage interest rates will therefore probably be significantly reduced in the future, one should not expect any large price increase for housing during the year as a whole. In line with normal seasonal patterns, house prices can indeed rise relatively much in the spring, but the financial statements must be made when the whole year has passed and after normal negative seasonal effects during the autumn months, says Robert Boije.
The number of new housing starts is expected to remain at a low 20,000 this year and then only increase moderately and gradually towards 30,000 in a few years’ time. It is far below the levels that the Swedish Housing Authority deems necessary to build. Taking into account the new population forecast that Statistics Norway came up with yesterday, however, the need will decrease significantly if the new forecast takes effect. A construction volume in a few years’ time of around 30,000 homes is roughly in line with how many homes need to be built to keep pace with the new estimated population growth. In that case, account has also been taken of how the age composition changes. However, these construction volumes will not be enough to remove the existing housing shortage in central growth areas in particular.
– The large drop in the number of new housing starts risks leading to a large loss of competence in construction in the coming years, lower economic growth both in the short and long term and also continued difficulties in attracting the necessary competence to not least important green growth locations. Taking into account SCB’s recently heavily revised population forecast, the problems now look a little less dramatic than previously assessed, says Robert Boije.
