The crisis has cost us SEK 3,300 billion

The Riksbank

The bill for the crisis years: 3,300 billion - but now things are turning around

Andreas Cervenka

Reporter and economic commentator

This is a commenting text. Analysis and positions are the writer's.

Updated 10.38 | Published 10.30

Today's interest rate cut by the Riksbank does not mean that the economic crisis is over.

But it is a first step towards better times.

The last few years have dug a deep hole in Sweden's economy.

It wasn't a day too early! There were probably quite a few heavily indebted Swedes who sent a thought of gratitude to the Riksbank after Wednesday's announcement that the interest rate will be lowered from 4 to 3.75 percent.

But the reason is not as uplifting: things are going badly for the Swedish economy.

Recently, figures came out showing that GDP shrank in the first three months of the year, the fourth quarter in a row with negative figures. Unemployment continues to tick upwards and in April the number of bankruptcies increased by 59 percent compared to the same period last year.

Nevertheless, the recession has become milder than many feared, and the housing market saw the fourth straight month of rising prices in April, according to Swedish Real Estate Statistics.

This is because the past six months have been largely about expectations that interest rates will fall.

On Wednesday, the Riksbank delivered.

The Riksbank lowers the interest rate – the first time in eight years. Photo: Fredrik Sandberg/TT

It is the first time in eight years that the interest rate has been lowered. Most recently, in February 2016, the new interest rate was minus 0.5 percent, a level that feels very distant today.

Today's interest rate of 3.75 percent is still high compared to what many Swedes long thought was normal.

If nothing dramatic happens with inflation, the Riksbank is flagging that there will be two more reductions this year, which would bring the interest rate to 3.25 percent.

            

Swedish households have fought an economic multi-front war with falling incomes, rising costs   and shrinking assets, among other things. Photo: Getty Images

But it is not certain. The Riksbank points to several uncertainty factors that can affect inflation: the strong economy in the USA, the wars in Ukraine and the Middle East and the krona.

The Riksbank does not provide any precise forecasts, but predicts that inflation in 2024 is expected to fall towards the target of 2 percent. Mortgage rates have peaked and are on the way down. Already in the morning, the first banks lowered their variable interest rates.

This makes it possible to draw up a financial statement for the period 2022 to 2024.

The crisis has meant that Swedish households fought something of an economic multi-front war.

Shrinking fortunes

In total, households' net assets decreased by as much as SEK 2,400 billion during 2022 and 2023, according to SEB's Savings Barometer. The peak of over 24000 billion in wealth was reached at the end of 2021 while the figure in the last quarter of 2023 was 21600 billion. Falling house prices account for a large part of the decline.

Falling incomes

Swedes' disposable income, i.e. after tax and benefits, rose from around 242,000 kroner per inhabitant in 2021 to 266,000 kroner in 2023. That may sound good, but then you miss the fact that during this time our money became as much as 18 percent less valuable due to inflation. If you include that in the calculations, the Swedes have had nearly 200 billion less to move around with. But the bang is actually worse than that. If incomes had instead increased at the same rate as we got used to during the 2000s, around 2.8 percent per year, they would have been 350 billion higher.

Rising costs

Households have not only received less money in their wallets, most things have also become more expensive, as is well known. Swedes' interest expenses rose by 86 billion to 210 billion in 2023, according to statistics from the Tax Agency. Food prices rose by a total of almost 25 percent in 2022 and 2023. And so on. Statistics from Statistics Sweden show that of the increased household spending in 2022 and 2023, a full 300 billion kroner was due to price increases, that is, we had to pay more to consume the same amount.

Lower GDP

Measured in kroner, Sweden's GDP rose by roughly 300 billion kroner in 2023. But the entire increase was due to higher prices, i.e. inflation.

When it is removed, GDP fell by 0.2 percent or just over 10 billion. Even 2024 looks set to be a year with weak growth just above zero. Even with regard to GDP, one should take into account what it would have been if growth had continued as usual. Then you end up with a loss of around 250 to 300 billion.

The crisis years 2022 to 2024 have thus "cost" the Swedes in the order of SEK 3,300 billion in declining fortunes, falling incomes, more expensive goods and services and lower growth.

The question is how quickly the economy can repair the damage. Fortunes have already begun to rise in step with the rising stock market and housing prices that have turned up.

Growth is also expected to accelerate in 2025 and 2026.

Just like children, economies have a long-term growth curve. Even if Sweden is going strong in the next few years, it will take quite some time before the Swedish economy catches up.

The years 2022 to 2024 will go down in history as a dramatic stage in Sweden's economy.

We can take comfort in the fact that hopefully the worst is now over – and that it could have been much worse after all.