Riksbank
Good times? Please stay put
Andreas Cervenka
Reporter and economic commentator
This is a commentary text. Analysis and positions are the writer's.
Published 18.57
There will be no more help from the Riksbank.
This is how today's interest rate announcement can be summarized.
Swedes must therefore prepare for a long and tough rehabilitation after the economic crisis of recent years.
"The Swedish economy is in a recovery phase," writes the Riksbank in its monetary policy report, which was released at the same time as the news that the interest rate is being left unchanged at 2,25 percent.
The same message was heard yesterday from Finance Minister Elisabeth Svantesson when she presented her new economic forecast.
The occasional Swede is probably wondering what they are talking about.
It is true that Sweden's GDP rose slightly more than expected at the end of 2024 – but this is not exactly a high pressure.
If you remove the effects of inflation, GDP in the last quarter of last year was at the same level as the corresponding period in 2021 – three years earlier. The same applies to household consumption, which has actually been stagnant since the end of 2020.
Lending to households, another indicator of the pace of the economy, is still showing the weakest growth rate in decades.
And it should be remembered that at the end of last year there were still expectations of a series of interest rate cuts in 2025, cuts that are now not coming to fruition. According to the Riksbank, the policy rate will remain at this level until the beginning of 2028.
The world has been turned upside down
The year has also started weakly – both GDP and consumption fell back in January.
The Riksbank's survey of Swedish companies, conducted in February, also showed that the tie in the forehead of generous kickoffs is far from over.
"Most people experience the economic situation as weak and general demand, as before, does not meet companies' expectations," writes the Riksbank.
The survey quotes an entrepreneur.
"There is no strong wind in the sails now, we are making progress, but there is no momentum".
Things do not seem to have gotten better since then. In recent weeks, the world has been turned upside down.
At today's press conference, Erik Thedéen showed an index that shows the level of perceived uncertainty in world trade. It is higher now than during the pandemic. The reason is, of course, Donald Trump's tariff war and generally erratic actions.
It's not something that will make either households or companies start spending money.
Or as Erik Thedéen stated:
"There are some question marks about the strength of the Swedish economy".
That's probably something that quite a few people can agree with.
A long and tough road back
Unemployment is sky-high in Sweden. According to the Riksbank's forecast, it will land at 8.7 percent in 2025.
That's as high as during the financial crisis in 2009, when the world economy was in free fall.
If this is what a Swedish recovery looks like, one wonders what it will be like if a new crisis hits.
However, not everything is dark. This year, Swedes will have more money to move around because wages are rising faster than inflation and taxes have been lowered. Interest rates are also lower than two years ago and the krona has strengthened.
At the same time, food prices have started to rise again.
This is also one reason why the Riksbank is now signaling that the interest rate will not be lowered any further. This year, inflation is forecast to be between 2 and 3 percent, i.e. a bit above target, and then to fall next year.
Although Erik Thedéen opened up to the possibility of both cuts and increases depending on what happens in the future, it does not look like there will be any more economic stimulus from the Riksbank in the foreseeable future.
This means that it will be a long and tough road back. According to the Riksbank's forecast (which may turn out to be too optimistic given the shaky start to 2025), the Swedish economy will grow by 1.9 percent this year and 2.4 percent next year, followed by 2.2 percent in 2027.
These seem like decent numbers, but given how bad things have been in 2022–2024, they are nowhere near enough to make up for the loss.
If we assume normal growth of 2 percent per year, we will end up well below the curve.
If the Riksbank cannot support the economy, attention will naturally turn to the Ministry of Finance. Elisabeth Svantesson promised yesterday that the upcoming spring amendment budget will contain more stimulus for the economy.
She has flagged reforms and proposals for a total of 11.5 billion kronor.
Here is a not-so-wild guess: It will not be enough to kickstart the economy.
FACTS
How interest works
What is interest?
Interest is like a fee you pay to the bank to borrow money, for example to buy a home. If you borrow 100 kronor and the interest rate is 5 percent, you have to pay back 105 kronor.
What does it mean when the Riksbank lowers the policy rate?
When the Riksbank lowers the policy rate, it becomes cheaper for banks to borrow money from each other and from the Riksbank. This means that banks often lower their interest rates as well, for example the interest rate on mortgages.
Hur påverkar det hushållen?
- For those with mortgages: If the interest rate is lowered, it will be
cheaper for those who have loans to repay. Imagine that a family pays
5,000 kronor in interest every month on their loan. If the interest rate
is lowered, they may only have to pay 4,500 kronor instead. They
therefore have more money left each month to spend on other things, such
as food or savings.
- For those without a mortgage: If you do not have a loan, you may not notice the interest rate change immediately. But it can still affect you in other ways:För de utan bostadslån: Om du inte har lån, märker du kanske inte av ränteändringen direkt. Men det kan ändå påverka dig på andra sätt:
- Cheaper to borrow: If you want to take out a loan for something else, such as a car or a trip, it may be cheaper for you.
- The economy in society: When it becomes cheaper to borrow, more people want to borrow money. This means that people buy more things and companies invest more, which can make the economy grow. This can lead to more jobs and better wages.
Why does the Riksbank lower interest rates?
The Riksbank lowers interest rates when they want to boost the economy, for example if people are shopping less or if companies are cutting back on their operations. By making it cheaper to borrow money, they hope that more people will spend more, which will help the economy grow.
Summary
If interest rates are lowered, it will be cheaper to borrow money, which is good for those with loans. Those without loans are indirectly affected because the economy can get a boost, which can create more jobs
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