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Comparison Between Swedish and Norwegian Economies: Price Increase and Interest Rate Cut Forecasts

The Swedes may seem to have come further than us in the fight against the strong price increase, according to a DNB analyst. Nordea believes that the interest rate cuts in the neighboring country will come as early as April next year.

Macroanalyst and senior economist Oddmund Berg at DNB Markets. Photo: Stig B. FiksdalPublished: Published:

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There are several factors that separate the Swedish and Norwegian economies, especially from the time out of the pandemic until now. Perhaps most central is the price level, which is expected to decline faster than in this country.

On Monday, the fresh figures show what the Norwegian price increase was in June.

But it has not come for free for the Swedish households, according to macro analyst Oddmund Berg in DNB Markets.

– Households in Sweden have had it tougher. The price increase has been higher there than here at home. The Swedes have received less compensation via wages, which has helped with weaker real wage development at the same time that consumption growth has been worse, says Berg.

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From the meeting in April, the Riksbank had an interest rate peak of 3.75. Which made sense, according to the macro analyst. There were greater signs of weakness in the Swedish economy and price pressure was in the process of abating.

From dove to hawk

Then the Swedish central bank suddenly turned from dove to hawkish duete to hawkish “Hawkish” and “dove” describe opposing views on what interest rates the economic picture requires. A “hawk” supports higher interest rates, while a “dove” wants lower interest rates. in June and raised the interest rate forecast by 40 basis points to a peak of 4.05 per cent, just two months after the previous decision.

– In addition, they have a commercial property sector in Sweden that is much more leveraged and much more risky than in Norway, says and adds that there were thus many reasons for the Riksbank to be more cautious.

As a result, Berg and DNB adjusted their forecasts and expect two further increases to an interest rate peak of 4.25 per cent by November this year.

The economist believes that the Swedes will overcome inflation more quickly, that the Riksbank will be able to start lowering the interest rate in November 2024 and reach 3 per cent by November 2025.

This is due to several factors such as strong employment growth, persistent service inflation, higher international interest rates and upside risks linked to a weaker Swedish krone.

Norges Bank is also betting on interest rate cuts from the second half of next year.

Nordea, for its part, has taken into account only one further interest rate increase, to 4 per cent by the end of the year, and expects that the Riksbank will start reducing the key interest rate again as early as April 2024 – six months before DNB expects the same.

– This is because inflation is reaching the target, and due to the weakened economy, the central bank should lower the interest rate in April 2024. The uncertainty about the timing is naturally great, writes the Swedish part of the bank to E24.

Lower wage growth

Unlike the Norwegians, the Swedes have not received electricity subsidies, which contributed greatly to increased price pressure here at home.

– In Sweden, they agreed on a wage agreement of 7.4 per cent for both this year and next year, and thus they will have less to worry about.

In Norway, there is a limit of 5.2 per cent increase only for 2023. Next year, a marked increase is also expected.

– Because of the differences in wages, won’t the Swedes bring down inflation more quickly?

– It may well be. This is a thought we have when we have made forecasts for the Norwegian and Swedish economy. Inflation lasts longer in the Norwegian economy, and we will not experience the same downturn. Here the wallets are constantly filled, and then the price increase lasts longer, says Berg.

2023-07-09 18:50:10
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