In this podcast the Chief Economist at Danske Bank, Michael Grahn, explains why the Swedish economy might be facing the ‘perfect storm’ of European export backdrop due to Brexit and recessionary signals in Germany, together with slowing domestic demand and inflation. Danske Bank predicts a reversal of Riskbank’s rate hike in February or earlier, reaching -0.75%. Grahn, however, explains that rates shouldn’t drop any further, or they would hit smaller entrepreneurs and consumers harshly. The outlook for the Krona remains weak.
Why does this matter? Sweden is a small, open economy reliant on global trade and so the trade wars combined with a weakened Europe does not bode well for the SEK. Even after Riskbank’s rate hike at the end of 2018, SEK offers the lowest and most negative real yield among G10 currencies. We don’t see a recession looming, but Sweden is joining the Eurozone club of a deepening cool-down with rock-bottom interest rates.
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