Bunge: Recovery in the Swedish economy, continued resilience in the housing market remains important

“The Swedish economy began to recover last year. Although recent cyclical indicators have been somewhat mixed, developments in the real economy have broadly been in line with our forecast. I expect the Swedish economy to develop favourably as household purchasing power now recovers.”

According to the Riksbank, inflation is expected to decline quite noticeably this year, partly as a result of the temporary reduction in VAT on food. “Recent outcomes suggest that inflationary pressures may be low even when this effect is excluded. However, we need to examine the details behind the January outcome and take into account other information, including developments in electricity prices and an additional inflation outcome, in order to assess underlying inflationary pressures ahead of our March forecast. Last year, the krona also appreciated sharply, which is of significance for inflation. We will need to closely monitor how this feeds through to prices,” said Bunge.

The Riksbank’s latest assessment is that the policy rate will remain at 1.75 per cent for some time. However, Bunge emphasised that several factors could affect the inflation and economic outlook, and thus the policy rate, including the uncertain geopolitical situation globally. “We are starting from a good position in the Swedish economy, but we need to remain vigilant and be prepared to adjust monetary policy if necessary.”

Warning against proposed easing of mortgage regulations

In her presentation, Bunge also commented on the decline in housing investment and house prices in recent years. She said that developments have so far remained subdued. At the same time, household indebtedness remains high from an international perspective. “When the wheels start turning again, it is important that there are rules in place that safeguard household resilience,” said Bunge. 

Easing of mortgage regulations has now been proposed, and one shortcoming of the forthcoming framework is that it contains no cap on loan size in relation to borrowers’ incomes, Bunge argued. 

“Many Swedish mortgage borrowers today position themselves right at the limit of what the regulations allow. In other countries, borrowers have been seen to increase their borrowing rapidly when requirements are eased, and there is a risk that Swedish mortgage borrowers would act in the same way. Against this background, we believe that the proposal could have included an income-based instrument that would function as a stabilising brake.”