The Swedish Central Bank's repo rate appears to have stopped at 2.25 percent, following the cut at the end of January. And even though we don't have the final result yet, there is a risk that the rate cuts that everyone had hoped for this spring will not materialize. The explanation is a rising, and difficult to predict, inflation.
However, more stimulus measures are needed, according to Torbjörn Hållö, chief economist at LO.
We have a weak economic development and a high and even rising unemployment. Households have not started consuming, but are holding on to their wallets. It's clear that we need more fuel to get the economy going, he says.
And if that doesn't happen, it's clear that it will take even longer before the recovery comes.
Stimulating Effect
By fuel, he means fiscal and monetary policy, preferably in combination. It's the interplay between them that is crucial for the economic development.
Hållö does not rule out another rate cut. But if the Swedish Central Bank waits, it needs to be compensated for through an expansive fiscal policy.
I think that will happen because we need to gear up at a much faster pace than planned. When defense expenditures increase, it has a very clear stimulating effect on the Swedish economy. It creates jobs and employment, says Hållö.
Disappointed
Annika Winsth, chief economist at Nordea, is on the same track:
Many households and companies thought that the recovery would come already last spring when the Swedish Central Bank started cutting rates. But they have been disappointed. The Swedish economy has passed the trough, but growth may be somewhat lower going forward than we had hoped for, she says.
The recovery is affected by the repo rate and fiscal policy, but also by an uncertain world that makes households hold on to their money.
The international risks can be a wet blanket over consumption. For almost three years, private consumption has been stagnant, so there is a pent-up demand. But it's dependent on households feeling secure, says Winsth.
