A real slowdown in consumption when mortgage rates rise, higher unemployment and more bankruptcies in retail, hotels and restaurants are on the cards. GDP in Sweden is expected to fall by 1.3 percent this year, according to Swedbank.
– It has to do with the Riksbank needing to act more than we previously thought. And partly I would say that it has to do with the fact that we have a very weak krona, says Mattias Persson.
Pensioners and single people
Especially the first quarter of this year will be a tough transition for the most vulnerable households with high inflation and rising interest rates.
– It will be worst for those who spend a large part of their income on accommodation and food.
At the same time, Swedish households take considerably more of a beating than those in the rest of Europe and the US, notes Persson. Partly it is about the krona being so weakened by the inflation shock, partly it is an effect of the fact that Swedes are generally more indebted and more sensitive to interest rate increases.
This in turn leads to the housing market in Sweden standing out as one of the hardest hit in the entire Western world right now. And prices are expected to continue downward for a while, according to Swedbank’s forecast, which predicts a 20 percent decline before turning around.
– But there is a risk that this could be a somewhat sharper decline, says Mattias Persson.
Mortgage rates peak this summer
Competition in the mortgage market protects households from the worst effects, it has proved difficult for banks and other lenders to raise rates as quickly as the Riksbank. In addition, Persson thinks he sees an underlying demand for housing, even if the supply is currently being throttled by the falling prices, which are causing many potential sellers to postpone housing deals.
Despite the fact that the Riksbank is now assumed to raise the policy rate to 3.50 percent in June, according to Swedbank’s forecast, variable mortgage rates are not expected to rise to more than about 4.30 percent “just in time for midsummer”.
The wage increases Swedbank’s economists foresee – plus 3.7 percent both this year and next year – will help in the long run. But they are significantly lower than the price increases that are now eating up real wages for Swedish households.