When the American central bank, the Federal Reserve, the Fed, begins to lower key interest rates in the United States, one can imagine that it will be the starting point for other central banks to begin lowering, such as the European Central Bank, the ECB and the Riksbank of Sweden.
DO NOT MISS: 15,000 work permits withdrawn: “Arbitrarily”
Bad news
– That’s why it was such bad news to hear about the inflation figures in the US earlier this week, says Annika Winsth in an interview with News24.
She is Nordeas chief economist and has long said that the Riksbank did not act quickly enough.
– The Riksbank should have raised the key interest rate earlier, which, for example, Deputy Governor of the Riksbank Anna Bremen recently self lifted. Now the economy is declining on a broad front and the monetary policy is, in my opinion, too restrictive, says Winsth.
After the cold shower with inflation figures in the US not falling fast enough, it is unlikely that the Federal Reserve will cut either in March or in May.
Should have lowered “already yesterday”
– The financial markets now expect that it will be until the summer before the Fed lowers the interest rate and that the ECB will only act then, she says.
But it is not necessary to wait, says Annika Winsth.
– Looking at the economy, the ECB should lower the interest rate already, but the Swedish economy would also benefit from a lower interest rate.
She points to Germany as an example. Where the economy is weak and the manufacturing industry and consumers suffer from the rise in interest rates.
A reduction in interest rates could ease some of the pressure.
Swedish economy takes a beating from high interest rates
Even the Swedish economy is now hampered by the high interest rates, she believes.
– My and Nordea’s forecast is that the inflation target of 2 percent will be reached during the first half of this year and that inflation will be below the target during the second half of the year. Then there is no end in itself with 4 percent interest, says Annika Winsth.
It was wise to tighten interest rates when the economy and labor market were overheated.
Consumption is dropping historically
But the economy is hardly going at full speed in Sweden anymore. Consumption fell last year by 2.5 percent, according to Nordea’s preliminary estimates. To find similar consumption collapses historically, one has to look back to the 1990s.
– Then we have housing construction, which has been in a near-death experience since autumn 2022.
Big notice
Construction companies and property services are the industries that reported the most during January this year. The restaurant industry is also burdened by the economic situation, shrinking GDP and rising unemployment.
– The number of visitors to the restaurants is roughly the same, but the bills are lighter. This means that the fixed costs are the same but the income is lower. It is not sustainable, says Annika Winsth.
The interest rate rope was tightened
The Swedish economy was clearly overheated in 2021 and 2022, but now we find ourselves in the opposite situation. And if the economic situation is not to deteriorate further, the interest rate needs to be lowered, she believes.
But the International Monetary Fund, the IMF, disagrees. Dagens Nyheter reported earlier in February that the IMF warns of lowering interest rates too soon, and losing control over inflation again.
Also the Governor of the Riksbank Erik Thedéen warned on Thursday that inflation could rise again.
The theme: Risk of inflation rising again
The IMF and the Riksbank get homework on the interest rate
But Annika Winsth doesn’t care much for that concern.
– Sweden is in a recession. GDP decreases, inflation falls back quickly, while the labor market deteriorates. GDP fell by just under half a percent last year and is expected to fall by roughly the same amount this year. Then there is no reason to keep interest rates at 4 percent. From a cyclical perspective, both the ECB and the Riksbank could have already lowered the policy rate, she tells Nyheter24.
So you don’t agree with the IMF that it is risky to start lowering interest rates now?
– I do not share that view. We are already on target in terms of inflation if we compare three months back in time, then there is no reason to tighten the Swedish economy with higher interest rates than necessary, concludes Annika Winsth.
Read more about the interest rate:
The theme: Risk of inflation rising again
The Swedes make so little money
EU agreement to lower electricity prices: “Fantastic news”
The trick many people miss – how to charge the electric car cheaply: “You have to…”