Sweden
is an important European country with a GDP of more than $520 billion, making
it the 21st largest economy in the world. It has a GDP per capita of $52K. The
main sectors for the economy are in agriculture, industry, and services.
This
year, the country’s currency is the worst-performing major currency in the
world. It has dropped by almost 8% against the USD and 6.5% against the euro.
These declines continued this week after the Riksbank released the minutes of
the monetary policy meeting held a week ago. The chart below shows the
performance of the krona against the USD and the EUR.
The
central bank hiked interest rates in December for the first time in seven
years. While this was a good thing for the krona, the interest rates remained
below zero. Since then, the bank has made two moves that have dragged the
currency. In February, the bank warned that the economy was waning. By doing
this, it encouraged the traders to push back the hopes of another interest
rates. In April, the bank stepped away from further tightening. In the meeting,
the bank announced that it will hold rates steady for longer. It also announced
that it will start a 18-month bond-buying program. In this period, the bank
will spend SEK 45 billion from July this year to December 2020. The minutes
showed that the two deputy governors had reservations against these purchases.
Another
reason why the krona has weakened is because of the European Central Bank
(ECB). The ECB has said that the European economy remains weak and that it
won’t hike rates this year as expected. Therefore, it will be difficult for the
Riksbank to normalize policy until there are signs that the European economy is
recovering. This is important because the EU is Sweden’s biggest trading
partner. In the statement, the bank said that:
However, several members noted that the global economy is still
fraught with uncertainty and risks that
can lead to poorer development going forward. They also noted that
several major central banks are
now communicating a somewhat more expansionary monetary policy than
previously. As for Sweden,
economic activity has developed according to forecast. But, at the
same time, the members emphasised
that inflation has been lower than expected for several months in a
row. This raises questions about the
strength of inflationary pressures and the inflation forecast has been
revised downwards compared with
the assessment published in February.
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