In 18 June 2014, Sweden’s National Institute of Economic Research forecast continued low inflation and that Riksbank would need to cut its repo rate at least 0.50%, if not more. The report also noted that economic growth expectations would not exceed 2.2% for 2014. Sweden had been reaping the benefits of reduced taxes, to the point of 44% of GDP, lower than France. The same prosperity had made Sweden’s AAA sovereigns a sought after holding. However, household debt had also increased, housing prices were accelerating and income distribution was narrowing. Sweden had reached a crossroad as deflation was overtaking Europe.
Traders had been getting ahead of EUR/SEK on the growing expectations that Riksbank would have to act to support the export economy. It should be noted that the Krona had already weakened 5.5% over the previous six months. Recent surveys in France and Germany had indicated slowing economic growth. London Business School economist, Lucrezia Reichlin noted that, “…We aren’t seeing the type of recovery that we should be seeing given the scale of the slowdown . . . The data are not strong enough to tell us that we are even in a recovery..”
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