The Swedish economy has been growing quite strongly in recent times. This is mainly due to the central bank’s extremely easy monetary policy that has brought down mortgage rates and lowered the SEK.
Thus, the market has been inclined towards leaning in the direction of expecting the Swedish central bank to end tracking the policies of ECB. If this happens, the Swedish money market curve will steepen and set off a lower EUR/SEK. For example, the present rate trajectory of the Riksbank suggests higher FRA rates that might imply EUR/SEK below 9.
Nonetheless, certain positive growth impacts from the central bank’s policies are subsiding. In the past year, the SEK has bolstered slightly, while mortgage rates have not continued to decline. This implies a return to normal growth rates later in 2016, said Nordea Bank in a research report. Moreover, if SEK appreciates 10 percent, the Swedish economy might be at a risk of recession by next winter.
The likelihood of deceleration in growth implies that the central bank will not be in a hurry to remove stimulus even of resource utilization continues to be at higher levels. Moreover, if growth expectations begin to moderate, the currency will not be much attractive long.
Furthermore, the base scenario for the housing market in Sweden in the one where house prices level off after many years of quick house price inflation, according to Nordea Bank.
Additional regulations, mortgage rates stability, weak income growth and an increase in housing supply are the main drivers of a slowdown. Due to a slowing housing market, the likelihood of the negative monthly outcomes has increased. Looking from market’s view point, it will be quite easy to draw scary conclusions of Sweden’s growth outlook if house prices continue to fall.
The material has been provided by InstaForex Company – www.instaforex.com