SEB raises growth and rate forecasts for Sweden but cuts for Norway

SEB has released its latest quarterly economic forecasts ahead of a series of key Nordic data releases and monetary policy meetings over the next fortnight, and the bank has presented a mixed picture for the region’s largest economies, increasing its growth outlook for Sweden but cutting it for Norway.

Norway is expected to avoid officially entering a recession when fourth-quarter growth figures are released later this week, and SEB says the economy has “weathered the downturn better than most feared” since oil prices began to decline in 2014.

However, the economy is now expected to expand by only 1.1 per cent this year compared to previous forecasts of 1.3 per cent, as the slump in investments in the oil and gas industry continues to weigh on the economy. SEB says it thinks Norges Bank will wait until December 2018 before it considers raising interest rates.

On Sweden, in contrast, SEB reiterated its view that the Riksbank will hike rates before the end of the year, with a return to positive interest rates coming in 2018.

An increase this December would be three to four months earlier than the central bank’s own forecasts, but it doesn’t have the best record for predicting its own decisions, as the chart below reminds us.

The Riksbank’s monetary policy committee has remained dovish despite increasing evidence of strength in Sweden’s economy in recent months, but SEB reckons pressures will become impossible to ignore by the end of the year, with the bank now forecasting economic growth of 3.1 per cent compared to earlier estimates of 2.8 per cent.

That said, one probably shouldn’t get too excited about next week’s Riksbank meeting. Though some members of the bank’s executive board have begun to emphasise the downsides of its record-breaking monetary stimulus, the Riksbank’s official position is still that further easing is more likely than tightening. SEB says “it will be some time before we see any clear signal that a more neutral or hawkish stance is imminent”, with the Riksbank’s dovish warnings disappearing over the next six months before suggestions of a rate hike become explicit from the autumn.