Should you increase your monthly payments or save to cope with rising electricity prices? Negotiate a new five-year loan or favor a three-month loan? Choose fixed rates or variable rates? For the past few weeks, Swedish newspapers have been full of advice to answer questions from Swedes, who are worried about rising interest rates and a darkening economic outlook.
In the fourth quarter of 2022, gross domestic product (GDP) had already shrunk by 0.6%. On Monday February 13, the European Commission published its forecasts for 2023: Sweden is the only country in the European Union for which Brussels anticipates a contraction in activity (–0.8%) this year. Director of forecasts at the Economic Institute in Stockholm, Ylva Hedén Westerdahl is not surprised: “My superiors have been asking me for six months why we are doing less well than other European countries which are also affected by the war in Ukraine. »
Mme Hedén Westerdahl has several answers. First, the Swedish economy held up better than that of its neighbors during the Covid-19 pandemic: “We start from above”, she says. Furthermore, Stockholm has “less worn out stimulus measures”. Faced with the explosion of energy prices, no price shield, but limited and retroactive aid to households living in the southern half of the country, where electricity prices are higher than in the north. Businesses are still waiting.
Impact of monetary policy
But, even more, if Sweden stands out so much, it is because of “the impact of its monetary policy on households”remark Mme Heden Westerdahl. Because not only are the Swedes among the most indebted peoples in Europe, with a cumulative debt of more than 5,000 billion crowns (450 million euros), the equivalent of Swedish GDP, and a debt ratio of around 180% of their disposable income, but most have a variable rate or negotiated loan for a very short term – five years maximum.
Result : “Households are extremely sensitive to the slightest variation in interest rates”, observes Arturo Arques, economist at Swedbank. However, if these were very advantageous until then, they have skyrocketed since the Riksbank, the Swedish central bank, decided to raise its key rate above zero in May 2022, to reach 3% February 15 – its highest level since 2008.
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