Swedbank, one of Sweden's largest banks, has published a grim forecast of the country's economy.
The Swedish economy is shrinking and unemployment is rising, Swedbank said, envisaging a GDP fall of 1.1 percent next year, coupled with unemployment of 7.6 percent and an inflation rate of 7.4 percent.
Inflation will rise further as the Riksbanken, the country's central bank, is expected to continue ratcheting up interest rates. Swedbank predicted that the Riksbanken will raise interest rates sharply from today's 1.75 percent to 3 percent until February next year. This, in turn, would mean considerably higher interest costs for anyone with a large mortgage.
As the rising prices put extra pressure on household finances, businesses are showing a decreased willingness to invest, it said.
“We have a hard and cold economic winter ahead of us,” Swedbank's chief economist Mattias Persson told Swedish media.
Swedbank expects that household consumption will fall as purchasing power falls because of inflation and the drop in GDP. Swedbank called the economic development for households “the worst since the Nineties,” and chief economist Mattias Persson even saw the risk of a “complete halt in consumption” as households are expected to slash spending.
“Households will hold on to their wallets while purchasing power is impaired by high inflation and rising interest costs. The labor market still shows resilience, but the situation is expected to worsen when employment-intensive industries such as retail and construction are affected,” Persson said.
Rising interest rates, high inflation and energy prices have put a damper on overall development, while global growth slows down, the forecast concluded.
Earlier this month, former Riksbanken chief Lars Heikensten said inflation would impoverish Sweden, warning that the country must accept a lower standard of living.
Right now, Sweden's economy is already in a state of malaise as the result of backfiring EU sanctions against Russia that were meant to “punish” Moscow for its special operation in Ukraine, yet compounded both Europe's energy and cost-of-living crises. The overall inflation rate in Sweden reached a record 9.7 percent in September, with all sorts of previously inexpensive goods hitting two-digit prices — a level unseen in decades.
Furthermore, the country's power supply remains in doubt, as authorities warn of possible power cuts this winter amid a worsening energy crunch. According to the Swedish Civil Contingencies Agency (MSB), power rationing could affect traffic lights, trams, heating and communications as well as electronic locks to properties, among other things.
Even the outgoing Social Democrat government admitted that a combination of high energy costs, food prices and rising interest rates is expected to stifle growth in the years ahead and undermine households' purchasing power and, consequently, private consumption.