Handelsbanken's economists lowered the GDP forecast for this year and next year and believe that the Riksbank raises the policy rate more than previously seen in the cards.
"The fall in the Swedish kronor pushes inflation to record levels - and erodes Swedes' purchasing power," the bank's economists write in a recent report.
For the average household, inflation shock means that purchasing power is reduced by SEK 35 000 only this year, according to Christina Nyman, Handelsbanken's chief economist.
The villain in the drama – which makes the inflation shock so much tougher in Sweden – is according to Nyman krona.
"The weak krona contributes to higher inflation than in many other countries. The result is a clearly impaired purchasing power for households in 2023, even if export companies benefit," the bank writes in a press release.
"There is no point in the government and the Riksbank trying to talk up the krona. To lift the krona price more, a long-term focus on growth and stability is required," Nyman writes in a comment.
Swedish economy is expected to shrink
The Swedish economy is expected to shrink by 0.8 percent 2023 followed by a recovery of 1 percent 2024, according to Handelsbanken. In the latest forecast, GDP was minus 0.1 percent this year and plus 1.6 percent next year.
For 2025 Handelsbanken adds a growth forecast of 2.6 percent, according to the calendar adjusted figures.
The inflation forecast for this year is raised simultaneously to an average of 9.2 percent according to the KPI measurement, up from 8.8 percent in the last previous forecast. And for 2024 the inflation forecast is raised simultaneously to 2.7 percent, up from the previous 2 percent.
Unemployment also appears to rise faster than expected, according to Handelsbanken's recent report. It is expected to lift to 7.9 percent this year and 83 percent 2024, against an earlier forecast of 7.4 and 7.9 percent respectively.
With regard to the Riksbank, Handelsbanken's economists count the policy rate of 3.25 percent this year, 2.75 percent 2024 and 2.50 percent 2025. There the forecast was previously at an interest rate peak of 2.75 percent 2023.
"We don't think interest rates will return to the low levels we've had in the last 15 years. For Sweden, we expect the policy rate to vary around 2-2.5 percent in a few years", Nyman writes in a comment.
"Part of the new everyday life".
Nor does she believe that energy prices are returning to pre-Ukraine levels.
"We expect high energy prices to become part of the new everyday life. Climate investments and growing demand for green minerals can further push up inflation," Nyman writes.
As for the wage movement, Nyman believes in a one-year contract of approximately 3.5 percent. And the price collapse for housing is expected to be 20 percent from the top, while the prices of commercial properties are coming down with 15 percent.