For now, the Swedish economy is in a sweet spot, with infla- tion low and economic activity surging. ...While we do not expect aggressive monetary tightening soon, particularly since the central bank is taking its cues from a very dovish ECB, the long-term risk factors are growing. The Riksbank s forecast of -.- inflation in ----, made alongside the decision to cut rates to record negative levels, looks too low given that headline inflation jumped from -.- y- o-y in December to -.- in January, with core inflation hitting a ---month high of -.- . The Riksbank may become increasingly uncomfortable with this situation and be forced to reverse course. ...This figure may prove to be a one-off, but it potentially points to broader weakness as the year goes on, as new manufacturing orders fell from both overseas and domestic buyers, and order backlogs waned. Additionally, the eurozone economic mini- surge looks to have waned toward the end of ---- and in early ----, which could dampen both Swedish sentiment and exports.
...Interest-rate sensitive areas of the economy are responding ac- cordingly. Lending growth is strengthening, with housing loans growing at a five-year high of -.- y-o-y and M- money supply rising by -.- in January. ...Exchange rate-sensitive sectors are also doing well. The manu- facturing sector is booming, with the National Institute of Eco- nomic Research (NIER) s sentiment survey reaching all-time highs in the first two months of ---- at levels that are consistent with overall real GDP growth of between --- y-o-y. Given that the manufacturing purchasing managers index (PMI) for February fell to --.- from --.- in January, the NIER figure looks optimistic, but taken together, it is likely that growth remained strong in the first half of the year. ...Given that the manufacturing purchasing managers index (PMI) for February fell to --.- from --.- in January, the NIER figure looks optimistic, but taken together, it is likely that growth remained strong in the first half of the year. This is being assisted by the lowest real effective exchange rate since at least the ---- financial crisis, as well as an improvement - Business Monitor International Ltd www.bmiresearch.com
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