But the situation is actually not pitch black. Households may be gloomy when they answer the Economic Institute’s questions about their own finances, but they do not act accordingly. Try to get a table at a restaurant in Stockholm. Full everywhere. According to Nordea, the Swedes also plan to spend more money on summer vacations this year, despite all the misery. That there is money to spend on things other than the essentials is also noticeable in the luxury industry. The value of Switzerland’s exports of wristwatches such as Rolex and Omega already exceeded last year’s sales in May this year. The market that stands out is China, where sales increased by 160 percent after the country opened up after covid. That the Chinese are eager to buy is good news for the entire world economy. The evidence that the economy is doing better than you might think is not just anecdotal. In recent days, two heavy economic analysts have come up with updated figures on the economic situation. First up was Danske Bank DANSKE +1.40% Today’s development. There is a welcome shift in the view of the Swedish economy. The previously forecast recession is avoided. This year’s GDP will increase by 0.3 percent, not much to cheer about, but as recently as April the bank believed that the economy would shrink by 1.2 percent. Even the Institute of Economic Research, KI, which presented its report on Wednesday, sees more positively on the Swedish economy. Inflation and higher interest rates are certainly plaguing households, but the recession is expected to be short-lived. Next year, the policy rate will be lowered substantially and GDP is expected to increase by 1.4 percent. In large parts of the business world, with the exception of the construction industry, relatively good times prevail, partly thanks to the weak krona, which makes Swedish goods cheaper for foreign customers. The labor market is, gratifyingly, still strong. This is positive news for the government and finance minister Elisabeth Svantesson (M), who has been criticized for her tight fiscal policy. But the restraint has been absolutely right. Had Svantesson stimulated the economy, inflation would probably have been even higher, which would have made life even more difficult for Riksbank Governor Erik Thedéen. His troubles before the interest rate decision after midsummer are difficult enough anyway. No matter how he acts, it risks being wrong. Most assessors agree that there will be an increase. But since then? If the Riksbank tightens too much, it risks breaking even the part of the economy that is still doing well. Or worse: you trigger a real estate crisis, similar to the one that caused the banking crisis, interest rate chaos and lowered GDP three years in a row in the 1990s. We don’t want to end up there again. The weak krona makes the equation more difficult. It stifles exports but everything imported becomes more expensive, pushing up the inflation that Thedéen is trying to fight. In theory, a currency should become stronger when the policy rate is raised. It may therefore seem tempting to tighten monetary policy further for this reason. But the Riksbank should, as this page has argued, proceed cautiously with new austerity measures. The recovery that KI and Danske Bank predict must not be jeopardized by an unnecessarily high policy rate. The two business cycle assessors also agree that inflation will fall dramatically in the future, which should act as a call to the Riksbank to get ready for reductions in the policy rate rather than increases. The current economic crisis is undeniably complex. It depends on various global factors that Swedish politics cannot influence to a large extent. What we can influence, however, is the economy’s ability to adapt by increasing the freedom for companies, capital and people. This week’s positive business forecasts are signs of the market economy’s unparalleled ability to overcome obstacles and find a way forward. Just as during the pandemic, companies have quickly changed and adapted to new conditions. There is every reason to stop depressing. We are on our way to better times.
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