IMF Warning about Swedish Housing Market

22 July 2011

The IMF is very upbeat about the Swedish economy, but is not quite as happy about the property market in the country, and has advised that prices may decline. GDP in Sweden grew by a very healthy 5.5% in 2010, and is expected to grow by 4.4% this year, and 3.8% in 2012. During the recession in 2009 the economy shrunk by 5.3%, so this predicted growth will wipe out the effects of this contraction.

 

According to the IMF Sweden has recovered from the global crisis very successfully, especially when compared to other countries within the European Union. It tributes their success to sound policy framework and decisive domestic policies, and this has led to falling unemployment rates. Unemployment in Sweden peaked at 8.4% last year and is forecast to decrease to 7.4% this year and to 6.6% in 2012.

 

In contrast to most European countries, Sweden's public finances are predicted to have a surplus of 0.8% this year and 1.3% in 2012. In spite of this good news the IMF feels the outlook for the housing market is rather less rosy and that a housing bubble could be a problem. This is because interest rates are likely to rise, ending years of borrowing at low rates.

 

The central bank first increase rates in July 2010 from a historic low of 0.25%, and by the end of this year the bank has said it expects rates to be 2.3%. In spite of this the IMF doesn't see the property market causing significant problems as in general household confidence is high and the construction sector is quite small.

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