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Nordic & Swiss Economics Weekly

Few signs of inflation in Scandinavia

While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. The increases in headline inflation for September in Norway and Sweden were due to higher energy inflation. This should drop sharply next year as the supply of renewable electricity rebounds. Meanwhile, the US Treasury is due to publish its latest report on “currency manipulators” in the coming week or so but Switzerland should again get a free pass.

15 October 2021

Nordic & Swiss Rapid Response

Few signs of inflation in Scandinavia

While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. The increases in headline inflation for September in Norway and Sweden were due to higher energy inflation. This should drop sharply next year as the supply of renewable electricity rebounds. Meanwhile, the US Treasury is due to publish its latest report on “currency manipulators” in the coming week or so but Switzerland should again get a free pass.

15 October 2021

Nordic & Swiss Chart Book

Monetary policy divergences

The Norges Bank’s tightening cycle began at the end of last month and we suspect that investors are underestimating the pace of rate hikes to come. By contrast, the Riskbank looks set to leave interest rates unchanged for some time, instead adjusting its monetary stance by shrinking its balance sheet. And interest rates at the SNB remain closely tied to those at the ECB, which means they are going nowhere fast.

15 October 2021

Key Forecasts

Key Market Forecasts

Forecasts

Forecasts

Latest

End 2021

End 2022

End 2023

Latest

End 2021

End 2022

End 2023

Swiss policy rate

-0.75

-0.75

-0.75

-0.75

Swiss fr/euro

1.07

1.10

1.12

1.12

Swe. repo rate

0.00

0.00

0.00

0.00

Swed. Kr/euro

10.01

10.00

9.75

9.75

Nor. depo rate

0.00

0.50

1.50

2.00

Nor. Kr/euro

9.76

10.00

10.00

10.00

Den. depo rate

-0.60

-0.60

-0.60

-0.60

Dan. Kr/euro

7.44

7.45

7.46

7.46

ECB depo rate

-0.50

-0.50

-0.50

-0.50

US$/euro

1.16

1.15

1.15

1.20

Sources: Refinitiv, Capital Economics

Few signs of inflation in Scandinavia

Nordic & Swiss Economics Weekly

17 October 2021

Our view

Supply shortages are likely to weigh on industrial activity in the Nordics in the near term, but with GDP already back to, or above, pre-pandemic levels, and house price gains exacerbating financial stability fears, policymakers will remain focused on dialling back stimulus measures. Having started to tighten policy in September, we expect the Norges Bank to raise interest rates by more than is priced into the market next year. Meanwhile, although we expect the Riksbank to leave its repo rate on hold at zero throughout our forecast horizon, we expect it to at least allow some of its stock of mortgage-covered bonds to roll off the balance sheet next year.

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Latest Outlook

Nordic & Swiss Economic Outlook

Post-pandemic recovery phase drawing to a close

As elsewhere in mainland Europe, activity in Switzerland and the Nordic economies rebounded in Q2 as services sectors re-opened and the strength of global trade has buoyed exports. Our GDP forecasts for 2021 are generally above the consensus and output will get back to pre-virus levels in all cases by the end of the summer. The spread of the Delta variant is a risk but with vaccination programmes powering ahead we do not expect it to prevent output from rising closer to pre-pandemic trends in H2, particularly in Denmark.

22 July 2021
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