Strong growth throughout, but policy to diverge

Prospects appear to have improved for all of the Nordic and Swiss economies, with surveys pointing to annual GDP growth of up to 3% in Switzerland and 5% in Sweden. Inflation has been subdued on the whole, but several factors point to a marked divergence in future. Inflation expectations have risen sharply in Sweden and, given particular concerns about the adverse effects of ultra-loose monetary policy there, we expect the Riksbank to start raising interest rates at the end of this year. But in Switzerland, inflation expectations are far weaker after years of deflation and with the strong franc still weighing on import prices, we don’t see the SNB raising rates until 2019. Meanwhile, rates seem likely to be cut in Iceland and Norway this year. These divergences imply that the Swedish krona will perform particularly well in the quarters ahead. The Swiss franc may weaken a bit in time, but we expect it to stay well above its long-run average.