Economic prospects for the Nordic and Swiss economies are fairly bright. Although Switzerland had a disappointing start to the year in terms of GDP growth, the surveys are universally positive about the coming quarters, suggesting that the recent weakness will prove temporary. Meanwhile, the Nordic economies had a strong first half of the year, with Sweden leading the way. Strong growth in Sweden is causing price pressures there to build and inflation to exceed the Riksbank’s target. We therefore think that in December the Riksbank will end its asset purchases and signal that it will begin raising interest rates sooner than it currently projects. As a result, we are forecasting the Swedish krona to appreciate against the euro. By contrast, in Norway, exchange rate effects have pushed down inflation despite strong growth. And in Switzerland, there is still plenty of spare capacity, which will prevent inflation from rising sharply. Accordingly, we do not expect either the Norges Bank or the SNB to start raising interest rates until 2020, about a year after the ECB. We therefore see the Norwegian krone and the Swiss franc weakening against the euro over our forecast horizon.
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