Sweden Riksbank Preview (Nov 5): Board to Reveal Little More?

Figure 1: Still Soggy Business Survey indicator

Source; Riksbank, GDP Index figures and quarterly change in per cent respectively

As for fiscal policy, it will now be expansionary into 2026 which is an election year. The measures include (1.9% of GDP) of unfunded reforms for next year, which include: military support, defence rearmament and a regular measure.  Regardless, it now seems all the clearer that the CPI spike seen in the July data was aberrant even though it partly persisted into August.  Indeed, that spike was almost certainly a reflection of temporary factors, most notably energy price swings, alongside what may be a more sustained but far from demand-driven recent tripling in food inflation.  To us, the underlying picture is reassuring as seen in the ex-energy CPIF measures is still consistent with target and this is despite the impact on this measure of food inflation, albeit where the latter has slowed from running at over 5% to just over 3% (still something more supply driven and also likely to weigh on spending power). Indeed, the Board view still suggests that ‘several indicators support the view that inflation will fall back to target going forward’.  Notably the updated Riksbank CPIF forecast shows inflation well above target through 2028 but this is a result of VAT tax swing induced base effects that anything underlying.

But the real economy backdrop is still puzzling.  Despite an apparent 1%-plus q/q Q3 GDP jump (twice Riksbank thinking), the economy still looks soggy, not least in the labor market. But the Riksbank will note the results if its own survey, which underscores that Swedish companies describe the economic situation as a long and protracted slump that has not improved since the spring and where industrial activity has weakened.  In particular, the survey stresses that high unemployment is also weighing on expectations and is described as “the biggest challenge”. In addition, many respondents wonder whether households will continue to be cautious about consumption for a longer period.  As a result, the subdued mood is reflected in the Business Survey indicator, which summarises the Riksbank’s Survey’s results (Figure 1). The indicator has weakened since May and remains below its historical average, as it has done since the end of 2022.   The jury is out – still!