Hormuz Crisis Clouds Sweden's Economic Growth Outlook
The recovery in the Swedish economy depends a lot on whether the Strait of Hormuz is opened or not. This is what Nordea’s chief analyst Torbjörn Isaksson says. If it is opened during the summer, the economic consequences are expected to be limited, but if it is not, there is a risk of increased inflation, among other things.
“We assume that the Strait of Hormuz will be opened sometime this summer and then we believe that the economic effects are certainly there, but still limited,” says Torbjörn Isaksson.
Nordea released its macro report Staying the Course and writes that it is a chaotic world with war in the Middle East, but emphasizes that the Swedish economy is fundamentally robust with low inflation. Nordea’s base scenario is that the Strait of Hormuz is opened within the next few weeks.
“The longer the conflict in the Middle East continues, the greater the economic effects will be. This indicates that political leaders around the world are doing their utmost to find a solution,” says Nordea’s chief economist Annika Winsth.
Among other things, the US has midterm elections and is interested in the conflict ending, China and India are also dependent on traffic functioning, as are the countries in the Middle East.
“That makes us think that there is still a glimmer of light there connected to the negotiations,” says chief economist at Nordea Annika Winsth.
However, if the opening of the Strait of Hormuz were to drag on, the risks would also increase.
“If it turns out that we enter the autumn without an agreement, there is a risk of increased price plans among companies, leading to rising inflation, which would lead to interest rate hikes, which would lead to a worse economy. But we are not there, and that is not what we are seeing,” points out Annika Winsth.
When it comes to the global economy, much is going in the right direction.
“We had impressively strong world trade, which increased by 4.2 percent last year, despite the customs chaos. We have also had a strong start to this year and Swedish exports are doing well. When it comes to Europe, Germany is the worry child and there has been no growth there since the pandemic, by and large,” says Annika Winsth.
No Buying Spree, but Still an Improvement
Despite the strengths of the Swedish economy, Nordea has revised down the GDP forecast for Sweden, from 3 percent this year in the previous forecast to 2.3 percent.
“We have had a slump in the Swedish economy at the beginning of this year, something that surprised us a little, but we also see the effects of the Iran war and that uncertainty is causing companies and households to hesitate. At the same time, we maintain that the conditions are in place for a good development of the Swedish economy,” says Torbjörn Isaksson.
Low inflation and normalized credit growth speak for this, among other things.
“Then the question is whether households are in the mood to lighten their wallets and whether the better financial position leads to increased consumption. There will be no buying spree in our forecast, but it is still an improvement,” says Torbjörn Isaksson.
According to Nordea’s forecast, the Riksbank will remain at a key interest rate of 1.75 percent throughout 2026. In 2027, it is expected to be raised to 2.25 percent in December.
According to Nordea’s analysts, the war in the Middle East has meant that an interest rate cut is no longer an option. The exchange rate for the Swedish krona also affects the Swedish economy, among other things, linked to what households and companies have to pay for goods.
Source: Dagens industri (in Swedish)