Summer vacation is over. Economic activities have resumed in Sweden amidst a prevailing atmosphere of gloom, as the cloud of uncertainty continues to hang over the Nordic nation's financial outlook. Furthermore, analysts suggest that the ongoing stream of negative developments on both economic and political fronts is deepening investors' lack of confidence in the Swedish krona.

On Monday, August 21, it reached its lowest level against the euro, with an exchange rate of €1 for 11.96 kronor – against 10.24 kronor in August 2021: a drop of over 16% in two years. In Stockholm, two days later, the private bank Swedbank estimated that it had not yet hit bottom.

"It's going to get worse before it gets better," summarized Mattias Persson, the bank's chief economist, at the time. Not only does the bank believe that inflation – at 9.3% year-on-year in July – is likely to remain high, but it is counting on further interest rate rises, in the wake of the key rate of Sweden's central bank, the Riksbank, already at 3.75%, and which could reach 4.25% by the end of the year.

For households, there are plenty of reasons to be pessimistic. According to the Central Statistical Office (SCB), inflation and rising interest rates will cost Swedes 108 billion kronor (€9 billion) in 2022 – 92 billion due to price rises and 16 billion due to higher credit costs.

With one of the highest debt ratios in Europe and loans often negotiated on a short-term basis, Swedes have taken the full brunt of rising interest rates. For example, for a 3 million kronor (€250,000) loan negotiated at a variable rate – increased from 1.38% in November 2021 to 4.5% – the cost has risen by 8,000 kronor (€675) per month.

Households are not the only ones in difficulty. Over-indebted property groups have also taken the full brunt of rising rates. Among them, the SBB company, which owns 2,000 properties in the country (including many buildings housing public services), is currently selling off its assets in a desperate effort to avoid bankruptcy, which many foreign analysts fear will destabilize the kingdom's banks.

The construction sector also remains sluggish despite a significant demand for new housing, especially in major urban areas. In the first half of the year, only 14,550 new apartments were started, a 57% decrease compared to the same period in 2022, marking the lowest number since 2012, as reported by SCB.

Local and regional governments are sounding the alarm: all 21 regions and 124 of the country's 290 municipalities expect to end the year with a budget deficit. And most are convinced that 2024 will be even worse, said Anders Henriksson, president of the Association of Swedish Municipalities and Regions (SKR), earlier this week.

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