Sweden is an important European country with a GDP of more than $520 billion, making it the 21st largest economy in the world. It has a GDP per capita of $52K. The main sectors for the economy are in agriculture, industry, and services.
This year, the country’s currency is the worst-performing major currency in the world. It has dropped by almost 8% against the USD and 6.5% against the euro. These declines continued this week after the Riksbank released the minutes of the monetary policy meeting held a week ago. The chart below shows the performance of the krona against the USD and the EUR.
The central bank hiked interest rates in December for the first time in seven years. While this was a good thing for the krona, the interest rates remained below zero. Since then, the bank has made two moves that have dragged the currency. In February, the bank warned that the economy was waning. By doing this, it encouraged the traders to push back the hopes of another interest rates. In April, the bank stepped away from further tightening. In the meeting, the bank announced that it will hold rates steady for longer. It also announced that it will start a 18-month bond-buying program. In this period, the bank will spend SEK 45 billion from July this year to December 2020. The minutes showed that the two deputy governors had reservations against these purchases.
Another reason why the krona has weakened is because of the European Central Bank (ECB). The ECB has said that the European economy remains weak and that it won’t hike rates this year as expected. Therefore, it will be difficult for the Riksbank to normalize policy until there are signs that the European economy is recovering. This is important because the EU is Sweden’s biggest trading partner. In the statement, the bank said that:
However, several members noted that the global economy is still fraught with uncertainty and risks that
can lead to poorer development going forward. They also noted that several major central banks are
now communicating a somewhat more expansionary monetary policy than previously. As for Sweden,
economic activity has developed according to forecast. But, at the same time, the members emphasised
that inflation has been lower than expected for several months in a row. This raises questions about the
strength of inflationary pressures and the inflation forecast has been revised downwards compared with
the assessment published in February.