Ylva Hedén Westerdahl, head of forecasting at the National Institute of Economic Research, sees a hard Brexit as the biggest risk to the Swedish economy.
A no-deal Brexit could tip the UK into recession, which could then plunge Europe into recession, adversely affecting Sweden, she says.
Hedén Westerdahl is concerned over Italy, which has the second largest debt ratio in Europe in relation to the size of its economy (130 per cent, compared to Sweden’s 40 per cent).
Italian banks have lent large sums to the state and, if lenders begin to fret that the crisis will spread to other countries, this could spark a rise in mortgage rates in Sweden, she believes.
“Even if the Riksbank doesn’t raise interest rates, mortgage rates could climb. The Riksbank cannot really counteract that as interest rates are already low,” she says, warning house prices could plummet in the event of an international crisis.
Meanwhile, Annika Winsth, Nordea chief economist, tells Dagens Industri that the Italy/Germany bond yield spread is widening, signalling concerns about the Italian government’s ability to keep public finances under control.
“An important question is whether the government will conform to the market or the European Commission, or ignore both. I believe the market will put pressure on the government. It has the most potential to [exert] influence,” she says.
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