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SWEDEN: Falling Rates Ease Mortgage Burdens; Business Sentiment Still Weak (1/2)

SWEDEN
CEEMEABulletSwedenGlobalFixed Income BulletsForeign Exchange BulletsRegionMarkets

Lower interest rates and easing inflation pressures should provide a tailwind to Swedish aggregate demand through the household cash-flow channel in the quarters ahead. 

  • On the household side, 70% of mortgages in Sweden are floating rate, meaning monetary policy transmits forcefully into aggregate demand through this channel. Through 2021 and 2022, floating mortgage rates rose from 1.5% to almost 5.0%.
  • With household debt as a proportion of disposable income at almost 200% in 2022, increased debt servicing costs weighed on aggregate consumption and overall household lending growth contracted sharply.
  • However, with interest rates having already been cut by 75bps this year and analysts expecting at least 50bps more cuts by December, household mortgage lending growth has seemingly bottomed out, and interest payments (as a % of disposable income) have started declining.
  • Combined with real wage gains on the back of easing inflation, this should provide a platform for aggregate consumption growth to accelerate (particularly with the savings rate already at multi-decade highs).

 

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Lower interest rates and easing inflation pressures should provide a tailwind to Swedish aggregate demand through the household cash-flow channel in the quarters ahead. 

  • On the household side, 70% of mortgages in Sweden are floating rate, meaning monetary policy transmits forcefully into aggregate demand through this channel. Through 2021 and 2022, floating mortgage rates rose from 1.5% to almost 5.0%.
  • With household debt as a proportion of disposable income at almost 200% in 2022, increased debt servicing costs weighed on aggregate consumption and overall household lending growth contracted sharply.
  • However, with interest rates having already been cut by 75bps this year and analysts expecting at least 50bps more cuts by December, household mortgage lending growth has seemingly bottomed out, and interest payments (as a % of disposable income) have started declining.
  • Combined with real wage gains on the back of easing inflation, this should provide a platform for aggregate consumption growth to accelerate (particularly with the savings rate already at multi-decade highs).