Sweden: Medium-term growth outlook remains uncertain – Nomura

Analysts at Nomura suggests that while Riksbank tailwinds should support SEK in the near term, they remain bearish on the Swedish growth outlook.

Key Quotes

“The external backdrop also remains challenging and is also not showing any signs of improving, with global trade risks remaining, rising energy prices, moderating global growth and rising instability within Europe.”

“Furthermore, the market has turned more positive on Riksbank policy normalisation since its last meeting. The market now expects the Riksbank to deliver four 25bp hikes before the end of 2020 – more than any other G10 central bank. The gap between the market’s pricing of Riksbank hikes and the ECB is particularly stark.”

“Furthermore, the market already prices above Riksbank forecasts. With growth falling below trend, it is a high bar for any further boosts in hiking expectations. While tactically we see modest SEK upside from the Riksbank’s October communiqué, we expect bearish themes to re-emerge as 2019 approaches and the Riksbank scales back on meaningful tightening.”