Sweden Has Means to Act Should Economic Slump Worsen, OECD Says

The Swedish government and central bank have room to stimulate growth should the export-dependent economy worsen more than forecast, the Organization for Economic Cooperation and Development said.

Growth in the $540 billion economy will be 1.9 percent in 2013, picking up from 1.2 percent this year, the OECD said today in a statement, reiterating a forecast from last month.

“The Riksbank should use the room it has to lower the interest rate further if weak inflationary pressures and the slowdown in activity persist longer or are more pronounced than expected,” the OECD said. “Longstanding fiscal prudence also gives Sweden room for discretionary stimulus to support the economy if the outlook turns out to be weaker than expected by the authorities.”

Riksbank policy makers, who are meeting today, will tomorrow announce their fourth rate cut over the past year to support an expansion in the largest Nordic economy, according to 17 of 18 economists surveyed by Bloomberg. The economy is struggling as Europe’s debt crisis saps exports.

The government has said it will spend 0.7 percent of the economy on infrastructure, research and corporate tax cuts next year to cushion the slowdown. Sweden will post a deficit of 0.8 percent next year and 0.2 percent in 2014, the OECD estimated.

The Paris-based group said high household debt poses a risk to the country’s large banking sector and that it welcomed plans for stricter liquidity rules and higher mortgage risk weights.

Swedish private debt has risen to a record 173 percent of disposable incomes this year from 90 percent in the mid-1990s as households have financed rising property prices.

“High household debt makes households vulnerable to a fall in house prices, an increase in real interest rates or rising unemployment,” OECD said. “Disorderly household deleveraging would affect the banking sector.”

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net