Photographer: Casper Hedberg/Bloomberg

These Charts Are Weapons for the Riksbank Critics

Concern about overheating mounts in Sweden after record stimulus

Is the Riksbank exposing the economy to the risk of overheating in its quest for price stability?

These charts suggest critics of Scandinavia’s most talked about central bank have reasons to be concerned.

After a year of extraordinary monetary easing, Swedish gross domestic product is surging and lending is expanding at its fastest pace in five years.

Credit growth climbed 7.5 percent in both December and January, up from 6.1 percent in January last year, while household debt burdens continue to swell.

According to the Riksbank’s own forecasts, private debt as a percentage of disposable income now stands at 179 percent, compared with 174 percent a year ago, and is expected to rise to 191 percent by the end of 2018.

Annika Winsth and Torbjoern Isaksson argue that the Riksbank “has gone too far” in its attempts to lift inflation, which has been stuck well below the bank’s 2 percent target since 2012.

The two economists at Nordea Bank AB contended in a March 14 op-ed that the economy was already improving -- and house prices and private debt increasing at a rapid pace -- before the Riksbank cut rates to negative and started buying bonds, about a year ago.

“The very high growth numbers that we now see are partly a consequence of extreme stimulus in an economy that was developing well at the starting point,” Winsth and Isaksson wrote. “In the unlikely event that the Riksbank reaches the inflation target, the price will in that case be an overheated economy.”

The Riksbank maintains that its expansionary policy has helped strengthen the economy, reduce unemployment and lift inflation. It has also acknowledged the risks created by its policies, calling on the financial regulator and the government to take action to stem debt growth.

Both the Swedish Financial Supervisory Authority and Prime Minister Stefan Loefven seem to be listening. Financial hawks will argue it’s too late.

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