IMF Says Krona Gain Poses No Real Threat to Sweden’s Economy

The krona’s strength poses no real threat to Sweden’s recovery and its appreciation just reflects the nation’s economic success, the International Monetary Fund said.

“Given that we’re close to, or just below, the krona’s fundamental value the level shouldn’t be particularly problematic for the Swedish economy,” Helge Berger, the IMF’s mission chief for Sweden, said in a May 31 phone interview. “It’s appreciating because before it had weakened, so in that sense it’s returning to an equilibrium position.”

Sweden’s appeal as a haven from Europe’s debt crisis has boosted the krona 9.7 percent over the past year, measured on a correlation-weighted basis, making it the best performer among 10 major currencies tracked by Bloomberg. The gains have triggered pleas from the nation’s exporters for policy makers to stem the rise.

Sweden posted the biggest economic rebound in the European Union in 2010 while keeping its budget in surplus. A report last week showed the economy expanded 0.6 percent in the first quarter, more than twice the pace estimated. The 17-nation euro area contracted 0.2 percent in the period.

Manufacturing Growth

A report today showed Swedish manufacturing returned to growth last month as orders increased. An index based on responses from about 200 purchasing managers rose to a seasonally adjusted 51.9 from 49.6 the prior month, Stockholm-based Swedbank AB, which compiles the data, said today. A reading above 50 indicates an expansion.

The krona strengthened 0.4 percent to 8.569 per euro as of 1:48 p.m. in Stockholm.

The crisis in Europe, and its corrosive effect on demand, poses the biggest threat to Sweden’s $500 billion economy, Berger said. That could have “adverse” effects on household debt and the housing market, he said. While the IMF doesn’t predict a “sudden drop” in residential property prices, they are “somewhat above fundamentals,” Berger said.

The IMF recommended last week that Sweden find more measures to limit house price gains and a build-up in debt. Household debt has swelled to a record 174 percent of disposable incomes this year from about 90 percent in the 1990s, the central bank estimates.

“House prices might increase less than inflation going forward so that they gradually adjust to fundamentals,” Berger said. “There’s some room for downward corrections or at least room for adjustment in relative terms, that is, relative to all other prices in the next couple of years.”

Riksbank Deputy Governor Per Jansson said last week the central bank’s main lending rate could have been lower had it not been for the bank’s concern about household debt. The Riksbank kept rates unchanged at 1 percent for a second meeting in April.

“Monetary policy is helpfully supportive at the moment, with the Riksbank balancing the need to lift inflation and growth, as well as financial stability considerations,” Berger said.

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