SEB, one of Sweden’s leading banks, recently released its latest macroeconomic forecast, shedding light on the ongoing struggle for the retail sector as households remain hesitant to increase their consumption. According to SEB’s chief economist, Jens Magnusson, households are still feeling the pinch of high costs, despite a slight decrease in inflation. The prices have not dropped significantly, leading to a cautious approach towards spending among consumers.
However, there seems to be a glimmer of hope as the downward consumption trend is starting to reverse. Statistics from the Swedish Central Bureau of Statistics (SCB) indicate a slight uptick in the monthly consumption indicator and retail statistics. Although the signs of an increase in consumption are not crystal clear, there is a sense of optimism that households may soon ramp up their spending habits.
On the flip side, SEB’s forecast also warns of potential economic instability on the horizon, partly due to geopolitical conflicts. This raises the question of whether Swedish households, in response to the geopolitical uncertainty, are choosing to bolster their savings instead of engaging in discretionary spending.
While it is essential for households to have a buffer savings fund, Jens Magnusson highlights that the majority of Swedish households currently hold record-high assets. This surplus of wealth suggests that a slight nudge in consumption could kickstart a positive economic trend, allowing households to continue saving while also contributing to economic growth.
Looking ahead, SEB predicts a significant boost in consumption only by the second quarter of 2025, coinciding with the implementation of the government’s tax reform. Additionally, the bank anticipates a reduction in interest costs by several billion and expects the policy rate to drop to 2% by March next year, down from the current 2.75%.
Despite the slow pace of the consumption uptrend, the fact that it has begun to turn around is a positive indicator. Jens Magnusson emphasizes the importance of ensuring that not all disposable income is channeled into savings, as it is crucial for the Swedish economy to maintain a healthy balance between saving and spending.
In retrospect, the question arises of whether the government or the central bank could have taken different actions to stimulate consumption. Jens Magnusson defends their approach, stating that both entities prioritized reducing inflation, which is essential for economic stability. While it is challenging to predict consumer behavior accurately, Magnusson believes that it is crucial for the Swedish economy to strike a balance between saving and spending to foster sustainable growth.