Sweden’s Fiscal Anxiety Prompts Key Central Banker to Speak Out

(Bloomberg) --

A key Swedish central banker said the country is too focused on budget surpluses and called for coordination between fiscal and monetary policy as the Riksbank struggles to exit negative interest rates.

Speaking at a panel debate arranged by pension fund Alecta in Stockholm, Deputy Governor Per Jansson said there was “too much focus” on surpluses considering Sweden has strong public finances and has reduced government debt to its self-imposed anchor.

Echoing a growing debate abroad, Jansson called for ordered talks between the central bank and the government on the “policy mix” as the nation once again faces a slowdown in economic growth. Fundamentally, the separation between monetary and fiscal policy has been a good thing and has worked well, “but times change,” he said.

Recent data have shown a deepening slowdown in the Swedish economy, with manufacturing and the service industries buckling under the weight of global trade turmoil. Speculation has grown that the central bank will need to call off its planned rate increases later this year as it seeks to end almost half a decade of negative rates. Other banks, such as the Federal Reserve and European Central Bank, are already adding stimulus again.

Jansson said that Riksbank has the ability to add stimulus if needed, but doesn’t have the same “ammunition” given the record stimulus of recent years. One of most consistently dovish members on the board, he said that recent data have strengthened his view that a rate increase toward the end of the year isn’t a good idea.

What Bloomberg’s Economists Say...

"This really marks a shift from the years after Europe’s debt crisis, when central bankers urged politicians to save rather than spend. With the policy rate already below zero and a swollen balance sheet the Riksbank really can’t do much to stabilize the slowing economy. It will be much more up to fiscal policy this time around."
-- Johanna Jeansson, Nordic Economist

Sweden’s government is in a wait-see-mode on the economy after last month revealing a budget that includes a surplus for next year, sticking within a framework that calls for the government to run a 0.33% surplus of GDP over an economic cycle.

Though with the economy all-but stalled and with unemployment having surged over the summer months, Finance Minister Magdalena Andersson recently said that the government stands ready to add stimulus if needed, but that “we’re not there yet.”

Knut Hallberg, an economist at Swedbank AB, called Jansson’s remarks a pivotal event.

“It’s the first time someone on the governing board has expressed it as explicitly,” he said. “It’s also in line with what we’re hearing from the rest of Europe, from Draghi and the ECB conference in Sintra this summer.”

Danske Bank A/S Chief Economist Michael Grahn said Jansson is spot on that a change in policy mix is needed. “It’s striking, the total lack of will among politicians to do something. Why did they introduce a debt anchor if they are just going to ignore it.”

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

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

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