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Sweden’s growing problem with gang shootings and bombings risks damaging the country’s long-term economic potential, its central bank chief has said.
Riksbank governor Erik Thedéen told the Financial Times that one of the country’s greatest assets was the trust between people and in the authorities, but that this “could be challenged” if gang violence was not dealt with properly.
The Swedish government has called in the military to help police tackle the issue and is rushing to tighten several laws after shootings, bombings and hand grenade attacks by gangs increased significantly.
“It is potentially a threat long-term to the growth potential of Sweden. That is also an important reason why we should handle this and stop it . . . If you just look globally at where you don’t have trust, they are typically not countries with a lot of economic growth,” said Thedéen.
High levels of trust acted as a “buffer” in the economy and were an “extremely important asset when you’re talking about productivity and economic growth”, he added.
If trust was eroded, businesses would face increased security costs and “lawyers looking into every transaction, instead of a handshake”, he said.
Thedéen’s warning comes as Sweden is enduring one of the deepest contractions in Europe after high inflation led the Riksbank to increase interest rates sharply.
The Swedish central bank held its interest rate at 4 per cent at the end of November but gave a 40 per cent chance of carrying out one final increase.
Thedéen said falling inflation “bought it time” to wait until January before deciding whether to raise interest rates again. But he warned that rates were likely to remain elevated for “a fairly long time”.
The Swedish central bank’s forecasts show that rates could start to be cut from 2025. But a single cut to 3.75 per cent is only guaranteed by early 2026, according to the bank’s estimates.
“We are afraid that there are inflationary pressures that we do not fully understand . . . It has been much more severe than we thought starting in 2022,” Thedéen said.
Thedéen added that the central bank was committed to its 2 per cent target and had struggled to understand the dynamics that led inflation to surpass the Riksbank’s forecasts until a few months ago.
The Riksbank forecasts that inflation excluding energy costs will be 7.6 per cent this year, before falling to 2.9 per cent in 2024 and finally reaching its 2 per cent target in 2025.
The central bank expects Sweden’s economy to contract both this year and next as unemployment rises and the housing market remains weak.
Consumers have cut spending as household indebtedness was at record levels before the Riksbank started to increase interest rates from zero last year.
Thedéen said he was also “worried” about the health of commercial real estate groups, with several such as SBB facing financial difficulties as a result of large amounts of debt coming due in the next few years.
“There are some companies that have a balance sheet problem,” he added.
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