Riksbank Governor Thedéen warns of Swedish household debt vulnerability
Riksbank Governor Erik Thedéen stated that high household debt and short interest-rate fixation periods make Swedish households vulnerable. Speaking at the Stockholm Chamber of Commerce, Thedéen noted that while inflation is near target, Sweden's consumption development was weaker than other countries during the high inflation period.
The Swedish exception in household debt
Swedish households experienced a more severe impact from high inflation than those in many other countries, Governor Erik Thedéen stated.
He highlighted that Sweden's economic development usually mirrors global trends, making this deviation particularly noteworthy.
The weaker consumption growth was partly due to slower labour income growth and a greater erosion of purchasing power, exacerbated by the krona's depreciation in 2022 and 2023. A key factor is the housing market, where Swedish households typically hold large mortgages with short interest rate fixation periods, leading to higher interest costs compared to other nations.
House prices have also fallen, and residential investment has sharply declined.
Safeguarding stability through buffers
Governor Thedéen emphasized that Sweden's high household debt and large proportion of variable-rate loans constitute a significant economic vulnerability.
He stressed the importance of maintaining clear regulations for household indebtedness and safeguarding the amortisation culture.
The recent period of rising inflation and interest rates served as a major test, highlighting the value of financial buffers at both government and household levels.
The credibility of the 2 percent inflation target was also crucial, guiding wage formation despite short-term inflation spikes.
This, Thedéen concluded, contributes to stability and predictability, paving the way for rising real wages.