ERR News carried President of the Swedish Riksbank Erik Thedeen's public lecture at the Bank of Estonia as part of his Estonia visit. Catch it again below.
Erik Thedeen gave a lecture on the current state of the Swedish economy and the Riksbank's monetary policy.
The recovery of the Estonian economy depends on its main export partners, with Sweden taking third place behind Finland and Latvia in those terms.
Erik Thedeen has been serving as president of the Riksbank, Sweden's central bank, since January 1, 2023, having worked as head of Sweden's FSA and before that at the Ministry of Finance.
"Economic activity in Sweden is slowing down roughly in line with our expectations. Although the inflation outlook has improved recently, there are risks of setbacks, such as renewed supply shocks due to geopolitical concerns, companies' pricing behavior or a renewed sharp depreciation of the krona," said Thedeen. "The adaptation of monetary policy must be cautious, to ensure that inflation is stabilized sustainably close to the target."
He noted that there are strong ties between Sweden and Estonia. The countries are not only geographically close but also have strong economic links. We have a lot of trade with one another, for example Sweden is Estonia's third largest trading partner. In addition, several major Swedish banks are active in Estonia.
Thedeen also noted that the risks in the financial system in Sweden are partly linked to the fact that Swedish households are highly indebted and are therefore greatly affected by interest rate increases. Property companies are also under pressure from higher interest rates, as well as the major slowdown in the construction sector in recent years. In an unfavorable scenario, problems among property companies could spill over to the banks and affect financial stability. However, Mr Thedeen noted that the Riksbank's assessment is that Swedish banks are well-capitalised and should therefore be able to cope with major strains in the property sector.
The Riksbank head emphasized the importance of continued cooperation within the Nordic-Baltic countries, especially in these turbulent times. Russia's illegal invasion of Ukraine and increased geopolitical tensions in the Middle East create considerable uncertainty over energy prices, food prices and freight prices going forward. In a period of uncertainty, there have also been large movements in the krona exchange rate. "We have no target for the exchange rate, but it is important because it affects inflation," observed Mr Thedeen.
Erik Thedeen also highlighted that Sweden and Estonia cooperate within the IMF's Nordic-Baltic constituency, as well as in newer forums such as the Nordic-Baltic Macroprudential Forum.
Editor: Marcus Turovski