Swedish economy extremely stable as FITCH confirms Sweden's credit rating

Thursday, 19 July 2012
The strength of the Swedish economy has been confirmed today as the credit rating organisation, Fitch confirms Sweden's AAA credit rating, with stable outlook.

In a press release on Thursday Fitch wrote that the score reflects Sweden's status as a developed, diversified and wealthy economy, with moderate debt and strong institutions.

"The stable outlook reflects Fitch's view that despite headwinds from the euro area which makes Sweden's historically sound monetary and fiscal policies and high savings, the country is well positioned to handle increased macroeconomic risks, "wrote Fitch.

The credit rating agency says that the Swedish fiscal policy is strong. Government debt has fallen to 38.4 percent of GDP in 2011 from the top 78 percent in 1993.  This is well below the EU average of 82.5 percent. Fitch also expects that the Swedish central government debt will continue to decline. Sweden is expected to reach a budget deficit of moderate 0.3 percent of GDP this year and later have a surplus in the medium term.

Fitch goes on to say that the Swedish banks' dependence on funding in the market means that liquidity risks and funding risks will increase during uncertain periods. Fitch believes that the Swedish well-functioning bond market, which is expected to continue to benefit from robust domestic demand, should reduce the risks.

While the banking sector has healthy profit levels and capital levels and risk of spread from the euro area is attenuated by a low direct exposure to the euro area periphery for the Swedish banks.

"The Swedish economy is exposed to the wider euro area through trade and financial channels. As a result, the risk of a deeper recession than expected in the euro area could weaken Sweden's growth prospects, "wrote Fitch.

The credit rating agency also notes that private debt remains at high levels, which increases the risk for a prolonged period of reduced debt (Deleveraging).
"This trend has however been matched by a strong accumulation of assets. Sweden's current account surplus has averaged 6.8 percent of GDP. This strong position supports the rating, "wrote Fitch.

The credit rating agency predicts that the Swedish GDP growth will be 1.2 percent this year and 2.0 percent 2013.

Fitch goes on to say that they do not see a banking crisis in Sweden as probable, given the banking sector's capital levels and demonstrated resilience to the global crisis.

They add that the score would also be pressed on macroeconomic imbalances built up in Sweden, which most likely would be by an asset price bubble, which would increase risks to the economic and financial stability.
by Scancomark.se Team