Since the publication of the stability report last autumn, inflation has slowed somewhat in the large economies but is still significantly higher than the central banks’ inflation targets. Monetary policy has therefore been tightened further, and interest rates continued to rise. High inflation and rising interest rates mean that the forecasts for global economic development continue to be weak.
High inflation has led to rapidly rising interest rates. Given the current rapid change in conditions, both participants on the financial markets and borrowers need to transition quickly. In the short term, this means elevated risks and greater uncertainty. The already high risks in the commercial real estate sector have continued to increase.
Interest rates and interest rate expectations have increased in 2022 due to high and rising inflation. One sector that is vulnerable to rising interest rates is the commercial real estate sector. FI has also noted that liquidity on the bond markets has decreased, and the functionality of the corporate bond market is once again impaired.
Sweden’s economy has largely recovered and there is good access to financing in the financial system. The Riksbank should therefore begin the phase-out of asset purchasing to avoid further increase of risk-taking. Amongst others, FI sees growing risks within the commercial real estate companies.
The economy is continuing to recover. Support measures have been necessary to speed up the recovery, but they need to be gradually phased out as the economy strengthens. This applies primarily to measures that are associated with the build-up of stability risks.
The pandemic has triggered a deep economic recession in many countries, even if a slight recovery has begun. Extensive support measures have mitigated the economic impact and reduced the uncertainty on the financial markets. During the autumn, infection rates have once again begun to increase and several countries have introduced new restrictions, which will dampen the economic recovery, even though it is uncertain to which extent.
The coronavirus pandemic has resulted in an exceptional stress for the real economy. Governments, central banks and supervisory authorities have implemented significant measures to dampen the crisis. This has helped to reduce the uncertainty on the financial markets. But we are in still in the middle of the crisis, and there is considerable uncertainty going forward.
The low interest rates are expected to remain low for a longer period of time. It could lead to greater risk-taking among various actors, and increased challenges for insurance undertakings.
Both the global and the Swedish economies appear to be slowing down. Low interest rates – which have resulted in high risk-taking and rising asset prices – are expected to remain low for a prolonged period of time. Resilience in the Swedish financial system is satisfactory in general. However, even if the banks’ resilience is satisfactory overall, FI makes the assessment that they need more capital to cover the risks in their lending to commercial real estate firms.
The economy continues to be strong, both in Sweden and globally, but it is now showing signs of a slow-down. Interest rates have been low for a long period of time, which has led to high risk-taking and rising asset prices. As a result, the risks in the financial system are elevated. The resilience in the Swedish financial system is satisfactory in general but continued high growth in debt fuelled by lending and investments related to residential property and commercial real estate require monitoring.