• Sweden: ‘the rock star of the recovery’

The International Monetary Fund (IMF) lauded Sweden's economic performance in a report published Wednesday but warned the real estate market appeared overheated and that prices could decline.

Sweden's gross domestic product (GDP) grew a record 5.5 percent last year and is set to grow 4.4 percent this year and 3.8 percent in 2012, erasing most of the effects of the 2009 recession, during which the economy shrunk 5.3 percent, the IMF said.

"Sweden's exit from the global crisis has been uniquely successful compared to others in the European Union," the IMF said.

"This performance reflects decisive domestic policies, underpinned by sound policy frameworks," the Fund added.

According to the IMF, unemployment in Sweden -- which peaked at 8.4 percent in 2010 -- will decrease to 7.4 percent this year and 6.6 percent next year.

The country's public finances will score a surplus of 0.8 percent of GDP in 2011 and of 1.3 percent in 2012, a marked contrast to the situation in many European countries where large budget deficits are the norm.

The IMF however echoed the warnings of a series of Swedish economists recently that a housing bubble could be a problem in the otherwise bright economic picture.

"There is significant risk of a decline in house prices in coming years, even in a relatively benign economic scenario," it said.

After years of Swedes easily borrowing at low rates "rising nominal interest rates are likely to be the catalyst," it explained.

"However, this is not likely to cause significant macroeconomic disruption -- with the construction sector relatively small, and broader household confidence buoyed by global recovery -- unless it is disorderly," it said.

"In that case consumption could be significantly affected."

The downward pressure on house prices is expected along with the gradual rise of interest rates. The central bank started raising rates in July 2010 from a historic low of 0.25 percent and has said it will continue doing so in coming months to reach 2.3 percent by the end of this year.

Sweden, which along with Germany and Poland is seen as having the soundest economy in Europe, made it safely through the financial crisis largely thanks to its accumulated budget surpluses.

 

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Last Updated (Thursday, 14 July 2011 16:55)