Sweden’s financial stability is under greater threat due to recent U.S. trade policies, the country’s central bank, the Riksbank, reported on Wednesday. The bank pointed to the tariffs imposed by former U.S. President Donald Trump and shifts in U.S. foreign policy as key factors increasing uncertainty in financial markets this spring.
The Riksbank’s bi-annual financial stability report highlighted that these sharp changes have caused significant market fluctuations. This has raised the risk of financial instability in Sweden beyond normal levels.
Despite these challenges, the Riksbank said Sweden is well-prepared to handle the uncertainty. The country benefits from a strong policy framework, healthy public finances, and banks that are profitable with solid capital and liquidity buffers. However, the report also warned about vulnerabilities in the banking system, especially due to the close links between banks and the high debt levels of property companies and households.
Sweden’s economy has already felt the impact. Preliminary data showed that growth stalled in the first quarter of the year. The government recently lowered its full-year growth forecast from 2.3% to 1.8%, with Finance Minister Elisabeth Svantesson cautioning that the actual outcome could be worse.
Looking ahead, the Riksbank indicated it might reduce interest rates if economic growth slows further and inflation pressures continue to ease.
In summary, while Sweden has a strong foundation to face these risks, the combination of global trade tensions and domestic financial vulnerabilities means the country must remain vigilant to maintain financial stability.
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