Household Indebtedness Poses Risks for Swedish Economy - IMF

By Dow Jones Business News, 

By Sven Grundberg

STOCKHOLM--Rising house prices and extended household credit is a mounting concern for Sweden's financial stability, the International Monetary Fund said in a review of the Nordic nation's economy on Friday.

"Recent data indicate that household debt ratios are high across all income groups, but particularly so for indebted lower-income households who are especially vulnerable to income, interest rate, and house price shocks," the Washington- based institution said.

As a consequence, it added, a large and sudden drop in house prices could hit consumption, employment and growth, and ultimately impact the banking system.

The IMF trimmed its economic growth outlook for Sweden this year, and said it is likely to settle at 2.6%, down from its previous estimate of 2.8%. The institution raised its growth estimate for 2015 to 2.7% from 2.6%.

In light of growing household indebtedness, the IMF called for Swedish policy makers to introduce "a comprehensive set of macroprudential actions" to help steer mortgage credit demand "towards a sustainable path." It suggested binding maximum amortization periods for new mortgages and a further reduction of Sweden's loan-to-value cap, as possible measures.

Sweden's economy has performed well relative to many other European economies since the financial crisis, the IMF said in its review. But it noted that unemployment has been higher than expected, especially among young people, the low- skilled and immigrants.

Jens Hansegard contributed to this article.

Write to Sven Grundberg at; Twitter: @svengrundberg

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