More warnings for the Swedish housing market – EU the next to sound warning for the Swedish real estate sector


Tuesday, 07 June 2011
Sweden must reform its mortgage market, rent control, property tax and building permits if it is to prevent risks of rising house prices and increasing household debt. It must also work more on inclusion of youths and minority groups into the labour market.

These calls came from the European Commission to the Swedish hierarchy in the EU country - specific recommendations for economic reforms for the next 18 months, which was unveiled on Tuesday.


A second recommendation was to monitor and improve the employment rate among young people and vulnerable groups. The vulnerable gotups here refer to people born out the the EU who are persistently discrimianated in teh Swedish job market - especially the Africans or black looking people or the Arab-looking people.

Sweden's third and final recommendation was to keep track of budget policy and to avoid pro-cyclical fiscal policy during the upswing.

The Commission considered that the Swedish government's macroeconomic scenario of 2011 - 2014 was largely credible, except for 2012 when it was too optimistic.
"As the revenue projections are somewhat conservative for 2011, the budgetary outcome could be a bit better this year, while some downside risks to the financial projections from 2012 onwards are linked to favourable economic assumptions, "wrote the Commission.

From 2012 there is the risk of a pro-cyclical loosening of the fifth earned income tax credit, raising the threshold for state income tax, lower restaurant tax and lower tax rates on pensions.

"The government should be careful from 2012 onwards in order to avoid unnecessary expansionary fiscal policy in times of positive growth, "said Commission.

"Given the demographic outlook, it is important that Sweden continues to meeting its medium-term targets (surplus target of 1 percent of GDP over the cycle), " read the recommendation to Sweden.

Housing and mortgage market is a source of potential instability, in view of household debt and a large proportion of debt is floating rate.
"The marked correction in the housing market could have negative effects on macroeconomic stability by getting households to cut back on consumption to balance their budgets and by raising the financial costs of Swedish banks ", said the Commission.

The latter has been young people and those born outside the EU in a weaker position than the EU average. But the Commission noted that the Government is carrying out several reforms and the labour market will improved for all groups except foreign-born women.
By Team

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