(Bloomberg) -- Swedish consumers are becoming less pessimistic as a recovery is expected in the Nordic economy that has been buffeted by borrowing cost increases and inflation.
In July, consumer confidence increased for a 10th consecutive month to 96.6, the highest level in 2 1/2 years and approaching the historical average, according to figures published Tuesday by the National Institute of Economic Research.
The improvement comes as the Swedish central bank has started taking interest rates lower and is preparing as many as three additional cuts before year-end. It supports forecasters’ view that the country’s economic outlook is brightening, even as an early estimate of gross domestic product published on Monday suggested the output may have contracted last quarter.
The rising consumer confidence is “encouraging” and “should mean that the economy will start to recover soon,” Nordea Chief Analyst Torbjorn Isaksson said in a note. Still, figures also released on Tuesday showing a drop in business confidence to lowest level this year means “companies are not out of the woods yet,” he added.
The Swedish government has claimed victory in fight against inflation, which is approaching the central bank’s 2% target after real household incomes were eroded by price growth combined with modest wage increases. Many borrowers in the Nordic nation have mortgage rates fixed on short terms, making them sensitive to monetary tightening.
Hence, the expected rate cuts could provide impetus for a recovery that has yet to transpire. While economists polled by Bloomberg believe the economy will grow by 0.7% this year, a flash estimate of second-quarter output by Statistics Sweden indicated an 0.8% contraction.
--With assistance from Joel Rinneby.
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