So, now it is a fact that the UK has voted for leaving EU, what are the initial ramifications for Sweden as we see it?
First, we have heard various comments by international commentators suggesting that a UK vote for 'leave' could trigger a Swexit - we disagree. Apart from the far right Sweden Democrats (SD) and far left Leftists, there is a broad and solid majority in parliament in favour of continued EU membership and - not less important - opinion polls show clear public support for EU membership. PM Löfven has already dismissed the idea of a Swedish EU referendum.
Secondly, we do not expect any backbone reaction by the Riksbank. The RB will of course support the market with standard measures if there is some sort of liquidity problem. Other than that, we expect the RB to stay put and assess how things evolve. The immediate reaction of the result of the referendum was a sharp SEK depreciation (EURSEK moved from 9.25 to 9.59, but is back to 9.42 as we write). That is not a problem in itself. We are not surprised about that reaction but from a fundamental point of view we do not really see why the krona should weaken permanently. At present the response in the currency market is nothing but supportive for the RB. While there are fundamental arguments for a stronger krona, there are other factors holding it back, such as, for example, repricing of the Swedish yield curve, growth worries and general risk-off sentiment. As such we expect EUR/SEK to stay high for longer.
Thirdly, the longer term economic ramifications (for Sweden) of the UK vote remain to be seen. In fact, in the 2003 election campaign on Sweden joining the euro, the pro-euro side painted a picture of extremely negative consequences if Sweden voted to keep the krona - that did not happen. We see some parallels with the EU campaign. It will take at least a couple of years of negotiations before the UK actually separates from the EU and we would guess that political leaders - when the dust has settled - have a strong incentive for minimising potential damage.
To read the entire report Please click on the pdf File Below