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Fast Comment SwedenNegative growth in Q3 less of a concern that it might appear; expect a rebound in Q4

  1. GDP growth temporarily turned negative; outcome close to lower end of expectations range
  2. Weak headline GDP masks underlying strengths
  3. Will the Riksbank care? Perhaps. We stick with February hike
GDP growth temporarily turned negative; outcome close to lower end of expectations range
The third quarter National Accounts showed negative GDP growth compared to the previous quarter. However, this is not as worrisome as one might think. There were some temporary factors dampening growth and leading indicators look strong, as confirmed in yesterday's sentiment surveys. We expect a rebound in the fourth quarter.
Weak headline GDP masks underlying strengths
One of the temporary factors concerns household consumption. The consumption of vehicles collapsed, following the front-loading of car sales that happened in the second quarter ahead of changes in both Swedish tax rules and international emissions tests. This sharp drop made overall household consumption look weak in the third quarter. However, looking under the hood, we find that consumption excluding vehicles was robust, confirming strong household economy after years of rising employment and bolstering the outlook into next year. There are however question marks concerning goods exports, where strong sentiment has not been matched by hard data lately.
Will the Riksbank care? Perhaps. We still expect first rate hike in February
The outcome was below the Riksbank's forecast, but should not come as a total shock as monthly data prints have signalled that GDP would end up lower than even quite recent forecasts. Individual GDP outcomes usually do not affect monetary policy decisions. However, today's GDP was the second disappointment in a row and even if the data release showed several strong points, the Riksbank might want to wait for additional statistics that confirm its picture of a still strong economic outlook. We keep our call for a first rate hike in February, and even if today's GDP might marginally strengthen that forecast, the probabilities for December and February rate hikes respectively remain rather balanced.

 Outcome far below forecast in third quarter, but previous quarters revised up



Headline GDP looks very weak, but masks healthy economic developements... 



...as investments excluding housing rebounded 



And apart from the vehicle sales rollercoaster, household consumption is healthy 





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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