Research
Tip: To personalise the research list, click the gear symbol above.


Choose type:


Fast Comment SwedenStrong headline GDP growth masks underlying weakness

  1. Withering economic climate, despite today's upside surprise in GDP
  2. Current mixed signals likely temporary August mist rather than early arrival of lasting October damp
  3. We stick to our forecast of a gradual cooling-off of the economy; we repeat no more Riksbank hikes this cycle
Withering economic climate, despite today's upside surprise in GDP
While Sweden boasts sunny early summer weather, autumn weather is taking hold in the Swedish economy. National accounts today show that first quarter GDP growth was stronger than expected, registering a healthy +0.6 percent compared to the previous quarter (seasonally adjusted). And even if the last quarter of 2018 also showed a growth spurt, it is in our view fairly clear that GDP growth is in a negative trend. Admittedly, the first quarter annual growth of 2.1 percent y-o-y (calendar adjusted) is in line with our estimate of long-term sustainable growth, meaning developments have not yet started chipping away from the booming economic climate. But a cooling-off is coming.
Current mixed signals are likely temporary August mist rather than early arrival of lasting October damp
There is ample uncertainty, not least due to the global backdrop, but we think the current mixed signals about the Swedish economy will turn out to be temporary August morning mist rather than a quick arrival of lasting October damp. First, the previous GDP outcome blurred the view of economic development due to an enormous research and development (R&D) figure. But instead of today's Q1 GDP delivering a rebound in R&D, the post seems to have vanished from the national accounts. Therefore, it is more meaningful to analyse annual component growth rates rather than confusing forecast misses in the quarterly rates. Household consumption and investments look poor, despite the fact that housing construction has not deteriorated as much as we have been anticipating. Export demand appears to hold up well, but remember that new orders are now falling rapidly, confirmed as recently as in yesterday's business survey. However, there have been some encouraging signs in the labour market, with sustained employment growth, which could foster some improvement in near-term domestic demand.
We stick to our forecast of a gradual cooling-off of the economy; we repeat no more Riksbank hikes this cycle
All in all, we stick to our GDP outlook, taking strong headline outcome but weak details as broadly neutral to our view that we will see a gradual cooling-off of the Swedish economy. But we repeat that we do not expect such developments, combined with hesitant inflation pressure, to be enough for the Riksbank to carry out any further policy rate hikes in 2019-21.


GDP Q1 2019: In quarterly rate, the outcome looks like a complete mess, but with stronger headline GDP reading....



GDP Q1 2019: ...However, moving to the annual rate, a weak picture emerges, with household consumption and investments weak and mostly exports - for the time being - staying high



Virtually no revisions to past growth rates - negative trend continues, much in line with our forecast 


Source: Macrobond


While building investments have not deteriorated as fast as feared, other business investments are bleak 




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

Latest analyses

2019-08-22

Fast Comment Sweden

2019-08-19

Fast Comment Sweden

2019-08-14

Fast Comment Sweden