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Fast Comment SwedenGDP confirms that the Swedish economy is cooling after years of booming climate

  1. Q2 GDP roughly in line with our own and Riksbank's forecasts; below consensus
  2. Growth slower than potential, implying that the boom continues to cool
  3. Today's weak print does not affect Riksbank, but we think developments ahead will force it to call off rate rises
Q2 GDP roughly in line with our own and Riksbank's forecasts; below consensus
The second quarter national accounts show GDP growth at -0.1 percent q-o-q (1.4 percent y-o-y, calendar adjusted). While this morning's headlines focus on growth being below consensus expectations (+0.3 q-o-q, +0.2 among the five domestic houses), the outcome was actually roughly in line with our estimate and, more importantly, the Riksbank's forecast (0.0 and <+0.1 percent, respectively). We also note that after the upside surprise in Q1 growth, the new GDP reading takes annual growth back in line with our April macro forecast report (see graph).
Growth slower than potential, implying that the boom continues to cool
GDP growth is now lower than the potential in Sweden, so while we are still in an economic boom, the climate is now gradually cooling. This hurts future inflation pressure, which we consider to be key to Riksbank policy developments going forward. Among the details, we note that household consumption has started 2019 weaker than expected, while exports have surpassed our expectations. Not reassuring in this world of trade conflict.
Today's weak print does not affect Riksbank, but we think developments ahead will force it to call off rate rises
To be clear, today's GDP print does not affect the Riksbank significantly. Instead we think upcoming economic data will disappoint the Riksbank, forcing it to rethink its 2020 forecasts (brighter than ours) and hence cancel its planned rate rises. Clearly, expected monetary policy easing from the Fed, the ECB and other central banks also pressures the Riksbank to strip away the tightening it now forecasts.

Q2 GDP means growth is back in line with our April macro forecast report, but the outcome was somewhat below the consensus estimate. Remember that Swedish GDP is highly volatile data, though, so no drama in this. The further cooling we forecast for 2020 will eventually force the Riksbank to cancel its planned rate rises



Exports holding up well, despite trade jitters


Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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