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Fast Comment SwedenGDP growth in the first quarter: sound start to the year, as the Swedish economy moves further into the boom

  1. GDP growth in line with expectations, but a downgrade to last year's data
  2. Healthy domestic demand, with consumption ever so steady
  3. We stick to our GDP forecast and our expectation for a Riksbank rate hike in December
GDP growth in line with expectations, but a downgrade to last year's data
The first quarter national accounts show that Sweden has moved even further into the economic boom, with GDP growth at an above-average 3.3 percent y-o-y (calendar adjusted; our forecast: 3.4%; consensus median: 3.3%). However, zooming in on just the most recent developments, some may note that quarterly GDP growth was 0.7 percent q-o-q, above expectations (our estimate: 0.6%; the Riksbank: 0.6%; consensus: 0.5%; seasonally adjusted). So is this something to cheer about, in light of weaker-than-expected data from the important trading partners? Perhaps not, because it follows on from downwardly revised GDP readings for 2017.
Healthy domestic demand, with consumtion ever so steady
Household consumption has been a nervous point, as retail sales and consumer confidence have been on the weak side. In the first quarter, consumption remained solid, however. Moreover, as housing investment is starting to wane, it has been difficult to pencil in the exact pace. A deceleration has now started, the first quarter national accounts show, but at the same time other building investments surprised on the upside. It will be important to follow those developments to gauge growth ahead.
We stick to our GDP forecast and our expectation for a Riksbank rate hike in December
The bottom line of yesterday’s batch of sentiment indicators was supportive for our forecast of an orderly cooling of the business cycle, coupled with late-cyclical inflation pressures (please see Fast Comment yesterday). Taken together with today's GDP outcome, we feel comfortable sticking to our forecast for 2018. Admittedly, cost pressures have not been rising lately, but hourly labour costs picked up. At this point, we do not see the need to revise our inflation forecast. Hence, we stick to our Riksbank call for a policy rate hike in December.


 GDP growth in line with forecast, as foreign trade rises slower than anticipated



Substantial revisions to last year's national accounts; exports were quite weak in the first quarter




 Growth in 2017 not as fast as previously reported



Household consumption made a solid contribution to growth, despite worrisome retail sales at the start of the year



 Housing investment has slowly begun its decent, but other building investments accelerated in Q1



Labour costs per hour picked up in Q1, but so did productivity; hence, unit labour costs stay in recently subdued territory




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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