Sweden: Economic growth picks up in Q4
March 2, 2017
The Swedish economy closed 2016 on a solid footing. Strong demand for Swedish goods propelled growth from a revised seasonally-adjusted 0.3% quarter-on-quarter increase in Q3 to a stronger 1.0% expansion in Q4 (previously reported: +0.5% qoq). The quarterly print, which marked the fastest expansion in one year, came slightly above FocusEconomics’ 0.9% forecast. In annual terms, the economy remained on a broadly even footing and expanded 2.3% in Q4 (Q3: +2.4% year-on-year). This meant growth in 2016 slowed from last year’s 3.8% expansion to a softer 3.3% increase.
The Swedish external sector performed strongly in the fourth quarter and made an overall contribution of 0.9 percentage points to growth, marking the highest value in over five years (Q3: +0.4 percentage points). The strong performance reflects growing overseas demand for Swedish goods, which accelerated compared to the previous quarter and expanded at the fastest pace since Q3 2015 (Q4: +1.8% quarter-on-quarter). Swedish exports have benefitted from a weaker currency and a pickup in demand for intermediate energy and non-durable goods in key markets. In contrast, imports swung from a 0.3% increase in Q3 to a drop of 0.2%, an over two-year low. The slump in imports reflects a decline in imported goods and services, which is partly explained by a slowdown in private consumption and a weaker krona.
Growth in the domestic economy swung to an expansion on the back of a rebound in government consumption and fixed investment, which more than offset a slowdown in private consumption. Private consumption decelerated marginally from Q3’s 0.5% expansion to 0.3% growth. Despite the slowdown, private consumption remained healthy on the back of low inflation, a solid labor market, growth in real disposable income and ease of access to credit. Fixed investment surged notably thanks to the Riksbank’s accommodative monetary policy and robust residential investment.
The economic fundamentals of the Scandinavian economy are expected to remain robust going forward, though growth is set to decelerate. Higher prices will contribute to eroding real personal disposable income and the government is set to rein in spending. Likewise, growing uncertainty abroad will likely contribute to firms postponing investment as the open economy is susceptible to trade flow disruptions. Nevertheless, strong confidence indicator readings and ongoing expansionary monetary policy by the Central Bank will help shore up private consumption and fixed investment.