Sweden: Economic growth records best result in a year in Q3
November 29, 2021
The economy expanded 2.0% in seasonally-adjusted quarter-on-quarter terms in the third quarter of 2021, picking up from the 1.0% rise logged in Q2 and increasing slightly from the 1.8% estimate in the preliminary Q3 release. Meanwhile, on an annual basis, GDP grew 4.5% in Q3, down marginally from the initial estimate of a 4.7% rise and below the second quarter’s 9.6% reading, as the favorable base effect reduced.
Domestically, household spending spearheaded the uptick in quarterly growth, improving to a 2.4% increase in seasonally-adjusted quarter-on-quarter terms in the third quarter, which marked the best reading since Q3 2020 (Q2: +1.4% s.a. qoq). However, government spending growth slowed to the weakest pace since Q1 2021, coming in at just 0.2% (Q2: +0.7% s.a. qoq), while fixed investment growth slowed to 2.6% in Q3, from the 4.1% increase logged in the prior quarter.
Meanwhile, the external sector weighed on the overall reading. Exports of goods and services increased 0.5% on a seasonally-adjusted quarterly basis in the third quarter, which contrasted the second quarter's 0.7% contraction. However, imports of goods and services picked up at a faster rate, growing 2.4% in Q3 (Q2: +1.0% s.a. qoq) and marking the best reading since Q4 2020. Consequently, the external sector subtracted 0.7 percentage points from overall growth, matching the detraction recorded in Q2.
Looking ahead, available data suggests that the economy will continue to grow at a robust rate in the remainder of the year. Upbeat business and consumer sentiment, coupled with higher employment levels, bode well for spending and investment. Moreover, PMI data for October and November continued to show improving conditions in the manufacturing and services sectors. Additionally, the continuation of expansionary monetary policy should further bolster activity. However, lingering uncertainty over the pandemic clouds the outlook, as restrictions would likely be tightened once again if infection rates surged.
Commenting on the outlook, Morten Lund, economist at JPMorgan, stated:
“Overall, the picture is still that underlying demand is strong and that GDP growth should stay above potential in Q4. Risk is to the downside with the lingering supply chain disruptions, high energy prices and emergence of the fourth Covid-19 wave in Europe—although the latter risk should mostly have a negative impact on the Q1 2022 GDP number.”
Author: Stephen Vogado, Economist