Sweden: Economic growth revised downward in Q2
September 13, 2017
After a slow start to the year, the Swedish economy performed better in the second quarter, albeit at a more moderate pace than initially reported. Revised data show that the Swedish economy grew a brisk 1.3% in seasonally adjusted quarter-on-quarter terms in the second quarter; flash estimates had initially reported higher growth. The new data is likely to vindicate the Riksbank’s current lax monetary stance, confirming its view that it is too early to scale back ultra-loose monetary policy. The quarterly print is nonetheless the highest reading since the fourth quarter of 2015. In annual terms, the economy remained on solid footing and expanded 3.1% in Q2 (Q1: +2.2% year-on-year).
On the domestic front, growth in demand slowed despite a rebound in government consumption (Q2: +0.2% qoq; Q1: -0.2% qoq). However, it was not enough to offset a less rapid expansion in fixed investment growth, which moderated from a 4.1% increase in Q1 to a 2.5% increase in Q2, despite the continuation of the Riksbank’s aggressive monetary policy. Growth in household consumption followed a similar path, slowing despite a tight labor market (Q2: +0.7% qoq; Q1: +0.9% qoq), but in light of inflation returning to the Central Bank’s target at the end of the second quarter.
The external sector performed better in the second quarter, adding 0.4 percentage points to growth (Q1: -1.1 percentage points), matching a figure last seen in the third quarter of the previous year. The result was chiefly driven by a rebound in exports, which jumped from a disappointing 1.0% contraction in Q1 to a 2.3% expansion in Q2. Meanwhile, import growth abated from a 1.7% expansion in Q1 to a 1.5% increase in Q2.
Going forward, the economic fundamentals of the Swedish economy are expected to remain robust. Unemployment is declining and labor market shortages could see wages rise and provide stimulus for private consumption. However, household incomes are growing less quickly than house prices and debt levels, which clouds the economic outlook in the medium term.
Author: Jan Lammersen, Economist