Sweden: Economic growth slows in Q1
May 30, 2016
Despite falling short of Q4’s astounding 1.6% expansion (previously reported: +1.3% quarter-on-quarter), GDP still expanded a respectable 0.5% in the first quarter of the year. Sweden’s outstanding performance in the last quarter of 2015, which was driven by ultra-lose monetary policy, will be difficult to match in the subsequent quarters. However, the deceleration was still quicker than markets had expected, as analyst had projected quarterly growth of 0.7% in Q1. The result—the lowest figure since Q3 2014—was caused by a poorer performance of the external sector and also by slower growth in fixed investment and public spending.
Sweden underwent a boom in fixed investment in 2015 as the extensive government bond purchasing program and negative interest rate experiment carried out by the Riksbank provided ample stimulus to firms looking to expand. The government also helped support high growth rates as it pushed through increased spending to support the unprecedented number of refugees that arrived in 2015. These factors subsided in Q1 2016 with public spending slowing from a 0.9% increase in Q4 to a 0.5% expansion and fixed investment decelerating to a 2.2% increase (Q4: +3.1% quarter-on-quarter). Private consumption, however, continued its gradual acceleration in Q1, expanding 1.1% over the previous quarter. This follows an expansion of 1.0% in Q4.
On the external side of the economy, exports deteriorated, swinging from Q4’s 2.5% increase to a 1.3% decline in Q1. Exports posted strong growth throughout most of 2015 as the krona fell to historically-weak levels against the euro. In Q1, the krona stabilized somewhat, which may have contributed to the deterioration of exports. At the same time, imports slowed from a 1.3% increase in Q4 to a 0.8% expansion in Q1. As a result, the external sector’s net contribution to overall economic growth deteriorated from Q4’s plus 0.6 percentage points to minus 0.9 percentage points in Q1, marking the largest detraction in nearly two years.
In annual terms, GDP growth also slowed, from 4.9% in Q4 to 4.2% in Q1.
Author: Robert Hill, Economist