Sweden: Economy grows at fastest pace since 2010 in Q2
July 29, 2017
Following the slowdown in growth that kicked off the year, the Swedish economy accelerated in the second quarter of the year to register the fastest pace of growth since the fourth quarter of 2010. The acceleration was primarily caused by a pickup in fixed investment and private consumption. A quarter-on-quarter comparison showed that the economy grew a seasonally-adjusted 1.7%, above Q1’s 0.6% increase. The quarterly reading overshot market expectations of 1.0% growth. A year-on-year comparison revealed that the economy grew a staggering 4.0% (Q1: +2.2% year-on-year) to the surprise of analysts who had expected an annual growth rate of 2.8%.
The result was chiefly driven by the domestic economy, which was supported by increased household consumption and fixed investment, primarily in real estate, which more than offset weak government consumption. Fixed investment picked up from a 2.8% increase in Q1 to register a growth rate of 3.8% in Q2. Fixed investment was helped by the historically-low interest rates the Riksbank is maintaining. The pace of growth of household consumption nearly double in quarterly terms, it increased from the 0.6% increase seen in Q1 to 1.1% in Q2. Low inflation, a tight labor market and growth in real disposable income spurred private consumption. Meanwhile, government consumption was flat in the second quarter compared to the previous quarter’s 0.2% contraction.
On the external front, exports recovered from the previous quarter’s contraction to record an increase of 0.7% in the second quarter, while import growth slowed down from 0.9% in Q1 to 0.7% in Q2. The rebound in exports was driven by an acceleration in services exports which cancelled out a slowdown in the export of goods. In terms of imports, a significant deceleration was recorded in imports of services and this offset a pickup in the import goods.
The results in the second quarter underwrite the strong fundamentals of the Swedish economy. The strong reading is in line with other indicators and the fundamentals are expected to remain robust going forward. The second quarter’s result came in above the Riksbank’s expectation, which underpins the Bank’s view that maintaining negative interest rates is the correct monetary policy tool to stabilize inflation. However, the Riksbank will eagerly await inflation data to confirm its chosen path. The Finance Ministry is expected to present new growth forecasts this month.
Author: Jan Lammersen, Economist