Sweden: Economy grows in Q1; GDP close to pre-pandemic levels
The economy expanded 0.8% in seasonally-adjusted quarter-on-quarter terms in the first quarter of 2021, rising from the flat reading in Q4 2020 but falling slightly from the 1.1% growth estimated in the preliminary Q1 release. Meanwhile, on an annual basis, GDP declined 0.1% in Q1, softening markedly from Q4 2020’s 1.8% contraction and indicating the economy has very nearly reached its pre-pandemic levels.
The quarter-on-quarter reading reflected a broad-based improvement in domestic demand. Household spending increased 0.5% in the first quarter, which contrasted the fourth quarter’s 0.3% contraction. Elsewhere, government spending growth quickened to 0.4% in Q1 (Q4 2020: +0.1% s.a. qoq), while fixed investment dropped at a more moderate pace of 0.1% in Q1, compared to the 0.7% contraction logged in the prior quarter.
On the external front, exports of goods and services increased 1.3% on a seasonally-adjusted quarterly basis in the first quarter, which was well below the fourth quarter’s 6.4% expansion. In addition, growth in imports of goods and services softened to 1.4% in Q1 (Q4 2020: +3.6% s.a. qoq), marking the worst reading since Q2 2020. As such, the external sector was balanced in Q1, neither contributing to nor subtracting from overall growth, following Q4 2020’s 1.4 percentage-point contribution.
Looking ahead, recent data indicates an improving albeit still-muted picture in the second quarter of the year. PMIs for April showed a continued improvement in the manufacturing and services sectors, while retail sales grew at a robust pace amid surging consumer confidence. Moreover, both merchandise exports and imports increased strongly in the first month of the quarter—likely reflecting improving demand dynamics both at home and abroad—although elevated daily coronavirus infections are a cause for concern in the coming months.
Commenting on the Q1 result and the outlook, Pernilla Johansson and Maria Wallin Fredholm, analysts at Swedbank, stated:
“The [Q1] estimate was somewhat lower than the preliminary figure, but on the other hand the previous quarters were revised upwards. Compared to our and the Riksbank forecast from April, GDP reached the pre-pandemic level much faster than expected. […] We expect the better momentum in the economy to continue, and that activity picks up substantially in the coming quarters. In all, the data so far has surprised on the positive side, which puts an upside risk to our forecast of GDP growth at 3.5% for this year.”