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Sweden GDP Q3 2020

Sweden: Growth hits multi-year high in Q3

GDP expanded 4.9% on a seasonally-adjusted quarter-on-quarter basis in the third quarter, rebounding strongly from the 8.0% contraction clocked in the second quarter and notably above the 4.3% expansion estimated in the preliminary Q3 release. Meanwhile, on an annual basis, economic activity fell at a more moderate pace of 2.5% in Q3 from the previous quarter’s 7.4% decline.

The quarter-on-quarter upturn reflected a quick return to growth in private consumption and exports, as both domestic and international activity benefited from an easing of pandemic-related restrictions in Q3. Domestically, household spending surged 6.3% in seasonally-adjusted quarter-on-quarter terms in Q3 (Q2: -7.9% s.a. qoq), marking the fastest rate since at least 1990. Public consumption also bounced back, growing 2.0% in Q3 (Q2: -1.8% s.a. qoq) as fiscal stimulus finally flowed through into the economy. Lastly, fixed investment growth hit an over two-year high of 2.4% in the third quarter (Q2: -4.0% s.a. qoq).

On the external front, exports of goods and services returned to growth, rocketing 11.2% in Q3 (Q2: -17.9% s.a. qoq) as international demand improved and supply chain disruptions reduced. In addition, imports of goods and services rebounded, growing 9.2% in Q3 (Q2: -12.8% s.a. qoq). As such, the external sector contributed 1.3 percentage points to the overall reading.

Looking ahead, recent data indicates a muted fourth quarter: PMIs for October and November showed a continued improvement in manufacturing and services sectors, while retail sales for October grew strongly. However, both consumer and business confidence dipped in November following a surge in daily coronavirus infections, which led to stricter limits being implemented in an effort to contain the spread. Nevertheless, as with the first wave of the pandemic, the restrictions put in place remain less punitive than those imposed in other European countries.

Regarding the outlook, Lisa Alexandersson, senior economist at JPMorgan, commented:

“We think the softer approach will not save Sweden from seeing a small contraction in activity in the near term, but, due to the lack of lockdown measures, we think the decline will be smaller in size relative the Euro Area. We forecast GDP growth of -0.1%q/q ar in 4Q, and -1.0% in 1Q21. We then expect a strong rebound to take place from 2Q21, as a vaccine becomes available, which will take the level of GDP back to pre-crisis levels by 4Q21.”

Las Olsen and Jens Nærvig Pedersen, economists at Danske Bank, concur, commenting:

“There is strong evidence to suggest that the economic impact of the second wave of Covid-19 will be more asymmetric in nature than was the case in the first wave in spring. Currently, there is nothing to suggest that manufacturing is under pressure but rather the opposite, as suggested by improving PMI and export data. […] Overall, thus far, there is little to suggest that Sweden will experience a GDP ‘double dip’ in Q4.”

However, analysts at Swedbank are less positive for the short-term outlook, stating:

“Going forward, we forecast a slight drop in growth for Q4. Although retail sales data for October remained fairly stable, card transactions data from Swedbank Pay show a marked drop in consumer spending during November, led by lower services consumption. The recovery will be bumpy and there is a great deal of uncertainty.”

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