Sweden: Q2’s growth revised down but still points to healthy momentum
According to comprehensive figures released by Statistics Sweden on 13 September, the economy expanded 0.8% in Q2 over the previous quarter in seasonally-adjusted terms. As anticipated, this marked a downward revision from the preliminary estimate of 1.0% growth. However, the figure is still significantly higher than initial market expectations, partly due a more favorable base of comparison after Q1’s growth figure was revised down markedly from 0.8% to 0.5%. In working-day adjusted year-on-year terms, growth was 2.5%, down substantially from the initial estimate of 3.3% (Q1: +2.8% yoy). Despite these notable revisions, the underlying economic picture for the quarter was largely unchanged; domestic consumption was healthy, investment slipped and the external sector strengthened.
On the domestic scene, private consumption growth increased from 0.5% in Q1 to 0.9% in Q2 despite weaker consumer sentiment, likely supported by a healthy labor market and wage gains. In addition, government spending picked up to 0.3% (Q1: +0.2% qoq). In contrast, fixed investment declined on a tough prior quarter comparative (Q2: -0.5% qoq; Q1: +2.5% qoq).
Exports of goods and services were up 0.4% (Q1: 0.0% qoq), likely supported by solid activity in regional trading partners, while imports increased 0.8% (Q1: +0.9% qoq). As a result, the external sector subtracted 0.1 percentage points from growth, following a 0.4 percentage-point subtraction in the first quarter.
Going forward, growth is likely to continue outpacing the EU average, as high capacity utilization and strong sentiment spurs business investment, export growth stays solid and fiscal policy becomes more supportive. On the other hand, the weaker housing market will likely dampen residential investment. Downside risks stem largely from elevated household debt levels—particularly once monetary conditions tighten—and greater global protectionism.
Recent general elections which resulted in a fractured parliament are unlikely to significantly dent economic momentum in the near term, as the economy benefits from strong fundamentals, such as a competitive business environment, an enviable fiscal position and a robust institutional framework. However, if a weak government is formed which is unable to pass substantive structural reforms, this could limit growth prospects in the longer term.