Sweden: The Swedish economy picks up in Q2 according to revised data
September 20, 2016
The Swedish economy lost steam in the first half of this year in comparison with 2015, although it remained amongst the best performing Nordic economies, which are suffering as the stagnation in global demand puts the brakes on their key exports sector. In the second quarter of 2016, GDP growth came in at 0.5% on a seasonally-adjusted quarter-on-quarter basis, outpacing July’s flash estimate of 0.3%. The result was above the revised 0.4% logged in the first quarter of 2016 (previously reported: +0.5% qoq) but it slightly undershot market expectations of a seasonal-adjusted 0.6% increase.
On the domestic side, public expenditure was high and fixed investment growth accelerated. Government consumption recorded a 1.2% expansion in Q2, doubling the 0.6% qoq increase logged in the first quarter of this year, as efforts continued to support the unprecedented number of refugees that have arrived in the past two years. Fixed investment stayed at high levels, inching up a notch from Q1’s 1.7% rise to a 1.8% increase in the three months to June. Nevertheless, a strong drop in private consumption more than offset the expansion in investment and public spending, making domestic demand growth decelerate to 1.0%. This was below the 1.2% increase logged in the previous quarter and marked the lowest value since September 2015. Indeed, private consumption decelerated from the 0.7% expansion in Q2 to a seven-quarter low of 0.1% growth.
On the external side, a slower decrease in exports and a slower increase in imports helped the economy to accelerate in Q2. Exports, which posted strong growth throughout most of 2015 as the krona fell to historically-weak levels against the euro, dropped a to an eight-quarter low in the first quarter of this year and decreased 0.6% over the last quarter of 2015, but recovered some ground in the second quarter of 2016 and shrunk only 0.4% over the previous quarter. In Q2, the krona appreciated somewhat, which may have contributed to the further deterioration of exports. At the same time, imports slowed from a 1.0% increase in Q1 to a 0.8% expansion in Q2, which was the lowest value in four quarters. As a result, the external sector’s net contribution to overall economic growth improved from Q1’s minus 0.7 percentage points to minus 0.5 percentage points in Q2.
On 20 September, the government presented its 2017 budget bill to the Riksdag, the unicameral parliament, announcing an expansionary plan for next year. The main measures planned are a strengthening of the welfare system, with important investments in the health, education and social services sectors. Authorities have also added extra spending for the municipalities which have received most refugees. The reforms plan totaled SEK 23.6 billion, which the government expects to raise in part by increasing taxes on chemicals and alcoholic beverages as well as higher income taxes. An important part of the reforms will also be funded by an increase in borrowing.
In annual terms, GDP growth slowed from 4.2% in Q1 to 3.4% in Q2, which marked the lowest reading since March 2015.
Author: Andrea Vetrugno, Economist