Economy smashes market expectations in Q1

A second national accounts release revealed a notable turnaround in the Swedish economy in the first quarter, with GDP expanding 0.7% on a seasonally adjusted quarter-on-quarter basis. The upturn was an improvement from both Q4 2024’s flat reading and the preliminary estimate of a 0.1% quarterly contraction. The upturn overshot market expectations and was the strongest result since Q2 2022. On an annual basis, economic growth accelerated to a one-year high of 0.3% in Q1, following the previous quarter's 0.1% expansion.

The largest percentage-point contribution to quarterly growth was from inventories, which tend to be volatile and which are therefore not necessarily representative of the underlying health of the economy; net trade also contributed. Looking at other expenditure components, fixed investment rebounded, growing 0.6% in Q1, contrasting the 1.5% decrease logged in the previous quarter. Investments in weapon systems and equipment drove the rebound, while investments in dwellings fell further. Less positively, private consumption fell 0.3% in the first quarter, which contrasted the fourth quarter's 0.6% expansion. This was likely the result of falling employment, worked hours and household real disposable income. Meanwhile, public spending growth halved to 0.2% in Q1 (Q4 2023: +0.4% s.a. qoq). Turning to the external sector, exports of goods and services growth eased to 0.2% in Q1 (Q4 2023: +0.4% s.a. qoq), marking the weakest result since Q2 2023. Meanwhile, imports of goods and services flatlined in Q1 (Q4 2023: +1.0% s.a. qoq). As a result, net trade contributed positively to the overall GDP reading, adding 0.1 percentage points.

Our Consensus is for GDP growth to wane in sequential terms in Q2 after a surprisingly robust Q1 outturn, and then to accelerate slightly in H2. Overall in 2024, the economy should strengthen at a brisker pace than last year, while remaining tepid. A rebound in private consumption will spearhead the improvement: Lower average inflation—roughly a third of 2023’s level—and the trickling through to the real economy of the Riksbank’s interest rate cuts will aid purchasing power. Moreover, house prices are expected to rise this year from 2023’s plunge, boding well for household wealth and spending in turn.

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