Consumption in Sweden

Sweden - Consumption

Economy expands in Q2; reaches pre-pandemic levels

The economy expanded 0.9% in seasonally-adjusted quarter-on-quarter terms in the second quarter of 2021, picking up from the 0.8% increase logged in Q1 and matching the estimate in the preliminary Q2 release. Meanwhile, on an annual basis, GDP grew 9.7% in Q2, down from the initial estimate of a 10.0% rise. However, the print still marked a notable improvement from Q1’s 0.2% decline and a return to pre-pandemic levels.

The quarterly acceleration came on the back of improving domestic demand. Growth in private consumption picked up pace in the quarter (Q2: +1.0% s.a. qoq; Q1: +0.8% s.a. qoq), likely bolstered by higher employment levels, as well as higher household disposable income. Moreover, fixed investment expanded at a quicker rate of 3.8% in Q2 (Q1: +0.8% s.a. qoq). Lastly, government spending also increased in Q2, albeit at a more moderate pace of 0.8% following Q1’s 1.0% rise.

Meanwhile, the external sector weighed on the overall reading. Exports of goods and services dropped 1.1% on a seasonally-adjusted quarterly basis in Q2, swinging from the previous quarter’s 0.6% expansion. Meanwhile, growth in imports of goods and services eased to 0.7% in the second quarter (Q1: +1.7% s.a. qoq), both marking the worst results since Q2 2020. Consequently, the external sector subtracted 0.8 percentage points from overall growth, worsening from the 0.4 percentage-point detraction in Q1.

Looking ahead, available data suggests the economy will continue to grow in the remainder of the year. Upbeat business and consumer sentiment, coupled with higher employment levels, bode well for spending and investment. Moreover, PMI data for July continued to show improving conditions in the manufacturing and services sectors, while retail sales expanded in the same month. Additionally, the continuation of expansionary monetary policy should further bolster activity. However, lingering uncertainty over the pandemic clouds the outlook, as restrictions would likely be tightened once again if infection rates surged.

FocusEconomics Consensus Forecast panelists project GDP to grow 3.9% in 2021, which is up 0.2 percentage points from last month’s forecast, and 3.4% in 2022.