Residential construction activity driving Swedish economic growth

Sweden’s economic growth accelerated in the first half of 2017 following a weak patch at the end of last year. Growth was mainly driven by residential construction activity. In the first half of this year, around one third of GDP growth was due of residential construction.

For the past couple of years, rising construction activity and housing-related private consumption have been mainly boosting economic growth in Sweden. This also indicates towards the widespread risk that such unilateral growth poses for the future, noted Danske Bank in a research report. If residential construction continues to be unchanged, it would lower growth by one percentage point. If the level of construction activity returns to the level of 2015 it would reduce growth by an additional percentage point. This shows how the economy is sensitive to alterations in the outlook for residential construction and the demand for housing.

However, the rebounding Swedish labor market is also a factor boosting the apparent growth success. The still relatively high Swedish jobless rate is often seen as a major issue. The employment rate and the activity rate are at the highest levels seen in decades, signifying signs of strength. The flip-side of employment-driven growth is that GDP and income per capita expand at a slower pace, suggesting welfare gains are less successful.

The traditional growth engine, which is manufacturing exports, continues to be there but has seen a few tough years during the financial crisis.

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