Swedish economic growth decelerates year-on-year in Q3, domestic demand disappoints

Sweden’s third quarter economic growth came in consistent with the Riksbank’s view. The economy expanded 0.5 percent on a sequential basis and 2.8 percent year-on-year in the September quarter. This is very much in line with the central bank’s projection. The first quarter economic growth was unrevised, whereas the second quarter GDP growth was upwardly revised by 0.2 percentage points to 3.6 percent year-on-year. The Swedish economy slows in annual terms.

The third quarter economic growth is considered to be weaker than projected as domestic demand disappointed on all significant components, noted Nordea Bank in a research report. Household consumption in the third quarter remained flat. It rose just 1.7 percent year-on-year. Meanwhile, household consumption for the second quarter was downwardly revised by 0.3 percentage points to 2.2 percent year-on-year. Furthermore, fixed investments and government consumption was evidently lower than projection.

Government consumption growth might have peaked after the previous upsurge. Exports performed better than expectations, both for goods and services, balancing the unexpected subdued domestic demand, said Nordea Bank.

The weaker than anticipated domestic demand is not a welcome news for the Swedish central bank, as it requires a robust domestic economy for inflation to rise. The focal point is on the current and too low inflation; however, the figures released today supports the view of additional stimuli measures in December, added Nordea Bank.

Unit labor cost was the only hawkish figure, which rose to 2.5 percent year-on-year. But it appears slightly lower than the Riksbank’s call at 2.3 percent for FY 2016 as the outcome was low in the first half of 2016, stated Nordea Bank.