Swedish economic growth likely to have declined in Q3 2018, consumption to stay sluggish

The Swedish third quarter economic growth data is set to be released this week. According to a Nordea Bank research report, the third quarter GDP growth is likely to undershoot the central bank’s forecast.

“We see Q3 GDP down by 0.3 percent q/q and up a mere 1.7 percent y/y. Our call is well below the Riksbank’s forecast at +0.3 percent q/q and 2.3 percent y/y”, stated Nordea Bank.

However, the Riksbank is expected to hike the interest rates in December. The central bank will focus on the fact that resource utilization is high and the labor market tight, in spite of the deceleration in growth.

However, the softer than anticipated GDP growth would be of some worry to the central bank. Moreover, the Riksbank would be anxious regarding inflation, declining oil prices and stock market turbulence, highlighting that a rate hike is not a done deal. If the central bank does not hike in December, then there is a risk that there would be no rate hike in the near term at all, stated Nordea Bank.

The temporary factors are likely to wane and the fall in the third quarter GDP is probably not the start of a recession. Sentiment indicators are still at healthy levels and GDP should be better for the fourth quarter.

“Car sales were low also in October and the drop in household consumption has a scary good correlation with house prices, suggesting that consumption will remain sluggish. In addition, exports have stagnated so far this year and there are few signs of any marked uptick in the near term”, added Nordea Bank.