Swedish economy grows year-on-year in Q1 2018, growth likely to decelerate

The Swedish economy indicated good growth in the beginning of the year. On a sequential basis, GDP grew 0.7 percent, while it rose 3.3 percent year-on-year. The quarterly growth rate was just above the central bank’s forecast of 0.6 percent. GDP growth for the second half of last year was downwardly revised though. The fourth quarter growth was downwardly revised by 0.4 percentage point to 2.9 percent year-on-year. The downward revision was spread on several components.

The main surprise for the first quarter was fixed investment, rising by a full 2.8 percent on the quarter and 6.8 percent year-on-year. Construction, including housing, made the biggest contribution, which was surprising. But, much imply that construction investment would fall and be a drag on GDP growth.

Household consumption grew 2.2 percent year-on-year. This was below forecast. The reading was rather subdued considering that temporary factors, such as high energy consumption and food purchases ahead of Easter, probably boosted consumption. Therefore there are questions about how households react to the softening housing market, which is underlined by the fall in consumer sentiment.

Exports were softer than anticipated. Especially exports of services were subdued, falling on the quarter while the expectations were for them to rise. Exports of services, a previous growth driver, have been virtually unchanged the past two years.

The number of hours worked was low and productivity rose. Until labor cost came out in line with the Rikabank’s projection.

Overall, the economic growth report was consistent with forecasts. While GDP growth was downwardly revised for last year, momentum was better than expected during the start of this year. But, the main driver in the first quarter was fixed investment, which is set to slow markedly.

“Indicators for the euro area have tipped off and recent turbulence in Italy makes the global outlook more uncertain. We forecast GDP growth to slow this year, undershooting the Riksbank’s forecast”, added Nordea Bank.

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