Swedish investment growth likely to disappoint next year

Investment growth in Sweden, in the last couple of years has been quite solid, predominately because of surging housing investments. Quarterly growth rates in housing investments at times have surpassed 30 percent AR. Housing investments growth were high in the initial three quarters of this year, surpassing 20 percent. However, outside of housing, developments have been quite less benign and the main source of information about the investments outlook has deteriorated with every new edition, said Danske Bank in a research report.

“For the full-year 2016, we estimate that housing investments growth will average 18 percent y/y (vol, wda) and that growth will be a still solid 8 percent y/y (vol, wda) in 2017”, added Danske Bank.

But as the housing market settles and major projects are finished, a rapid slowdown to 2.1 percent year-on-year in 2018 is expected. Indeed, given continuous low supply and low financing costs, there are certain risks on the upside to this forecast.

However, the ‘underlying’ investment growth, business sector investment growth is surprisingly weak and has rarely averaged more than 5 percent year-on-year. This is believed to be below replacement rates, signifying that Sweden’s business sector capital stock has been reduced in the past few years. However, there is no evidence of a more buoyant investment cycle in the forecast horizon.

Thus, in all, investments are likely to expand at a subdued 2.3 percent year-on-year next year after a still robust 6.2 percent year-on-year this year.

“In 2018, and following Statistics Sweden’s investment survey closely, we expect investments to grow 2.1 percent y/y (vol, wda)”, said Danske Bank.