Swedish GDP stronger than expected in Q1, outlook cloudy

ROBUST exports helped Sweden’s economy to perform much better than expected in the first quarter, final GDP data published by the Statistics Office showed on Tuesday (May 30).

Gross domestic product (GDP) expanded 0.6 per cent compared to the previous quarter and 0.8 per cent compared to the same quarter a year earlier.

Flash figures published in April had put growth at 0.2 per cent compared with the fourth quarter and 0.3 per cent compared to the first quarter of 2022.

The economy shrank in the final quarter of 2022.

Before Tuesday’s figures, most analysts – and the central bank – expected the economy to contract overall this year as a cost of living crisis and higher interest rates have hit consumers and businesses alike.

“The GDP data was a positive surprise and indicate that our forecast of a decline just over 1 per cent this year is probably too pessimistic,” Swedbank said in a note.

However, the outlook remains uncertain.

While recent data has been robust, with employment holding up and retail sales increasing, housing starts fell around 50 per cent in the first quarter and many consumer-oriented businesses are struggling.

Consumer sentiment improved slightly in May, but remains at depressed levels, fresh data on Tuesday showed.

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Furthermore, the Swedish crown has been trading around its weakest levels against the US dollar and euro in well over a decade and central bankers are worried that could add to inflationary pressures if the weakness persists.

That would force the Riksbank into more rate hikes and the crown strengthened slightly after the data.

Central bank deputy governor Per Jansson described the economy on Monday as “two-speed”, making the Riksbank’s task in setting rates all the more difficult.

The central bank raised the policy rate to 3.5 per cent in April and forecast just one more quarter-point hike to come – in either June or September – as inflation pressures ease.

Markets see a strong chance of further rate hikes.

While Sweden’s economy is in general seen as much more sensitive to rate hikes than most of Europe and forecasters had expected it to be among the worst performers this year, the figures were better than those for Germany, the motor of the European economy.

Gross domestic product fell by 0.3 per cent in Germany in the first quarter of the year following a decline of 0.5 per cent in the previous quarter, meaning the economy is in a technical recession. REUTERS