Sweden’s Growth Surprise Lowers Chances of Riksbank Stimulus
Sweden’s economy grew faster than expected for the second quarter in a row, further reducing the likelihood that the Riksbank will add more stimulus to aid the recovery.
Gross domestic product grew 0.9% in the April-to-June period, according to a flash estimate from Statistics Sweden. Economists surveyed by Bloomberg predicted a 0.7% expansion, while the central bank had forecast 0.4%.
The Nordic nation’s export-driven economy has recovered its pre-pandemic size much faster than most industrialized nations. The country also had a relatively smooth transition to work from home, and its generous welfare system helped absorb the impact on jobs and consumption.
Sweden’s central bank, one of the most dovish in the G-10 sphere of major currencies, has held off on signaling when it would raise borrowing costs above zero. With inflation remaining below the Riksbank’s 2% target and the pandemic weighing on the economic outlook, several policy makers have even indicated readiness to cut rates if inflation prospects weaken.
Further monetary loosening looks increasingly unlikely following Thursday’s data, according to analysts.
“The strong trends make a rate cut or other stimulus measures less likely, while any tightening move from the Riksbank remains distant,” Torbjorn Isaksson, an economist with Nordea, said in a research report. The growth surprise suggests full-year expansion will exceed both his own forecast of 4.5% as well as the 4.2% seen by Riksbank, he said.
In another surprise indicating the strength of the recovery, the overall confidence level in the Swedish economy climbed to a record in June, driven by the manufacturing sector.
Having backed off its early laissez-faire approach to the pandemic by the end of 2020, Sweden has gradually eased its curbs on movement this year.
In the corporate sphere, Volvo Cars posted record first-half revenue and operating profit last week, including a 41% surge in vehicle sales. Still, it said it expects roughly flat second-half deliveries due to semiconductor supply shortages. Construction firm Skanska AB’s second-quarter net income also beat estimates, as the nation’s housing boom spurs demand for new homes.
“We expect the economic momentum to continue as vaccinations proceed and restrictions are eased,” Swedbank’s economists Knut Hallberg, Carl Nilsson and Glenn Nielsen said in a report. “Still, the recovery hinges on a positive virus development and any backlashes could weigh on optimism ahead, as could further supply-side problems for firms.”
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