Sweden’s Economic Growth Surprise to Cool Rate Cut Speculation

Sweden’s economy expanded more than expected in the first quarter, a surprise that’s likely to silence calls for the Riksbank to cut interest rates below zero again to accelerate the recovery.

Gross domestic product grew 1.1%, Statistics Sweden said. Analysts polled by Bloomberg expected a 0.5% expansion, slightly below the central bank’s forecast.

The figures add to evidence showing the largest Nordic economy recovering faster from the pandemic than many European nations. Data released earlier on Thursday showed overall economic confidence surged to a decade-high this month.

The rebound also lowers the chances of Riksbank returning to negative rates after raising the benchmark back to zero in 2019.

“The strong trends make a rate cut or other stimulus measures less likely,” Nordea’s economist Torbjorn Isaksson said in a report. Still, “it is not likely that inflation will be high enough for the bank to take the foot off the accelerator,” he said.

With the vaccination pace lagging that of many other advanced economies, the Riksbank signaled this week it won’t be withdrawing monetary stimulus anytime soon despite a brighter economic outlook. The Swedish krona was little changed after the GDP release.

What Bloomberg Economics Says...

“The unexpectedly strong GDP data coupled with a temporary increase in inflation should lessen speculation that the Riksbank may still resort to negative rates after expanding bond-buying in November. It may even increase pressure on the central bank to hint a withdrawal of stimulus. Nevertheless, with much of the global economy still grappling with a surge in Covid-19 infections we expect Governor Stefan Ingves and his colleagues to stay on hold.”

--Johanna Jeansson, economist. Click here for the full REACT.

Sweden’s economic growth stands in contrast with the euro area, where economists expect GDP to have contracted in the first quarter.

Truck maker Volvo Group and appliance manufacturer Electrolux were among the Swedish companies that reported higher-than-expected earnings for the quarter as demand for their products surged.

Even so, Sweden’s recovery has largely excluded the services industry after the spread of new virus strains forced the government to give up its earlier anti-lockdown approach.

©2021 Bloomberg L.P.

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