Sweden's Economic Growth Surge May Be Too Good to Be True

(Bloomberg) -- Sweden’s economy expanded twice more than forecast in the second quarter, driving the krona higher as speculation grew that the central bank will raise interest rates later this year. But the data may have been too good to be true.

Second quarter data is usually subject to large revisions when the final report is released in September. On average in the past 10 years Statistics Sweden has had to change the quarterly and annual growth figures by 0.3 percentage point and 0.5 percentage point, respectively, in either direction.

Sweden's Economic Growth Surge May Be Too Good to Be True

Suspicion is now high that a downward revision may be coming, given the surprisingly strong growth print and because underlying data leading up to the GDP report hadn’t really signaled that such a boom was underway.

Sweden's Economic Growth Surge May Be Too Good to Be True

“Maybe we should take this with a pinch of salt considering that we usually see downward revisions and as the figure was so strong compared to expectations," said Ylva Heden Westerdahl, director of forecasting at Sweden’s National Institute of Economic Research. “We’re also going to adjust our forecast upward, but maybe not by as much as this GDP outcome indicates."

The statistics agency only provides preliminary data for the second quarter to provide the government with figures for its autumn budget work. Last year, it was forced to lower its preliminary data for that period by 0.9 percentage point for the annual number and by 0.4 percentage point for the quarterly figure. That time, the agency had overestimated household consumption and investments, but underestimated imports.

Sweden's Economic Growth Surge May Be Too Good to Be True

Michael Bostrom, head of research at Danske Bank A/S in Sweden, said there are some issues with the methodology behind the flash estimate.

"When they measure GDP from the demand side, they get 2.7 percent in growth but when they measure it from the production side, which by definition should be the same, they reach 4.1 percent," Bostrom said. "So this 3.3 percent is more or less a guesstimate," he said, referring to the annual preliminary growth figure for the second quarter.

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