Strong rise in disposable income likely to provide solid backdrop to Swedish consumption outlook

For a few years, Sweden’s employment growth has been close to or slightly above 1.5 percent year-on-year. This has helped push the jobless rate down from around 9 percent to lower than 7 percent at present. But, as Sweden has also seen a robust arrival of labor from large young age cohorts entering the labor market and from working age immigrants, the jobless rate has began stabilizing at current levels.

This influx of labor is expected to continue for a few years that would keep the jobless rate elevated, in spite of likelihood of solid employment growth. Only in the winter of 2018/2019 the jobless rate is likely to reach the estimate of a non-accelerating inflation rate of unemployment to 6.5 percent, according to Danske Bank.

Even if low nominal hourly wage growth is expected, solid growth in hours worked and low inflation suggest that real incomes would post decent growth rates in 2016-2017. Disposable incomes are expected to grow 2.5 percent year-on-year this year and 2 percent next year, giving a strong backdrop to the consumption outlook, said Danske Bank.

Developments in the savings ratio have been slightly enigmatic since the global financial crisis. Savings ratio has continued to rise and is at around 16 percent at present of disposable incomes.

“After a long period of strong, if volatile, consumption growth we foresee a gradual decrease over the coming years”, noted Danske Bank.

This year, consumption growth is likely to come in at 2.1 percent year-on-year, slightly above historical averages. Next year consumption is anticipated to expand 1.3 percent, a tad below historical averages; however, explained by continued high savings ratio and slower disposable income growth, stated Danske Bank.