Swedish economic growth likely slowed on year-on-year basis in Q2 on deceleration in exports

In the second quarter of 2016, the Swedish economy continued to grow, based on certain projections. But the expansion seems to have decelerated when compared to the previous year’s solid growth numbers. According to a Nordea Bank research note, the Swedish economy is expected to have grown 0.5 percent on a seasonally adjusted basis. This pace of growth was witnessed in the first quarter and is below half the rise seen in 2015’s growth when GDP expanding 1.2 percent per quarter on average.

Deceleration in the exports growth is the main driver for the slowdown in the economic growth. For example, goods exports seemed to have been the same from the first quarter to second quarter following the rise in over two years in a row, stated Nordea Bank. The early Easter might have led to lower consumer spending in the second quarter as purchases ahead of the Easter were mostly made in March.

Furthermore, household consumption of energy is expected to have dropped after the unusually high readings during the start of 2016. However, fixed investment is likely to have grown further, along with public consumption in the second quarter.

The second quarter flash estimate of the GDP will be released on July 29. Given the available information during this stage, the risks to the central bank’s GDP projection of 0.7 percent quarter-on-quarter and 3.7 percent year-on-year for the second quarter are on the downside, according to Nordea Bank.

“Lower-than-anticipated growth will likely not be welcomed by the bank as this will reduce the probability of inflation meeting its 2 percent target”, added Nordea Bank.

However, the deviation against the central bank’s projection is small, and unexpectedly low growth is unlikely to urge the Riksbank to sanction additional stimulus. But it highlights that the first rate hike is a long way off, stated Nordea Bank.