Swedish economic growth undershoots expectations in Q1, Riksbank to remain dovish in near future

The Swedish economy expanded below the consensus expectations in the first quarter of this year. The GDP grew just 0.4 percent on a sequential basis, whereas it rose 2.2 percent on a year-on-year basis. Riksbank had expected the economy to grow 2.8 percent. Furthermore, the fourth quarter economic growth was downwardly revised by 0.2 percentage points to 2.1 percent year-on-year, mainly because of lower public consumption and fixed investments.

Exports of services dropped 4.3 percent sequentially, as compared with the expectations of a rise. Goods exports were slightly better than anticipated. Meanwhile imports were high, and therefore the net exports were significantly lower than expectations. Public consumption also came on the low side. Inventories came in higher than projection; however, it is unlikely to be a drag on growth going forward.

Household consumption and fixed investments were consistent with projections. Household consumption in on an upward trend; however, it is not impressive. The retail sales recovered in April. Households are more active on the property market, while housing investments are currently a vital growth driver. On the other hand, productivity was soft.

Overall, the Swedish economy is solid in spite of the dismaying performance in the first quarter. The softer than anticipated growth is unlikely to set off any further stimuli measures from the central bank; however, the outcome underpins the view that bank would continue to be dovish for the near future and will hike the rates in the second half of 2018, noted Nordea Bank in a research report.