For years Swedish GDP-growth has been admirably strong, averaging 2.75% since 2010. As a case in point, in 2016 GDP-growth was a strong 3% y/y (vol., w.d.a.).
In our book, the high growth rates are mainly the result of the significant economic policy stimuli over the past 10 years. A back-of-the-envelope calculation suggests that lower interest rate costs and tax cuts have added some SEK8,000 (net) per month in purchasing power for the indebted median household! In addition, public finances have been net stimulative to GDP.
No wonder that consumption (and housing) explain almost all of the growth during the past years, contributing in excess of 2.25pp to the 2.75 y/y average GDP-growth since the crisis. We have long questioned the sustainability of this, fearing that economic policy is conducting yet another failed bridge policy experiment.
On this the jury is still out, but we are pleased to see that over the past year, as the impetus to domestic demand growth is being scaled back, external demand is at least showing some tentative signs of amelioration.
All in all then, GDP-growth is normalising in terms of strength, gradually gravitating down to what we believe to be long-term sustainable, i.e. circa 1.5% y/y. However, GDP is also normalising in terms of composition, as external demand seems to improve, while domestic demand growth is gradually decelerating.
When Statistics Sweden (SCB) publishes GDP for Q1 17 on Tuesday (30 May at 09.30 CET), we expect this 'normalising' pattern to continue. Due to strong calendar effects in Q1 (since Easter has moved from 2016), actual GDP-growth could very well reach 4%, but when adjusting for the number of working days and the Easter-effect, GDP should come in closer to 2.5% y/y (Riksbank says 2.78%). This is well in line with our ex ante forecasts and official GDP-forecast of 2% y/y (vol., w.d.a.) in 2017.
We also have access to very stable and reliable forecast of hours worked in N/A-terms, which point to an increase of 3.5% in actual terms and slightly above 1.5% in calendar-adjusted terms. Hence, productivity growth will still be measly, somewhere between 0.25 - 0.75% y/y. Since labour costs (hourly wages) are growing quite slowly, this will, unfortunately, not suffice to stir any inflationary cost pressures.
Risks? Of course! Survey data (NIER's confidence data, PMI etc.) point to strong upside potential but they are anything but stable indicators, which is why we tend to look past those. Nonetheless, as implied by our forecast, real data also suggest strong growth with investments, consumption and exports all accelerating in q/q-terms. Inventories and public expenditures, both notoriously difficult to forecast, seem to be pushing in the other direction.
Under any circumstances, should our forecast prove reasonably right, also in terms of composition, it suggests some upside to Q2 GDP-growth.
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