Swedish Growth Probably Slowed Significantly During Q1

Last year, Sweden had the strongest growth rate (4.7% in calendar adjusted terms) for a long time, as investments boomed and consumption increased significantly, and yet despite this the trade surplus rose somewhat. This was the result of several factors, both positive and sound ones like favorable demographics and reduced tax and spending burden and not so sound ones, like high monetary growth. Also, strong growth driven similarly by both sound and unsound factors in neighboring countries like Denmark, Norway and the Baltic countries helped boost Swedish exports.

The signs are increasing that growth is slowing. The Swedish statistical bureau now reports that their so-called activity index, which are meant to give a early approximation of GDP, only rose 2.7% in the year to March. While this activity index has not always been reliable, there are severeal reasons to believe that growth has fallen.

In particular, the trade surplus have again started to fall after the somewhat surprising uptick last year. Moreover, retail sales increased somewhat less than before. This is somewhat ominous given the continued strength in monetary growth.

Cyclical growth should again get a boost from the housing tax reform, but the likely weakness in first quarter growth, if sustained, certainly bodes ill for the medium-to long term prospects for the Swedish economy.