Wednesday, May 09, 2007

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.


Blogger Ernesto said...

Please help with this matter in Sweden. I think it is an urgent matter of political and economic ignorance that must be addressed. Thank you.


5:25 AM  
Anonymous Anonymous said...

I am now teaching an introductory class on Business government relations for economics undergrads in Ecuador.
We are looking at the economic policies regarding the Monetary Union and the Stability and Growth Pact. Several questions
arose from today’s discussion and I’ve been trying unsuccessfully to look for answers in the ECB web page and in France’s and
Spain Central Bank. I would ENORMOUSLY appreciate and be very honored if I could please get your insight on the following
If monetary policies and control are under the ECB, why Central Banks in the member countries still exist?
Who and how is Money Supply determined? Is this done by each country’s central bank under supervision of ECB?
If money is injected into a country’s economy by the ECB, why worry about inflationary pressures (if the quantity of money is
controlled by ECB), why worry about debt and the other considerations of the Growth and Stability Pact? (If ideally the Bank
will never monetize debt or condone any activity that will jeopardize price stability—since it is it’s main purpose—

Thank you very much. I really appreciate your answers to these questions that got my thinking about the independence of the ECB.

5:17 AM  

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