Sweden’s Strong Growth Gives Hope to Central Bank

Sweden’s already piping hot economy racked up firm growth in the fourth quarter, an outcome that was roughly in line with market expectations and that reinforced the spotlight on the central bank and its ultra-loose monetary policy.

Gross domestic product grew 1% in October through December compared with the previous quarter and rose 2.3% from a year earlier, the statistics office said on Tuesday. Economists polled by Reuters had expected a 0.9% expansion on the quarter and a 2.4% rise from a year earlier. GDP grew 3.3% for the full year 2016 compared to the previous year.

“The Swedish economy is doing well. That picture is enhanced (by today’s figures) and it is also the image we get from statistics received earlier in the year,” said Elisabet Kopelman, economist at Swedish bank SEB.

The outcome was also well above the Swedish central bank’s own outlook where it had forecast year-on-year growth of 2.15% in the final three months of last year.

Separately, statistics showed retail sales rose 2.2% year-on-year in January and 1.3% from the previous month, an outcome that was also above analysts’ expectations.

Sweden’s central bank held rates unchanged at -0.50% earlier this month and retained its view that more cuts could come, surprising some analysts who had expected it would signal that five years of ever looser policy had come to an end. “We believe that we will eventually see a reversal in monetary policy, and this can provide support for future rate hikes,” Kopelman said.

Sweden’s economy has been running on all cylinders, thanks in part to investments designed to address a housing shortage and care for a record number of immigrants from war-torn countries like Syria and Iraq, Bloomberg reported.

 “Exports are picking up” thanks to a weak currency and an improved outlook for the global economy, Robert Bergqvist, chief economist at SEB AB in Stockholm, said in a telephone interview. That raises the likelihood that the central bank will start raising rates already in December. That’s sooner than the Riksbank’s forecast of early next year.

Despite the economy slowing from its 2015 peak, the Riksbank predicts inflation will pick up and stabilize around the target next year. Since its Feb. 15 meeting, a number of Riksbank board members have stressed that they’re not in a hurry to tighten policy until inflation is back on firm ground. The Riksbank will publish minutes from that meeting on Wednesday.