Sweden GDP Trouncing Estimates

Sweden’s economy grew at a considerably faster pace last quarter than predicted by analysts, adding to pressure on the central bank to focus on the timing of an exit from years of extreme monetary stimulus.

The gross domestic product grew 1.7% in the second quarter from the first three months of the year, according to preliminary figures. That was the fastest pace since the fourth quarter of 2010, and almost double the 0.9% estimate in a Bloomberg survey of economists.

The economy expanded 4% from a year earlier, compared with an estimated 2.7%.

“Wow,” was what Robert Bergqvist, chief economist at SEB AB in Stockholm, wrote in a tweet as soon as the numbers were out. “Finally we see a very strong Swedish GDP number” that puts the second quarter “in line with other indicators”.

A separate set of data on Friday showed that annual retail sales rose more than expected by analysts in June, while household credit growth, unemployment and manufacturing confidence all came in stronger than predicted, in reports published this week.

At Nordea Bank AB, Scandinavia’s largest lender, economist Torbjorn Isaksson noted that Friday’s quarterly GDP number was also a full 1 percentage point stronger than the estimate used by the Riksbank in its monetary analyses. The biggest surprises came from the strength of fixed investments and inventories, he said.

Scandinavia’s biggest economy is growing faster than the European Union on average, powered by an export industry that includes global icons such as Ikea, Volvo and Electrolux. Meanwhile, negative interest rates continue to support households. The central bank has made clear it’s unlikely to deviate too far from European Central Bank policy, with rates set to stay very low for a long time, despite Sweden’s strong economy.

“The Swedish economy continues to perform very well, with growth well above potential and mainly driven by the domestic sectors,” Isaksson said. “The Riksbank of course welcomes the strong growth, but monetary policy is still dependent on inflation outcomes and the ECB.”

At Svenska Handelsbanken AB, Lars Henriksson said the risk of revisions to the strong set of GDP numbers remains. The numbers should be treated with “caution,” he said.

But at face value, the report suggests that the hard data in the GDP report is now “catching up” with numerous other indicators pointing toward economic strength, Henriksson said.

The country’s economic strength has reassured investors trying to make sense of the nation’s political crisis. Analysts at Skandinaviska Enskilda Banken AB, one of Scandinavia’s biggest banks, say investors should brace for a period of turbulence in Swedish politics.