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Sweden’s sharply rising residential construction activity boosted GDP growth in the first quarter, which looks set to beat the central bank’s forecast. Strong growth and high resource utilisation do not alter the monetary policy outlook. The stable pay deals recently set show the international rather than the domestic situation and make it less possible that inflation would reach the highs desired by the central bank.
“Our analysis suggests that GDP expanded by 1.2 percent q/q and 3.2 percent y/y, 0.4 percent point above the bank’s forecast”, said Nordea Bank in a research report.
This is a widespread rise, driven by residential construction at record levels. The latter is expected to accelerate GDP growth by a strong 0.5 percentage point sequentially and 1 percentage point year-on-year, stated Nordea Bank. It is evident that monetary policy has fed through in full to the housing market.
Households are active on the property market, but spending is toughened and indicates a modest growth. Public consumption and non-residential investment are also rising, while inventories hurt on growth both quarter on quarter and year-on-year.
Swedish exports’ outlook is brighter than for a long time. Earlier this year, exports of goods were sluggish, though. Foreign trade in services is expected to have seen a better trend even though indicators for these are missing.
Business sector production witnessed even stronger growth than implied by exports, spending. Consequently, production data indicates toward upside risks to forecast. These upside risks include optimistic sentiment indicators.
The Swedish economy shows a solid trend, that is probably better than anticipated by the Riksbank. The conflicting forces of high resource utilization and an accommodative monetary policy will deepen. More and more observers would possibly question the bank’s monetary policy line against backdrop of the high economic activity, added Nordea Bank.
