Sweden: Great Domestic Product

Swedish GDP Q4 beats all expectation with positive surprises from both exports and private consumption. Inventories lifted y-o-y GDP growth by a full 1.5% point, even somewhat higher than we had pencilled in. But we don’t regard inventories as problematic since the stockbuilding partly stems from higher activity in the economy.

Equally important was that growth for previous quarters were revised up. For the full year 2013 GDP grew by 1.5% compared to 2012, which is higher than our previous forecast at 1.0%. The current development is more consistent with labour market developments during last year.

Although today’s figures were genuinely strong some temporary factors were at play. For instance central government consumption increased by a whopping 6.3% due to temporary defence expenses. This should reverse in Q1 2014. Also, the contribution from inventories could reverse in coming quarters.

Nevertheless, the stronger activity during the second half of 2013 will raise growth estimates for 2014. The higher growth clearly reduces the likelihood for the Riksbank to cut rates further in April. But it is not a done deal as the Riksbank currently zooms in on inflation and the upcoming February inflation reading will be key. Despite better growth prospects, the persistently low inflation suggest that rate hikes still are distant.

Details, Q4 GDP components:
GDP: 1.7 % q/q (Nordea 0.8; consensus and Riksbank 0.6; prior 0.5 revised from 0.1)
GDP: 3.1% y/y (Nordea 1.5; consensus and Riksbank 1.1; prior 0.6 revised from 0.3)

Household consumption: 2.0% y/y (Nordea 1.6)
Gov. consumption: 3.2% y/y (Nordea 1.0)
Fixed investments: 0.0% y/y (Nordea 0.7)
Inventories, growth contribution: 1.5%-point (Nordea 1.0)
Exports 0.3% y/y (Nordea -1.3)
Imports: 1.0% y/y (Nordea 0.0)