Reuters
Sweden’s economy grew less than forecast in the second quarter, as exports were virtually flat, preliminary data showed, reinforcing expectations that interest rates will remain close to zero for at least another 12 months.
Gross domestic product rose just 0.2% from the first quarter, when it unexpectedly shrank, official data showed yesterday, lagging a Reuters poll forecast for 0.6% growth.
Economic recovery in export-oriented Sweden, whose strong public finances helped it weather the financial crisis relatively well, has been fitful - hampered by sluggish overseas demand as Europe struggles to shake off the debt crisis.
Policymakers and government officials have slashed their 2014 growth forecasts for Scandinavia’s biggest economy in recent weeks and the Swedish crown fell after the data on expectations interest rates could stay at a record low 0.25% until early 2016.
“The rebound in GDP that we had expected after the weak first quarter didn’t happen, which might indicate that 2014 will not be as strong as we expected. We have weak demand from abroad,” Magnus Alvesson, analyst at Swedbank, said after yesterday’s data.
“Regarding the Riksbank, today’s figures confirm the bank’s soft view of the Swedish economy.”
Private spending rose 1.0% from the first quarter while exports were up 0.1%.
From a year ago, the economy grew 1.9% in the second quarter, short of a forecast 2.4%, the statistics office said in its flash estimate used by the government as a basis for its 2015 budget bill.
The crown eased to 9.2435 against the euro at 1007 GMT, from 9.1920 before the data release.
Second-quarter results at Sweden’s main exporters have been mixed with truck maker Volvo and engineering firm Sandvik struggling amid weak demand, while Ericsson unveiled a forecast-beating recovery for its telecom network equipment.
The Swedish central bank cut its 2014 economic growth forecast this month to 2.2% from 2.7% pointing to a slow recovery in export markets, and slashed its key interest rate to a record low to fight stubbornly low inflation.
It predicts the repo rate will start to rise only at the end of 2015.
SEB analyst Olle Holmgren said the market was fully pricing in a first hike only in early 2016, and the market was pricing in a small chance of another rate cut this year.
“There is still a downward risk for GDP growth this year. In total this increases the probability that the Riksbank could lower rates further,” he said. “Indicators both here and internationally show that even if there is some recovery, it’s not that strong.”
The government also trimmed its growth forecasts this month.
After an upswing in late 2013 on the back of strong consumption and a build-up of inventories to meet anticipated future demand, Sweden’s economy was widely seen gaining pace this year and next amid further strengthening of domestic consumption and a gradual uptake in activity abroad.
However, key export market the eurozone barely grew in the first quarter and analysts say European sanctions on Russia agreed on Tuesday due to the Ukraine crisis could damage the eurozone recovery.
Powerhouse Germany, Sweden’s second-biggest trading partner after Norway, warned this week that its economy probably stagnated in the second quarter.
Exports, with the European Union the biggest trading partner, make up roughly half of Swedish GDP.
Adding to the picture of a slower recovery, consumer and industry confidence shrank in July, government think tank National Institute of Economic Research said yesterday.
Statistics Sweden is due to post full second-quarter GDP figures on September 18.
