Jonas Goltermann, Developed Market Economist at ING, explains that after several years of strong growth, driven in large part by a booming housing market and strong consumer demand, the Swedish economy seems unlikely to sustain 3%+ annual growth in output.
Key Quotes
“Long-term potential growth is more like 2% per year.”
“But so far this year, expectations for a slowdown have proven unfounded. GDP grew strongly in both 1Q and 2Q, with output up 3.3% compared to the middle of 2017.’
“The housing slowdown has yet to make a major impact on growth figures. While new housing construction slowed markedly in 2Q, an increase in other investments offset this. And consumer spending, which is typically sensitive to house prices, has held up despite the sharp fall in house prices at the end of 2017.”
“Still, the second half of 2018 is likely to see softening growth momentum. First off, the 2Q growth figure was flattered by a build-up of inventories and strong net exports, which is likely to be partly reversed in 3Q.’
“Household consumption may also have been flattered by changes to the taxation of new cars from the start of July, which created an incentive to bring purchases forward. Again, this may push down on the 3Q and 4Q growth figures.”
“High-frequency survey data also suggest momentum is faltering, with consumer confidence weakening, in particular.”
“Housing construction will slow further, and it is not clear that investment in other sectors will continue to make up the shortfall. So growth in the second half of the year is unlikely to match the first half pace.”
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