Swedish economy shows unexpected growth as consumers spend their savings

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Swedish economy shows unexpected growth as consumers spend their savings
Sweden's economy grew more than expected last month. Photo: Erik Johansen/SvD/TT

New figures show that Sweden's GDP increased by 0.1 percent in May, after remaining stagnant in April, according to a preliminary GDP indicator from Statistics Sweden.


"Higher growth than expected mean there's more inflationary pressure," Alexandra Stråberg, head economist at Länsförsäkringar, told TT newswire.

Sweden's GDP remained the same in April compared with the month before, and despite the slight growth in May, Sweden's economy still shrank by 0.6 percent in May compared to a year ago, according to Statistics Sweden.

These figures show an "unexpected resilience" in the Swedish economy, Stråberg said.

"The central bank has said that the key interest rate could be raised to 4 percent this year, but if the economy continues to show resilience the peak could be considerably higher," she said.

Statistics Sweden's figures also show that Swedish consumption dropped 0.1 percent in May, with consumption on a yearly basis dropping 1.1 percent.

"We can see that consumers are taking a lot out of their savings and using it for consumption, which is keeping the economy going," Stråberg said.

"The fact that consumption continues to be relatively strong doesn't change the stance going forward that it will become more difficult in autumn. People don't have an unlimited amount of savings, and in autumn many people with mortgages are also going to have completely different mortgage costs."


She also highlighted the fact that it takes time before the full effect of the central bank's interest rate hikes is felt on the economy.

"It takes time before financial policy kicks in," she said. "We haven't seen all the effects of this wall of interest rates. When the peak is reached and starts to hit households, we'll have to put more money into paying off mortgages and spend less on other things, which will lead to lower consumption as a whole."

At the end of June, the government raised its prognosis for Swedish GDP from minus 1 percent to minus 0.4 percent, in line with the prognosis from the National Institute of Economic Research (Konjunkturinstitutet or KI).

The government is however expecting slightly lower growth next year than in prior prognoses, with a growth of 0.8 percent compared to the 1.2 percent predicted in April. KI is predicting 1.4 percent growth next year.


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