Sweden’s Economy Shrinks despite Increased Household Spending

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Sweden’s Economy Shrinks despite Increased Household SpendingThe Swedish economy shrunk in the first three months of the year on higher imports, which overshadowed a rebound in exports and increased consumer spending.

Gross domestic product fell 0.1 percent in the first quarter, reported Statistics Sweden on Friday. On an annual basis, the economy grew 1.9 percent, much lower than the central bank’s forecast of 2.5 percent.

“The headline was a bit weaker than consensus and what we also had, but it’s almost exclusively explained by inventories,” Andreas Wallstrom, a Stockholm-based analyst at Nordea Bank AB told Bloomberg. “If one looks at the components, for example investments and exports, they were better than we had expected. Household consumption continues to push on so if one looks at the demand components things look pretty good.”

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Household spending grew 2.1 percent in the first quarter from a year earlier, while public expenditure rose 1.4 percent. Exports surged 3 percent while imports accelerated 5.2 percent, said the statistics office. Fixed asset investments grew by 7.7 percent, while stocks (inventories) shaved 0.1 percentage point off the economic growth.

The weak data adds more pressure on the Swedish central bank to slash its main lending rate in order to prevent deflation from gaining ground and boost economic growth. Inflation has consecutively declined every month in the last four months, leading to some policy makers to hint at higher possibility that rates will be reduced in July.

The Swedish government, which is faring poorly in polls just before the September elections, has been quoted as saying that its options to boost the economy are limited as it tries to repair the public finances into surpluses. This means that there is very little room to slash income tax rates further, which have in the past helped boost domestic spending in order to cut exports. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com