In the past few years, Sweden’s disposable income growth has been quite solid, averaging about 3 percent year-on-year. Real disposable income grew even more impressively in the first quarter of 2016 by 4.4 percent y/y. High wage income growth was the main impetus; however, transfers also increased along with contribution from lower interest rate payments.
Swedish employment is likely to keep growing steadily along with wages in the future, though at a slightly slower rate, said Danske Bank in a research note. This signifies that household income growth is expected to slightly slowdown but continue to be high from a historical view point. Similarly, the savings ratio has remained high and is rising on trend in the last few years.
Also, consumers have also retained the scope for rising consumption due to stronger income growth. But the Swedish Financial Supervisory Authority has passed the forced amortisation rule from 1 June 2016 that might quite alter consumer behaviour.
Several commentators appeared to think that it would result in a redistribution of savings from financial instruments into amortisation and that a decelerating income growth would be balanced by a lower saving ratio in a bid to keep consumption growth intact, noted Danske Bank. However, in the past years, this has been the default assumption and the savings ratio has still continued to rise.
Higher savings ratio is likely to be linked to increased uncertainties about future welfare systems, return on investments and future income growth. The saving ratio is expected to be quite stable that might dampen consumption growth.
“Consumption growth will be a strong 3.1 percent y/y this year, but recede to 2.0 percent y/y in 2017 as savings stay high and income-growth moderates”, according to Dankse Bank.
The material has been provided by InstaForex Company – www.instaforex.com