Analysts at Scotiabank explained that Sweden continues to be one of Europe’s top economic performers.
Key Quotes:
“Swedish real GDP growth beat expectations by advancing 4.5% y/y during the fourth quarter of 2015, which brings the country’s full-year growth rate to 3.8%. Output was driven by strong domestic demand, but also got a boost from the external sector. Private consumption has been buoyed by rising employment, highly accommodative monetary policy, muted inflation and a buoyant housing market.
Meanwhile, low borrowing rates and rising business confidence has supported investment at a time when government spending has edged up and growth in exports has outpaced imports. CPI inflation also rose sharply in January to 0.8% y/y, up from 0.1% in the prior month.
The stronger-than-expected growth and inflation data follow the Riksbank’s bolder-than-expected 15 basis point cut to benchmark interest rates on February 11th, bringing its key repurchase rate to -0.5%. While two out of the bank’s six executive board members objected to this decision, further monetary policy loosening remains a possibility this year.
Indeed, the rise in inflation could prove short lived as it was partly due to temporary factors, while import prices could be weakened by the renewed appreciation of the krona. Looking ahead, Swedish real GDP growth is forecast to moderate to around 3% in 2016 as tax increases and tighter lending conditions weigh on household spending. Demand for exports will also likely ease on the back of less favourable conditions in key external markets, such as Germany and the UK. Inflation is expected to trend modestly higher to an average annual rate of 3⁄4% in 2016 — still well below the Riksbank’s 2% target.”
(Market News Provided by FXstreet)