Sweden’s economy looks likely to avoid a contraction this year, economists at Danske Bank A/S said, as it has shown surprising resilience in the face of rising prices and surging borrowing costs.
(Bloomberg) — Sweden’s economy looks likely to avoid a contraction this year, economists at Danske Bank A/S said, as it has shown surprising resilience in the face of rising prices and surging borrowing costs.
The Copenhagen-based bank now expects Sweden’s gross domestic product to grow by 0.5% this year, having previously estimated a 1% contraction, according to its new Nordic Outlook. The upgrade — contrasting with more gloomy views from the European Commission and the OECD — comes after recent data showed that unemployment is declining and that the situation in the housing market has stabilized.
Read more: Most Bearish Forecaster on Swedish Housing Sees Trough Nearer
“The economy remains bifurcated, but it is showing unexpected strength as positive signals from the business sector and the labor market are compensating for declining consumption and housing construction,” Michael Grahn, the bank’s chief economist for Sweden, said in e-mailed comments. “Sweden Inc. is doing unexpectedly well.”
Sweden derives more than half of its GDP from exports, and that helps its economy weather the storm of high inflation and rising borrowing costs, which have a rapid impact on households as mortgage rates typically are fixed on short terms.
Danske Bank’s Nordic forecasts:
(Previous forecasts, from April, in parenthesis)
- “Given the strength of both goods exports and business investment, it is hard to argue that things are going badly for Sweden,” Danske said.
- Danish employment, economic output and private consumption “are doing better than expected, but much of the economy is in a slump with no imminent end in sight,” Danske said.
- GDP has been buoyed by the pharmaceutical industry, and “without that, we would likely have seen GDP decline” in the fourth quarter of last year as well as the first quarter of 2023.
- While a weak Norwegian krone “may help offset the negative effects of what is shaping up to be a global manufacturing recession,” Danske notes that it “increases the risk of a hard landing for the Norwegian economy” as it could force more rate hikes than warranted by the underlying growth and inflation picture.
- Danske now expects Norges Bank to increase its benchmark rate in August as well as September.
- Danske’s forecasts for the Finnish economy are largely unchanged, as growth will probably stagnate in 2023, before picking up in 2024 “as a result of private consumption supported by falling inflation and the reinvigoration of export demand.”
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