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Swedish Growth Quickens, Signaling Interest-Rate Increases

July 29 (Bloomberg) -- Swedish economic growth unexpectedly accelerated in the second quarter, underlining the likelihood that the central bank will press ahead with planned interest-rate increases to cool Europe’s biggest economic expansion.

Gross domestic product grew more than estimated in the three months through June, increasing a seasonally adjusted 1 percent, up from 0.8 percent in the previous quarter, Stockholm-based Statistics Sweden said today. That compares with a median estimate of 0.6 percent in a survey of 16 economists. Annual growth slowed to 5.3 percent from 6.4 percent in the first three months.

“Growth came in somewhat above our and the Riksbank’s forecast,” said Andreas Jonsson, an economist at Nordea Bank AB, in a client note. “This supports our view that the Riksbank will continue tightening policy short-term.”

Sweden’s economy expanded 5.7 percent last year, the most in the European Union, as exports, which account for about half of its output, recovered from the financial crisis and consumers kept up spending following four years of income-tax cuts. The central bank this month raised its benchmark lending rate for a seventh time in a year to 2 percent and predicted it will rise to 2.5 percent by the end of the year to cool the recovery.

The krona lost 0.3 percent against the euro to trade at 9.0885 at 11:28 a.m. in Stockholm. Against the dollar, the krona declined as much as 0.7 percent to 6.3649.

Confidence Above Average

Swedish business confidence remained “considerably above the historic average,” the National Institute of Economic Research said yesterday even as sentiment dropped. “Industrial firms are optimistic about the third quarter and forecast strong order and output growth. Employment is also expected to rise considerably.”

SKF AB, the world’s largest maker of ball bearings, reported a 21 percent gain in second-quarter net income on July 15, saying demand for its products will be “significantly higher” this quarter than a year earlier.

Swedish retail sales beat economist estimates in June and consumers’ confidence in their personal finances improved for a fourth month in July as worries about losing their jobs fell “sharply,” NIER said.

Household spending grew by an annual 2.3 percent and government expenditure by 0.5 percent, while the 7.8 percent gain in exports exceeded the 5.8 percent rise in imports, the office said. Fixed investment rose 8.1 percent and inventories contributed 0.7 percentage points to growth.

Strong Number

“It’s a strong number,” Martin Enlund, interest-rate and currency strategist at Svenska Handelsbanken AB in Stockholm, said in a client note. “Inventories contributed less to year-on-year growth than we thought, suggesting that third-quarter growth won’t decelerate as much as we otherwise would have feared.”

Finance Minister Anders Borg said this month developments in the U.S. economy and the European debt situation have led to an increased risk of a slowdown. The ministry forecast in April that the economy will expand 4.6 percent this year, 3.8 percent in 2012 and 3.6 percent in 2013.

“With weaker-than-expected indicators abroad, the uncertainty about growth going forward has increased,” Jonsson said. The Riksbank will announce its next rate decision Sept. 7.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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