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Sweden Defies Europe’s Crisis as Rebound Trounces Forecast

Sweden Defies Europe’s Crisis as Rebound Trounces Forecast
Consumer and manufacturing confidence improved last quarter as the debt crisis in Europe showed signs of easing and stock markets surged. Photographer: Erik Abel/Bloomberg

May 29 (Bloomberg) -- Sweden’s economy grew twice as fast as predicted in the first quarter, sapping speculation that the central bank will need to cut interest rates at its July meeting.

The krona jumped as much as 0.7 percent against the euro, and traded 0.5 percent higher at 8.6004 against the common currency as of 10:30 a.m., making it the biggest gainer among major currencies tracked by Bloomberg. Futures on the Riksbank’s benchmark repo rate rose 1 basis point to 0.89 percent.

Gross domestic product expanded a quarterly 0.6 percent in the three months through March, after growing a revised 0.1 percent the prior quarter, Stockholm-based Statistics Sweden said today. Annual growth was 1.7 percent, up from 1.4 percent. The quarterly expansion was seen at 0.3 percent, in a Bloomberg survey of 12 economists.

“We’re still not seeing the upswing that the figure suggests at first glance because investments are still a worry and investment surveys indicate that companies have modest plans through the rest of the year,” said Knut Hallberg, an analyst at Swedbank AB in Stockholm. “We’re awfully close in our view that they will cut rates but our house view is still that they will stay unchanged.”

Falling Exports

Sweden’s central bank last month said it will probably keep its main lending rate unchanged at 1 percent at its next meeting on July 2 even as it raised the likelihood of a fifth rate cut since 2011 to boost faltering domestic demand.

Today’s data showed that consumer spending and inventories contributed to annual growth, while investments and exports declined. Services production increased, helping offset a decline in the output of goods.

Riksbank Deputy Governor Per Jansson said last week the first-quarter growth figures will be “very important” to his decision on rates at the central bank’s July 2 meeting.

Consumer and manufacturing confidence improved last quarter as the debt crisis in Europe showed signs of easing and stock markets surged. Swedish economic growth will pick up to 1.3 percent this year after slowing to 0.8 percent in 2012, SEB AB predicted last week.

Finance Minister Anders Borg has said the government needs to keep stimulating the economy next year to boost demand. It’s spending 23 billion kronor ($3.6 billion), or about 0.7 percent of GDP, this year on infrastructure, research and on cutting the corporate tax rate to 22 percent from 26.3 percent.

Still, unemployment stayed at its highest level in almost three years last month. Companies including Ericsson AB, the world’s largest maker of mobile phone networks, are cutting jobs to cope with weak demand abroad.

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

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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