Q1 GDP growth surprised on the upside, at +0.6% q/q. But the headline figure masks rising fragilities. Consumer spending fell -0.2%, public spending growth moderated to +0.1% while investment contracted by -0.4%. Overall, domestic demand subtracted -0.1pp from Q1 GDP growth while net exports contributed a strong +0.7pp. But the latter came mainly from a sharp import decline (-0.7%) while exports grew moderately (+0.8%). Going forward, rising trade uncertainty but also Brexit will continue to weigh on Sweden’s export performance as Germany, the U.S. and the UK are among its five biggest export markets. Domestic demand should remain weak as real wage growth has stalled even though unemployment reached its lowest level since 2007. Risks prevail in the housing market where building permits and prices have been tilted to the downside since mid-2018. Household debt remains a concern. Hence, the Central Bank is expected to keep interest rates unchanged until end-2020 while implementing macroprudential measures. Overall we expect GDP to grow by +1.9% in 2019 and +1.4% in 2020.
