Swedish Q3 GDP flash: Robust growth, but gloomy households

Swedish growth is robust enough to justify continued Riksbank tightening, but sharply weaker household confidence creates a meaningful downside risk.

• Q3 GDP growth reached 0.4% q/q and 2.8% y/y, close to the Riksbank’s forecasts of 0.2% and 2.7%, but below Nordea’s September forecast of 0.6% q/q and 3.3% y/y.
• Monthly data indicate that stronger net goods exports and higher household consumption supported the quarter, while the September GDP indicator fell 0.7% m/m but rose 2.1% y/y.
• The quarterly flash is considered more reliable than the volatile monthly indicator, although both the initial flash and regular GDP estimates are frequently revised.
• The NIER Economic Sentiment Indicator rose to 108.1 in October, while consumer confidence plunged to 94.3 from 102.3 in September as households became more pessimistic about their finances and the economy.
• Employment plans improved and labour shortages increased but remained below normal; business-sector price plans reached a new cyclical high, although Nordea judged the rise in inflation expectations consistent with forecasts.

Takeaway: Nordea expects the Riksbank to raise its policy rate to 2.00% next week and tighten further in February, while warning that weaker consumer sentiment, higher electricity prices and rising rate expectations create uncertainty around the otherwise solid growth outlook.