Q4 GDP – marked deceleration
We believe the Swedish economy slowed down in Q4 2011. GDP contracted on a quarterly basis and expanded by only 2% versus a year earlier. Risks are skewed towards a weaker outcome. The outcome is important ahead of the Riksbank’s interest rate decision in April. Our GDP forecast is considerably below the central bank’s, suggesting an easier monetary policy stance.
In summary, we expect GDP to have expanded by 2.0% y/y, around 1% point below the Riksbank’s forecast. Risks on the downside dominate. Adding to the GDP weakness, we have a surprisingly sharp deterioration of the labour market and low inflation. We expect the bank to cut the repo rate by 25 bp in April and at the subsequent meetings to 0.75% in September.
Read more in the full report below.