Overview: The Swedish GDP‏

We were living with the impression that Q4 12 GDP would be fairly unexciting. We need to revise that attitude. The calendar adjusted GDP came in at 1.4% y/y (flat q/q) – on the surface, slightly below the Riksbank’s projection of 1.6%. However, from a quality perspective, the data looks clearly better than was implied by most forecasts. The interesting thing is that despite a large drag from inventories (contribution -1.5 percentage points), GDP held up pretty well supported by a 1.9% growth in consumer spending, 1.8% in business investments, etc. Also important, working hours were indeed up by a calendar adjusted 1.3% y/y in Q4 – the strongest figure in 2012.

The same is true for 2012 in total (see table): all underlying demand components came in on the slightly better side of the Riksbank’s projection. This suggests a few things:

1. The bearish mood in Q4 12 is reflected in a big negative contribution from inventories that is not likely to be repeated in Q1 13. This may justify an upward revision of Q1 13 and perhaps Q2 13.

2. The relatively positive employment data seems to match with working hours so the labour market is OK.

3. The Riksbank, like the rest of us was pretty convinced that Q4 12 was going to be a pretty bad quarter. That is why it decided to cut the repo rate in December. But PMI and other early indicators – at least partially – gave a false signal. The quarter didn’t turn out to be that bad.

4. The composition of data (demand components) is such that we would be surprised to see upward revisions of the next couple of quarters, hence for 2013.

So, contrary to what we thought, these numbers should be seen as significant and definitely speak against further rate cuts. Having said that, rate hikes remain distant, not on the agenda this year we think. History suggests that as the market decides that the last rate cut is delivered, rates move higher, and in the current environment we think that the five-year segment is the point on the curve that will underperform.

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