GDP returns to growth in the third quarter

Economy posts surprise expansion: A revised national accounts release revealed that the economy returned to growth in the third quarter, expanding 0.3% on a seasonally adjusted quarter-on-quarter basis. The reading exceeded Q2’s flat reading and the preliminary estimate of a 0.1% sequential decline. Moreover, the result surprised markets, which had penciled in a contraction. On an annual basis, GDP posted a flat reading in Q3, deteriorating from the previous quarter's 0.6% increase and marking the worst reading since Q4 2023. Meanwhile, a revision of prior data showed that the economy did not contract on a sequential basis in H1 as initially anticipated.

Stronger domestic demand outweighs deterioration in net trade: The quarterly upturn was largely due to an increase in inventories, which contributed 0.6 percentage points to the reading; they tend to be volatile and are therefore not necessarily representative of the underlying health of the economy. Looking at other domestic expenditure components, government spending rose 0.4% in Q3 (Q2: +0.1% qoq s.a.). Moreover, fixed investment rebounded 0.3% in Q3, contrasting Q2’s 1.2% decrease on the back of a stronger capital outlay for buildings and construction. Meanwhile, household spending was flat in quarterly terms in Q3, improving from Q2’s 0.2% decline and marking the best reading since Q4 2023; household budgets benefited from lower interest rates and a faster increase in real wages compared to Q2. On the external front, exports of goods and services increased 0.6% on a seasonally adjusted quarterly basis in the third quarter, which was below the second quarter's 2.0% expansion. Conversely, imports of goods and services growth picked up to 1.7% in Q3 (Q2: +0.6% qoq s.a.), marking the best reading since Q2 2022. As a result, net trade detracted 0.5 percentage points from the overall GDP reading.

Economic growth to pick up in 2025: Our panelists expect the economy to be picking up pace in Q4 and to grow at a broadly stable pace sequentially through Q4 2025. As a result, the economy should gain momentum overall in 2025, returning to around its past-decade average of 2.0%. Private spending and fixed investment will benefit from a continued recovery in purchasing power and the Riksbank’s ongoing loosening cycle. The strength of the German manufacturing sector and rising protectionism under U.S. President-elect Trump are key risk factors.

Panelist insight: SEB’s Olle Holmgren commented: “We expect GDP to grow by 0.5 per cent in 2024, 2.2 per cent in 2025 and 3.1 per cent in 2026. Lower mortgage rates, rising real wages and more expansionary fiscal policy will support household income over the next 12 months. Rising consumption is expected to be the main driver for the predicted recovery in 2025 and 2026, but so far consumers have been reluctant to increase spending, and this is an uncertainty factor for the recovery.”

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