Danske Research Team explains that Sweden’s July Gross Domestic Product (GDP) indicator was weak, but underlying domestic activity appears stronger, with solid services and consumption data. Despite this, a weak Swedish Krona, high Oil prices and the rate spread versus the European Central Bank (ECB) mean they still expect clear guidance for a hike this year, likely in November, while recent market moves show EUR/SEK drifting higher on the latest shocks.

Weak GDP but hike still expected

“In Sweden, the July GDP indicator was weak at 2.5% y/y and -0.8% m/m, although June was revised higher, while production looked somewhat better at 3.6% y/y driven by stronger services.”

“The domestic economy still appears stronger than the GDP print suggests, with solid services activity, high retail sales and weekly consumption data pointing to growth, while manufacturing and construction remain volatile.”

“The figure was closer to the Riksbank’s June forecast, which may worry the doves on the Riksbank’s board, but with a weak SEK, high oil prices and rate spread versus the ECB, it should not materially affect the September rate decision.”

“We still expect clear guidance for a hike this year, and we believe the hike will take place in November.”

“The combination of a rising oil price and a hawkish ECB was clearly negative for the SEK, with EUR/SEK rising from 11.16 towards 11.26.”