Sluggish growth in Q2 disappoints markets

Weaker-than-expected GDP growth in Q2: In Q2, the economy remained subdued. The statistical office’s preliminary estimate for GDP growth surprised markets to the downside; the economy grew a mere 0.1% in seasonally adjusted sequential terms in the second quarter, only a mild improvement from Q1’s 0.2% contraction. In annual terms, seasonally adjusted GDP growth inched up to 1.1% following Q1’s 1.0% rise, revealing that the economy has been muted throughout H1.

Private consumption caps return to growth: While details of the release are still pending, the sluggish sequential rebound appeared to have been driven by improvements in net goods exports, while a moderation in private consumption growth will have capped economic momentum. Data revealed that household consumption growth decelerated to 0.2% in Q2 vs Q1 as households opted to save their money in times of greater uncertainty caused by Trump’s tariffs. On that note, fixed investment growth will have been capped by this uncertainty, while government spending may have supported growth through higher defense spending. A more comprehensive breakdown of national accounts data for Q2 will be released on 29 August.

Growth to pick up in H2: Our panelists expect economic growth to regain traction in sequential terms in H2, and to maintain healthier momentum through Q4. As a result, GDP growth is seen accelerating this year from last, reaching a joint-four-year high thanks to stronger private spending and export growth, despite U.S. levies. Sustained malaise in the German manufacturing sector and further volatility in global trade environment pose downside risks.

Panelist insight: Nordea’s Torbjörn Isaksson commented: “All in all, the flash disappointed. If the weak growth numbers are confirmed [in] late August, it will increase pressure on the Riksbank to ease monetary policy further. However, fundamentals are in place for a recovery in domestic demand. Moreover, inflation is on the high side to the Riksbank’s forecast and the ECB is in no hurry [to cut] rates. Therefore, we keep our forecast that the Riksbank will stay on hold at 2.0% going forward, despite signals of sluggish growth also in Q2.”

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