Sweden’s export-driven economy reaches pre-pandemic level

Sweden’s economy returned to its pre-pandemic level in the first quarter as the recovery in the largest Nordic economy is outpacing most of its wealthy peers.

The gross domestic product was unchanged in the first quarter from the year-earlier level, on a calendar-adjusted basis, according to the Stockholm-based statistics office.

Swedbank’s analysts Pernilla Johansson and Maria Wallin Fredholm said GDP reached the pre-pandemic level “much faster” than they or Riksbank had expected, according to a research note.

Like the rest of the Nordic region, Sweden has weathered the Covid crisis better than most thanks in large part to generous welfare systems and widespread digitalization that made working from home easier. Even as the 14-day infection rate is the highest in Europe, according to WHO, the government plans to go ahead with a gradual softening of Covid-restrictions starting next month.

The economy expanded 0.8% from the previous quarter, less than 1.1% indicated by the flash estimate and a similar forecast in a Bloomberg survey of economists. Growth was mainly driven by exports and a jump in household consumption by 0.5%.

Riksbank, which had forecast a 0.7% expansion on quarter, has kept signaling it won’t be withdrawing monetary stimulus anytime soon despite the brighter outlook. Still, the market may be underestimating the likelihood of a series of interest rate cuts before 2024, Capital Economics said in a research note on Thursday.

Michael Grahn, chief economist at Danske Bank, said the data showing that the number of hours worked rose 1.3% on the quarter “may suggest the labour market is improving a bit quicker than seen in other indicators.”

Data released on Thursday also showed overall confidence levels in the economy surged to an all-time high in April, in a surprise to economists.