Inventories Skew Quarterly GDP Higher

Swedish Q1 GDP saw a large upward revision relative to last month’s flash estimate, printing at 0.7% Q/Q (vs 0.0% cons, -0.1% flash) and 0.7% Y/Y (vs -0.9% cons, -1.1% flash).

• The flash GDP indicator is often revised – sometimes heavily – but the extent of this revision is still surprising. Analysts had expected a much more modest upward revision following the March monthly activity data, where GDP was positive on a sequential basis.
• Since Q1 2016, the average absolute error of the flash estimate (vs the final) has been 0.5pp, below Q1 2024’s 0.8pp.
• The press release notes that the largest contribution to the Q/Q growth reading came from changes in inventories at 0.5pp – traditionally a volatile category.
• Final domestic demand (i.e. private consumption, public consumption and gross fixed capital formation) contributed just 0.1pp, with net exports contributing the remaining 0.1pp (exports 0.1pp, imports 0.0pp).
• As such, a “cleaner” read of first quarter GDP suggests that activity remains relatively muted, though has recovered from the last few year’s lows.
• The Riksbank’s March MPR forecast was 0.0% Q/Q and -0.9% Y/Y, so today’s stronger-than-expected reading (even when excluding inventories) should confirm the case for holding rates in June, in line with recent Executive Board communications.
• Employed persons and hours worked both fell 0.1% Q/Q, meaning labour productivity rose 0.9% Q/Q (though again, the inventory effect will have boosted this reading artificially).